Nongfu: Tempest In A Water Cooler
I wrote a couple of weeks ago about a “scandal” involving mineral water giant Nongfu, pointing out the case highlighted China’s confusing and often contradictory national and local standards for regulating everything from food to product warranties. Now the case has taken a new and interesting twist, with a Beijing trade group lobbying for Nongfu to be banned in the Chinese capital due to its failure to follow a national standard for bottled water. The new development underscores yet another danger of doing business in China for domestic and international firms, showing how they can face big headaches created by local rivals playing games with China’s maze of rules and regulations.The Nongfu case began last month, when media reported the supplier of about a third of China’s bottled water was using standards for cadmium and arsenic set by the government in its local province of Zhejiang. (previous post) Those standards were below a different set of ones set by regulators in Beijing, leading some to point out that Nongfu’s water might technically contain levels of arsenic and cadmium higher than the national standard level, even though the water complied with the Zhejiang rules.
Nongfu responded that it had always used the Zhejiang standard, and that the so-called scandal was started by one of its rivals. Now it appears that some of Nongfu’s other rivals are also seizing on the scandal to undermine the company in Beijing. According to the latest reports, the Beijing Association for Barreled Drinking Water is lobbying to have Nongfu water banned from the Chinese capital, claiming the water may be unsafe. (English article)
So who exactly is this association? I wasn’t too surprised to learn that it’s closely tied to local bottled water makers, and that it also is affiliated with the Beijing government. Perhaps I’m being a bit cynical here, but I would guess that this association has little or no concern for the health of Beijing citizens and instead simply wants to use this pseudo-scandal to push a strong rival out of the market.
Media here in Shanghai have also been reporting on the scandal, but are quick to add that the local government has no plans to ban Nongfu from the city, implying there’s no problem with the water. I should be fair in pointing out that Nongfu is one of the dominant water brands here in Shanghai, and its home base in neighboring Zhejiang province means it probably has strong ties with the Shanghai government that are helping to protect it during this crisis.
So what’s the moral of this long and winding story, which could well end with a ban of Nongfu water in Beijing and longer term damage to its reputation? The lesson seems to be that local politics can pose a big risk to companies doing business in China, and that local interests can use the nation’s vast web of bureaucracy and regulations to their advantage to attack out-of-town rivals.
The good news is that central leaders in Beijing seem to be aware of this problem, as the latest media reports also indicate the central government is now moving to unify the nation’s many standards for bottled water. That move looks like the latest step in a campaign to streamline China’s bureaucracy, which began earlier this year with the elimination and merger of several government ministries. (previous post)
This streamlining of bureaucracy can only be a good thing over the longer term, trimming back the massive maze of rules and regulators that often stifle innovation and confuse consumers. But in the meantime, businesses will need to remain vigilant for problems created by local interests that try to use the bureaucracy to their advantage.
Bottom line: Nongfu’s new headaches in Beijing are the result of local interests trying to use China’s bureaucracy to get the company banned from the market.
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