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Eye On Multinationals
Cover Stories Series 2011> Eye On Multinationals
UPDATED: September 23, 2011 NO. 39 SEPTEMBER 29, 2011
Getting Strict With Rule Breakers
More supervision is needed over multinationals operating in China as controversy begins to surround these foreign companies

POISONOUS APPLE: The electronic device giant Apple disclosed that environmental problems exist in its suppliers in China (IC)

REPAIR MY TIRES: A car owner in Yinchuan, Ningxia Hui Autonomous Region, talks with a representative from Kumho about results from tire checks on his car (WANG PENG)

China implemented a revision to the Marine Environment Protection Law in 2000—which was first promulgated in 1982—but the State Oceanic Administration, the major enforcer of the law, has yet to promulgate any regulations for the government to demand compensation for ecological damages.

Wang Xi, Director of the Environmental and Resources Law Institute affiliated to Shanghai Jiao Tong University, said if the regulations for the government to demand compensation for marine ecological damage, or even department provisions on oil leakage accidents of drilling platforms, were formulated and issued, China would not have been so passive and powerless in supervising and punishing ConocoPhillips.

In fact there are many cases of multinationals' different compensation methods for the same product flaws or service problems in different countries. For example, for the recall of defective cars in 2010, Toyota paid a fine of $50 million to the U.S. Government, but in China, only a small number of consumers got a 300-yuan ($47) coupon as compensation.

McDonald's serves as another example. According to a Xinhua report, since the temperature of its coffee is 10 degrees centigrade to 16 degrees centigrade higher than the acceptable average, a consumer in the United States received compensation in the amount of $600,000 after being burned by the hot coffee. In China, the fast food behemoth paid out only 2,000 yuan ($313) out of court after a consumer found maggots in a chicken wing.

Why are Chinese supervisors so powerless in supervising multinationals? Dong Zhengwei, a lawyer of Beijing Lianggao Law Firm who has participated in lawsuits against foreign brands, told Xinhua that multinationals adopting dual standards in China and foreign markets shows not only the problem of "sense of morality" for the companies, but also loopholes in China's legal system.

Dong said monitoring technologies of government departments are outdated and the working efficiency is poor. Many government officials know little about corporate social responsibilities and government supervisors have no monitoring or prevention authority over these companies.

The networks of government public relations influenced by multinationals also lead to a failure of government supervision, Dong said. This obviously points to bribes.

The problem most Chinese people are concerned about is that to many local government officials multinationals equate to tax revenues, job opportunities and "internationalization" of the local market. Even though the country has eliminated special treatment of foreign companies, such treatment still exists in the minds of some officials.

Lacking social responsibility

It is unlikely that Apple Inc. is completely ignorant of the human rights violations and pollution problems of its suppliers in China. However, the company did nothing after its Chinese suppliers were found to have failed to honor their social responsibilities. Although Apple admits there are some problems in its supplying chain, it still continues to use the suppliers, reaping huge profits at the price of China's environment and public health.

Wang Tieshan, professor at Xi'an Jiaotong University, researched a topic on social responsibility and public relation behaviors of multinationals in China. The result shows that many multinationals in China lack a sense of social responsibility.

According to Wang, serious problems in environmental protection top the list of disregards. Since Chinese environmental protection standards are low, the efforts of environmental protection are inadequate and punishment against pollution is typically lenient, enterprises do not need to assume all the social treatment costs after they damage the environment. Moreover, to pursue high economic growth, some local governments accommodate and even protect those enterprises from being punished. This has allowed some multinationals to transfer their heavy-polluting factories into China, deteriorating local environment and ecosystem.

Multinationals often avoid taxes illegally in China. Because there are differences in product prices, interest rates, labor and other costs and tax rates among different countries, multinationals often avoid taxes by controlling pricing among affiliated companies.

According to an anonymous official of the State Administration of Taxation, more than two thirds of losses in China reported by foreign-invested companies are artificial with the aim of tax evasion. Each year China loses tax revenue of about 30 billion yuan ($4.7 billion) because of tax evasion by foreign-invested companies.

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