Unilever Gets Mouthwashed by Beijing Over Inflation Price Talk

Ok, which of todays following headlines is real?

China imposes Harmony tax on foreign companies

Beijing declares talk of Inflation a thought crime

When in doubt, blame foreigners

China fines Unilever $300,000 for talk of possible price increases

The last one is the actual headline but the first three could have been the subheads. Inflation has risen 5.4% in China this year and keeping prices under control is a top priority for 2011. Patrick Chovanec, an economics professor at Tsinghua University in Beijing said today that Chinas leaders are trying to put out fires and the fire of the day is inflation If you were wondering, yes, the government can impose these fines. The only constant in China is finding out how much you dont know, no matter how long you have been here.

Under Chinas Price Law companies can be fined for spreading rumors about price increases. Who knew? So Unilever, which only suggested verbally that they might, possibly, are considering, about to mull, perhaps dreamed about, could, may, raise prices to deal with rising raw material and labor costs, brings down the hammer of harmony upon themselves. And they were thus smote: Severe punishment was meted out this time to break ugly habits and build new rules, said the National Development and Reform Commission, warning other firms to absorb the lesson.

I urge all regional heads, C-suite suits, brand managers and companies selling products in China to take note.
This is a blunt proclamation aimed at keeping a Harmonious society China-speak for keeping the people happy, healthy, fed and paid so that protests and social unrest leading to a questioning of Party rule do not develop. Right now inflation is the threat and your company needs to be aware of the social and political ! context in which pricing your products takes place.

To be clear: Inflation threatens harmony, social unrest threatens the government, and that could be a threat to your business in China. It is unlikely that these fines will become a major trend. Enforcement is difficult and the PR message would be bad for China Inc. (although that doesnt always stop cases of tin ear syndrome on the Mainland).* Nonetheless it is an example of why companies in China need to be constantly evaluating the political as well as social trends that impact business.

In the end China needs to solve the real causes of inflation:

-Oversupply of money post-2009 stimulus
-Rising cost of raw materials and commodities
-Continued Urbanization
-Need for further Yuan appreciation (note this is happening now and the RMB hit an all-time high against the dollar as I am writing this)

Make no mistake, the Government has problems that are in many ways common with other countries but are uniquely large in scale and cultural import. They are usually adept at navigating dark waters. As short and long term programs and policies are put in place to deal with the big picture problems it would still be wise to take stock of where your company, products and prices fit in. Hell, if I knew I wouldnt sound so cynical I might even suggest, if I were your consultant, that you create messaging/take actions to address this issue and work it to your advantage. After all, working with government initiatives and goals in mind , and never against them, is a sure path toHarmony.

*H/T to JF