Slap on the wrist for Carrefour

As a punishment for setting up shops in China without state approval, French retail giant Carrefour will escape with a scolding and a slightly slower pace of expansion - but no fine and no closure of its 28 booming outlets in 15 cities.

That is what company officials and diplomats close to the story say. Just as with the release of the 24 United States air crew, Beijing has realised it has more to lose than gain by antagonising an important foreign partner.

Carrefour, the world's second biggest retailer, with operations in 26 countries and a market capitalisation of US$49 billion, has been one of the most successful foreign companies in China. In just six years since opening its first store in 1995, it has grown so fast that its sales last year were about six billion yuan (about HK$5.62 billion), putting it among the top four retailers in China.

Official figures for retail sales last year showed Shanghai-based Lian Hua Supermarkets as No 1 with 11.14 billion yuan, followed by Shanghai Hua Lian with 6.52 billion yuan and Dalian Commercial Group with 6.2 billion yuan.

Carrefour has earned its rank with well-stocked warehouse stores in good locations in key cities, offering basement prices and with a lean labour force. It sources more than 80 per cent of its goods in China.

On February 8, the Financial Times of London reported that Carrefour had not received central-government approval for its stores, as required by law, having signed contracts instead with local governments eager to attract such a successful company and big taxpayer. The central government was preparing measures against it, the paper said.

In late March, Huang Hai, head of the market bureau of the State Economic and Trade Committee (SETC), said Carrefour's chief executive had come to Beijing to apologise to the Government, saying that it hoped to regularise the situation through co-operation with the authorities.

'Yes, we are still in discussions with SETC and they are not concluded,' said an official of Carrefour's Beijing office.

'Because of this, we will not be able to open the 10 stores that we planned this year. I do not expect that we will be fined.'

The SETC is not commenting but reports in the press say the company is out of the woods.

'Carrefour will not have to shut up shop,' said the Web site of the People's Daily last Saturday.

'The big door of the Chinese market remains open to Carrefour. All it will have to do is pay a small additional entrance fee,' it said.

Last week, the Legal Daily, the newspaper of the Justice Ministry, took a similar line, saying that Carrefour was not alone in having 'illegal' stores.

'At the end of last year, the number of foreign-invested retail shops in China was more than 300, while the central government had approved only 28. But foreign-invested ventures account for about 3 per cent of China's retail sales.

Allowing for false accounting, the figure would not exceed 5 per cent,' it said.

But China has paid a price for its move against Carrefour.

'The company is angry at the way it has been treated,' said a European diplomat.

'Nothing was said while it signed the agreements with the governments of the 15 cities. The central government knew about them but said nothing.

'The rules of the game change quickly in China.

'What is allowed today is not allowed tomorrow.'

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