In a new signal of its status as a global economic power, China now appears ready to use market muscle to retaliate against critics of its policies. If it does, the first casualties could be French businesses.
For the past few days, angry crowds have been gathering outside Chinese outlets of French retail group Carrefour (CARR.PA) to protest France's efforts to use the Beijing Olympics to pressure China on human rights and Tibet. Carrefour, the global No. 2 retailer after Wal-Mart (WMT), vehemently denies any involvement in politics and says that so far the protests have had little effect on its Chinese business.
But protesters, backed by a swiftly-moving wave of blogs and instant messages, are urging their countrymen to boycott the French chain, as well as all French-made products. "If you are a patriotic Chinese, forward this text message to your friends and family and do not shop at Carrefour," says one missive now circulating.
The Chinese were outraged when the Olympic torch relay was repeatedly disrupted by protesters as it passed through Paris on Apr. 7, with French police making little apparent effort to intervene. Adding to the anger, French President Nicolas Sarkozy has said he won't attend the Games' opening ceremonies unless China opens talks with the Dalai Lama, Tibet's exiled spiritual leader.
High-Level Delegation from France
If the anti-French protests spread they could harm not only Carrefour, the biggest foreign retailer in China, but also luxury-goods makers such as LVMH Moët Hennessy Louis Vuitton (LVMH.PA), which count China as one of their fastest-growing markets. Plenty of other French companies have placed big bets on China as well, ranging from hotel group Accor (ACCP.PA) and cement maker Lafarge (LAFP.PA) to utility giants Suez (LYOE.PA) and Veolia Environnement (VE). But luxury and retail groups face the greatest risk because of their visibility to consumers.
Sarkozy, elected last year on a pro-business platform, is trying to calm things. He dispatched a high-level delegation to China this week with a letter expressing regret for the torch-relay incident. On Apr. 22, Chinese newscasts showed Christian Poncelet, the president of the French Senate, in Shanghai kissing the hand of Jin Jing, a wheelchair-bound Chinese athlete who became an emblem of national pride after footage showed her trying to protect the Olympic flame from protesters during the Paris relay.
But it's unclear whether those overtures will work. After meeting with Poncelet, Jin was quoted as saying it was "a pity" that Sarkozy's letter had not contained a clear apology. And the President says he hasn't changed his plans to boycott the opening ceremony.
Carrefour Alarmed at Backlash
Meanwhile, some situations have turned violent. According to several accounts, a 22-year-old American was attacked by protesters over the weekend as he came out of a Carrefour store in Hunan province. The man, who was not identified for fear of reprisals, was said by colleagues to be working in China as a volunteer teacher. Local news media are starting to urge calm. On Apr. 22, the official English-language China Daily editorialized: "Over-the-top nationalism is not constructive but can do harm to the country."
Still, Carrefour is clearly alarmed by the backlash. Since 1995 it has built a successful network of 112 superstores in China, outpacing rival Wal-Mart, and plans to open 20 more this year. "Despite some localized incidents, for the moment we have not seen a significant impact on sales. But we take the situation very seriously," Carrefour Chief Executive José-Luis Durán said in an Apr. 20 interview with the French newspaper Journal du Dimanche.
Durán said he understood why Chinese were shocked by the disruption of the torch relay. "When I saw the images, I was not proud," he said.
Boycotting Olympics Not the Answer
Luxury seller LVMH is worried too. It has the most extensive Chinese retail presence of any luxury group, including 18 Louis Vuitton boutiques and about 30 Sephora cosmetics stores. China accounts for about 5% of the group's $26 billion revenues. An LVMH spokesman says there have no been no protests at its stores and no decline in sales, although some blogs have called for boycotts of its brands.
Chief Executive Bernard Arnault, in an Apr. 17 interview with French newspaper Le Figaro, implicitly criticized Sarkozy's threat to boycott the opening Olympic ceremonies, saying, "There are so many things that need improvement in the world, even here in Europe. To boycott part of the Olympics is not a solution." Indeed, Arnault will be doubly at risk if the protests continue: He is part of a group of investors that recently acquired a major stake in Carrefour, to become the single largest shareholder in the $146 billion-a-year retailer.
Will They Come to the Sale?
Many of Carrefour's Chinese shoppers seem inclined to give the company the benefit of the doubt. "The president of Carrefour did not do anything against China. It is not rational," said a customer at a Carrefour store in the Baishiqiao neighborhood of Beijing who identified herself as Ms. Huang. "Carrefour has paid us taxes, donated money [to Chinese charities]," she said.
A key test for Carrefour could come during Chinese festivals at the beginning of May, when the chain has announced it will slash prices for a holiday promotion. "I won't come, no matter how big a sale this will be, if Carrefour donated money to the Dalai Lama," said another Baishiqaio shopper who identified herself as Ms. Wang. The company says it has made no such gifts, but in the rumor-stoked environment surrounding the Beijing Olympics, it may need more than a sale to sway shoppers.
With Dexter Roberts in Beijing and Chi-Chu Tschang in New York