Minister sounds warning as US players start price war on mainland
United States multinationals on the mainland are launching a price war so punishing it has raised concerns at the Ministry of Commerce.
Wal-Mart Stores offered this week an average 20 per cent discount on 'hundreds of products', topping an earlier campaign offering nearly 100 products for 8.80 yuan (HK$9.98) each.
Fast-food chains McDonald's and KFC have joined the fray, with McDonald's restoring its 16.50 yuan meal deal price of more than a decade ago on Wednesdays at its 1,050 restaurants. KFC has slashed prices by as much as 20 per cent.
Local fast-food chain Kungfu has followed suit, offering a meal for 17.60 yuan, a 33 per cent discount, at its 308 outlets.
The price cuts reveal the measures the companies are willing to take to boost sales and market share amid the global economic slump.
However, the moves have raised concern in Beijing that they could hurt smaller local players.
Minister of Commerce Chen Deming, who specifically pointed to the rounds of severe price cuts at Wal-Mart, warned that excessive discounts would result in an adverse impact on companies, state television CCTV reported yesterday.
'We hope companies will offer promotions at healthy and limited levels, and we know how much discounts companies can afford,' Mr Chen said. 'We support promotion levels based on demand and supply. However, if they are overdone, there will be an adverse impact.'
Some economists, who described the minister's comment on commercial behaviour as rare, said Mr Chen's warning underlined his fears about worsening deflation and unemployment as well as concerns that a punishing price war could squeeze smaller domestic players out of business.
'It signals the ministry's worries on deflation,' Citibank economist Ken Peng said. 'Steep and long-lasting price cuts naturally hurt the bottom line, and his concern makes sense.' Mr Peng forecast mainland consumer price inflation would slip to minus 0.5 per cent this year from 5.9 per cent last year.
'Weak demand will continue for some time, but the economic stimulus measures will likely help bring the CPI back to positive territory in the fourth quarter,' he said.
Lin Jinghua, Wal-Mart (China)'s vice-president of procurement, said the price cuts for the company's 227 mainland stores were aimed at helping consumers suffering from economic hard times.
Lisa Howard, a spokeswoman for McDonald's China, said the chain's price promotions were possible because 95 per cent of the company's products were sourced locally.
Despite the global financial crisis, she said about 175 new McDonald's outlets will be opened this year on the mainland, the No1 growth market of the group worldwide.
The central government has earmarked 4trillion yuan for investment to spur domestic spending.