Wal-Mart Shutters Chongqing Stores in Face of Fraud Allegations

Wal-Mart has closed twelve stores in Chongqing amid accusations that it falsely labeled regular pork products as higher-priced organic pork for the past two years. From Bloomberg:

Wal-Mart closed the stores in Chongqing for 15 days starting yesterday after being ordered by the city’s industry and commerce administration, Anthony Rose, a Hong Kong-based company spokesman, said by phone today. Some employees have been detained, the company said in an e-mailed statement.

“The closure of some of the stores in Chongqing for the next 14 days will allow us time to focus on implementing corrective actions,” the statement said. Wal-Mart said it believes the order was because of the mislabeling, in which “the rights of consumers were infringed.”

The Chongqing government fined Wal-Mart 2.69 million yuan ($423,000), Xinhua News Agency reported yesterday, citing Huang Bo, director of the Chongqing Administration of Industry and Commerce. The retailer was accused of selling 63,547 kilograms of falsely labeled pork over the past two years, the report said. Rose could not immediately comment on the reported fine and amount of pork sold.

The Wall Street Journal reported on Wal-Mart’s history of wrongdoing in Chongqing and beyond, as the target of both a hard-line politician with an eye towards a promotion and a national effort to improve food safety and reign in pork prices:

The closures are the latest hit to Wal-Mart in Chongqing, one of China’s largest cities. City officials have repeatedly come down on Wal-Mart since it entered Chongqing in 2006, punishing the retailer 21 times for alleged violations such as false advertising, mislabeling, and food safety, according to a statement on the city government’s website. The company is facing fines of 3.65 million yuan (about $575,000) for having allegedly sold 730,000 yuan of mislabeled pork over nearly two years, it said.

Authorities in China have been particularly sensitive to food prices as they look to tame inflation. Food prices in August jumped 13.4% from a year earlier. Pork prices surged a record 52.3%.

Some analysts suspect companies operating in Chongqing are facing heightened scrutiny under local authorities for political reasons. Chongqing-based Regional Communist Party Secretary Bo Xilai is a frontrunner for promotion next year to the Politburo Standing Committee, China’s highest decision-making body, as part of a once-a-decade leadership transition. In April, Chongqing officials cracked down on food and drug safety, dispatching 10,000 police officers to inspect businesses operating in the city.

“Taking a hard line against foreign business on issues of popular concern is a strong power-jockeying tactic,” said Shaun Rein, founder of Shanghai-based research consulting company China Market Research Group.


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