China Marks Consumer Day With Gala That Led to Apple Apology

China’s state broadcaster will tomorrow evening air its annual consumer rights program, which last year included allegations that later led Volkswagen AG to recall 380,000 cars and Apple Inc. Chief Executive Tim Cook to issue a public apology to its Chinese customers.

The China Central Television program, known as the “315 Gala” because its broadcast March 15 each year to mark World Consumer Rights Day, features reporters disguised as customers or potential business partners shooting footage with hidden cameras. Companies covered in this year’s show will include those in the automotive, consumer electronics, food, e-commerce and online wealth management industries, the gala’s director said in an online briefing last month.

“It’s become an annual hunt and companies are petrified,” said Shaun Rein, managing director of China Market Research Group in Shanghai. “There’s real fear because companies feel that CCTV has the tacit support of the central government, or at least some senior people in it. These reports have a huge impact and can tarnish reputations.”

CCTV, the People’s Daily and other state media have played a leading role in airing allegations against foreign and local companies that have then been pursued by government agencies as Chinese leaders step up efforts to protect consumers.

‘Nefarious Practices’

This year’s consumer rights gala “will continue to focus on exposing the wrongdoings and nefarious practices of industries that harm the interests of a large number of consumers,” Shi Yadong, the show’s director, said in the Feb. 27 webcast. “We urge companies to have dignity when doing business and not to earn ill-gotten money.”

A tougher consumer protection law, which increases penalties for fraud and false advertising, will also take effect March 15. It also stipulates that most products sold online, through TV marketing, by telephone and mail should be returnable within seven days without the need to provide a reason, the official Xinhua News Agency reported in October.

Concerns over food and drug safety have spurred the government to pledge greater consumer protection. Milk tainted with melamine, a toxic chemical used to make plastic and tan leather, was blamed for the deaths of at least six babies in 2008, with tens of thousands of children hospitalized.

The government last year investigated companies for paying doctors to drum up drug sales and cracked down on crime rings selling adulterated meat.

Cook Apology

Last year’s CCTV gala accused Apple of offering Chinese consumers warranties that weren’t comparable to ones available in other markets. The company was then lambasted by the People’s Daily newspaper for arrogance and poor customer service. The State Administration for Industry and Commerce followed by calling on local authorities to increase their supervision of clauses in Apple’s warranty policies.

Apple changed its policy after the program to offer full replacements of iPhone 4 and 4S models and reset the warranty to one year. Previously, the company provided new parts and didn’t extend the warranty. Apple’s Cook issued a public apology to Chinese consumers April 2.

Volkswagen, Europe’s largest automaker, announced its recall of cars after the gala aired complaints from customers of abnormal vibrations, loss of power and sudden acceleration in models fitted with a direct-shift gearbox.

Apple Sales

Carolyn Wu, a Beijing-based spokeswoman for Apple, declined to comment on last year’s CCTV report, and referred to Cook’s comments on an earnings conference call in January for details on the company’s business in China. On that call, Cook told analysts sales in China, including retail stores, grew 31 percent last quarter setting a “new high-water mark in China.” The company in December reached an agreement for China Mobile Ltd., the world’s largest carrier, to sell the iPhone, after six years of negotiations.

Volkswagen has “learned a lot from the last experience” and set up a special task force to make quicker decisions, the company said by e-mail today in response to questions.

Local companies have also been targeted. Anhui Jianghuai Automotive Co. recalled more than 100,000 of its vehicles after last year’s program said the company sold cars with rusted chassis. Its shares slumped the most in more than four years in Shanghai on the first trading day after the program. In 2013, the stock gained 28 percent compared with a 6.8 percent decline for the nation’s benchmark Shanghai Composite Index. The company declined to comment today when contacted by phone.

Consumers haven’t lauded every allegation by CCTV. Chinese Internet users lambasted the broadcaster last year for accusing Starbucks Corp. of price gouging, criticizing the station for deflecting attention from more pressing issues.

In a 20-minute report broadcast on Oct. 20, separate from the consumer rights gala, CCTV accused the U.S. coffee chain of charging higher prices in China than in cities such as Chicago and London. Starbucks said in response that its pricing was based on local market costs such as labor and real estate.