By H+K China Government and Public Affairs Team

In China, few dates may manage to summon as much enthusiasm among companies as “11.11,” the country’s annual multi-billion-dollar online sales extravaganza that unfolds on November 11th. But no date inspires greater anxiety in boardroom psyches than yesterday’s “3.15” – better known as the day of reckoning for corporate malfeasance against Chinese consumers – which took place in the middle of this year’s National People’s Congress (NPC).

No national or sectoral immunity

Every year on March 15th, the official World Consumer Rights Day, state-run broadcaster CGTN holds a gala event where it airs its investigative special exposing what it calls companies’ unfair practices in China. Watched by millions of Chinese consumers, the TV program’s net has ensnared some of the world’s biggest corporate fish in the past, holding businesses accountable for everything from false advertisements to food safety, counterfeits to excessive pricing. And no one – no sector, no nationality – is immune from the scrutiny. Those singled out in the past have included some of the largest Chinese and overseas consumer goods brands in the world, ranging all the way from cars to clothing, mobile phones to jewelry.

Spotlight on Volkswagen, toothbrushes, and China’s bike-sharing fleets

This year, Volkswagen was the highest-profile company targeted by the show, being called out for engine defects with its Touareg SUV. Having already issued a recall more than 33,000 such models earlier this month, the German automaker swiftly apologized to those affected following CGTN’s show. Japanese and South Korean toothbrush makers also came under fire for the alleged poor quality of their products, with Chinese authorities having pulled more than half a million toothbrushes from stores. And the investigative program also went on the offensive against China’s bike-sharing industry, which has grown explosively since 2016, by criticizing a number of bike-sharing startups that have crumpled and failed to refund deposits to users after going bust. At present, consumers have reportedly been unable to reclaim billions of yuan worth of consumer deposits that remain tied up.

Business consequences for running afoul of 3.15

The significance of 3.15, particularly its potential impact on companies, should not be underestimated. In the past, those caught in the consumer watchdog’s crosshairs for misconduct have often had to deal with real consequences. Negative coverage resulting from CGTN’s investigative reports have damaged companies’ reputations and hurt their sales. The program has also sparked investigations by authorities and led to hefty penalties imposed on those accused of wrongdoing.

However, it should be noted that 3.15’s influence appears to have declined in recent years as younger audiences hooked on social media find such TV programs less appealing, although it remains popular among older consumers. Furthermore, today Chinese consumers are in a hugely empowered position compared to when the show first debuted under CGTN, then known as CCTV, in the early 1990s. They now enjoy a huge range of online channels through which to raise concerns about products and services, and 3.15 is no longer as critical of a voice to safeguard their interests.

That said, clearly no company wants to be skewered in the program. Ahead of the show, it is essential for firms to take precautionary measures and ensure that they have immediate emergency responses prepared to help minimize the fallout from any crisis that erupts should they find themselves suddenly singled out.

A barometer for forecasting greater regulatory oversight

Businesses should also be aware that 3.15 can provide a valuable barometer for gauging which industries the Chinese government views as having become too unruly and in need of intensified regulatory oversight. For instance, CGTN’s focus on the bike-sharing industry this year echoed the first priority listed under authorities’ pledge to “further improve the consumer environment” in the National Development and Reform Commission’s (NDRC) plan for social and economic development in 2018, namely to “regulate and guide the rational, orderly development of bike-sharing services and other new forms of consumption.”

And two years ago, reflecting authorities’ mounting concerns about losing control of China’s vast and surging e-commerce space, CGTN took aim at as the most prominent target of their show two years ago, faulting the Chinese delivery app for allowing unlicensed restaurants on its platform.

Safeguarding the rights of China’s vast new consumer class

Perhaps most importantly, every year 3.15 thrusts China’s accelerating juggernaut of 1.4 billion consumers into the limelight. Consumption has now emerged as a major engine driving the Chinese economy, accounting for nearly 60% of growth last year.[1] By 2021, Chinese consumption is forecasted to rise by nearly US$2 trillion, an expansion that would be roughly equivalent to Germany’s entire consumer market.[2]

The emergence of China’s vast new consumer class has been accompanied by intensifying efforts from authorities to safeguard its rights. Speaking on the sidelines of the NPC, Zhang Mao, the head of the soon-to-be-restructured State Administration for Industry and Commerce (SAIC), emphasized that, “China will continue to step up efforts in quality supervision and law enforcement to protect consumer rights this year. The complaints channels for consumers will be improved, and the supervision of market players will be tightened.”[3] Similarly, the NDRC’s annual report vowed to “create an environment in which consumers can shop with peace of mind.” Looking ahead, companies which run afoul of an ever stricter regime governing China’s consumer environment will risk incurring spiraling costs and may even jeopardize their future in the world’s second-largest economy.

Critical for companies to ensure green manufacturing, products, and services

In the same token, while environmental protection was not a major theme at this year’s 3.15 gala as some had expected, companies which fail to align their business strategies with the Chinese ship-of-state’s dramatic course adjustment in terms of putting the economy onto a healthier and more sustainable growth trajectory also risk imperiling their China fortunes. Testifying to just how far the environment has ascended on the leadership’s headline agenda, the Xi administration has identified addressing pollution as one of the “three critical battles” that authorities must wage and win the next few years.

In service of this effort, Beijing recently unveiled plans to establish the new Ministry of Ecological Environment, which marks a significant enlargement of the current environmental protection ministry, as one of the highlights of China’s huge revamp of its governmental bureaucracy announced at the NPC. Furthermore, the Ministry of Finance’s budget for 2018 stated that the central government would allocate 40.5 billion yuan in support of preventing and controlling air, water, and soil pollution, marking its “biggest investment in years.”

In China’s green “new era,” businesses need to be cognizant of the rapidly escalating costs for those who violate environmental regulations. Tens of thousands of companies – predominantly smaller firms – have reportedly been shuttered in the government’s drive to curb pollution. And the fines paid by companies found to be standing on the wrong side of environmental regulations surged past the billion-yuan marker (US$154 million) in the first ten months of 2017, up nearly 50% from a year earlier.[4]

All companies would be well-advised to ensure that they have robust compliance policies in place, minimizing the likelihood that their domestic manufacturing or locally sold products and services infringe upon China’s tightening environmental rules. However, they need to be aware that compliance alone is not enough and work hard to demonstrate how they are directly helping their government stakeholders to achieve their targets for greening the Chinese economy.

For further H+K insights on China’s 2018 “Two Sessions,” please visit our analysis hub.

[1] “Economic watch: Record lunar new year spending echoes shifting economy,” Xinhua News Agency, 22 February 2018.

[2] “Five Profiles That Explain China’s Consumer Economy,” The Boston Consulting Group and The AliResearch Institute, 2017.

[3] “China intensifies efforts to protect consumer rights,” Xinhua News Agency, 15 March 2018.

[4] “Chinese companies fined US$154 million for environmental offences,” Reuters, 06 December 2017.

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