Yum, Volkswagen Slammed by Xinhua for Business Practices

Yum! Brands Inc. (YUM) and other foreign companies are “digging their own graves” in China by failing to ensure quality standards in the nation, the official Xinhua News Agency said in an editorial.

These companies “risk losing the profits they came to China to seek if they don’t correct their practices,” Xinhua said. The government is serious about cracking down on illegal activities by all companies, including international ones, according to the editorial.

Yum’s vice chairman apologized on Jan. 10 after the Shanghai Food and Drug Administration said in December it found antibiotic levels that didn’t meet prescribed standards in batches of chicken supplied to the Louisville, Kentucky-based company between 2010 to 2011. French hypermart chain Carrefour SA (CA) and Germany’s Volkswagen AG (VOW) were also singled out by Xinhua, which criticized multinational firms for “capitalizing on loopholes in Chinese law and regulations to escape punishment.”

“Yum’s understated apology is rooted in its arrogance and propensity for unfairly treating Chinese consumers, who usually regard foreign brands as being safer and of higher quality than domestic brands,” Xinhua wrote in the editorial.

Sam Su, vice chairman of the operator of KFC and Pizza Hut stores, said in a letter posted on KFC’s official microblog the company’s self-inspection processes and internal communications had been lacking. Amy Sherwood, Yum’s Kentucky-based spokeswoman, didn’t immediately respond to an e-mail sent by Bloomberg News after regular office hours.

Customer Satisfaction

Christoph Ludewig, Volkswagen’s Beijing-based spokesman, said in an e-mail that customer satisfaction is the carmaker’s first priority and the company “always safeguards consumer rights.” Liu Huanyu, a spokeswoman for Bluefocus, Carrefour’s external public relations agency in China, could not immediately comment on the Xinhua editorial.

Chinese companies have also been scrutinized for safety issues. Xinhua reported on Nov. 22 that the nation’s quality watchdog had found excessive levels of plasticizer in drink samples of Chinese liquor-maker JiuGuiJiu Co. (000799)

In March 2011, China Central Television reported that an affiliate of Henan Shuanghui Investment & Development Co. (000895), China’s biggest meat processing company, purchased pigs fed with a banned additive that induces the growth of lean meat.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net

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