Bloomberg reports that China Fines Wal-Mart, Carrefour for Misleading Prices
China’s top economic planner ordered Wal-Mart Stores Inc. and Carrefour SA to be fined for misleading pricing at some of their stores in the nation, as the government works to rein in rising prices for consumer goods.
Authorities in cities including Shanghai, Chongqing, and Kunming discovered incidents at local Wal-Mart and Carrefour outlets that included labeling on products with prices that didn’t match what shoppers were charged at payment, exaggeration of discounts and labeling that led to confusion about how much a product cost. The stores may be fined five times the revenue they earned using such methods, the National Development and Reform Commission said today on its website.
China, home to 150 million people living on less than $1 a day, has cracked down on price manipulation, ordered authorities to ensure the supply of foodstuffs and frozen contract coal prices to curb inflation that gained the fastest in more than two years in November before moderating last month. The NDRC in November fined units of PetroChina Co. and China Petroleum & Chemical Corp. for selling diesel above state-set prices. Jiang Wei, a Beijing-based media relations official for Wal-Mart, said she couldn’t immediately comment on the fine. Carrefour China spokesman Chen Bo didn’t answer calls to his mobile.
This isn’t just a generic story of corporate greed, nor is it just an indictment of Wal-Mart’s business model. It’s much bigger than that, because Wal-Mart is doing what everyone ends up doing when inflation takes hold.
For a merchant, it’s hard to ask customers to pay a higher price, but relatively easy to fool them. Just lower the quality or shave the amount, and customers think they’re still getting the same good deal as always. But in reality you both suffer: they get a lower-quality product and you become a liar. This kind of soft fraud, because it strikes at the culture rather than just the economy, is far worse than simple higher prices.
And it’s everywhere. Because the definitions of most products and services are imprecise, they can be changed without customers noticing. Say a hospital sees its tonsillectomy costs rising but can’t fully pass them on to insurers. It responds by using younger, less experienced nurses and doctors, older equipment, cheaper, less effective drugs, etc. Little by little the procedure is degraded until it resembles the original only superficially. Yet it’s still called a tonsillectomy and it still costs more or less the same amount, so the official inflation statistics show well-behaved medical costs. But patients have a higher rate of complication and hospital administrators and staff know they’re cheating the people they’ve dedicated their lives to helping.
Or say your family business proudly makes frozen burritos from high-quality ingredients. As your costs rise your margins contract, but you know from experience that a big price increase will lower sales enough to be self-defeating. So you start sourcing from cheaper factory farms that you suspect abuse their animals or dump excessive pesticides on their fields. You hold the line on prices and keep moving product, but now you’re no better than Archer Daniels Midland or ConAgra. Your reason for not selling out to one of them has evaporated.
Picture this process at work across an entire society, from fast food restaurants to homebuilders to elementary schools, and you’ll see cheating become an accepted part of the culture. Combined with inflation’s impoverishment of savers and enrichment of borrowers, the result is a country of grifters, unrecognizable to older citizens who grew up with sound money.
