A Trade War's Collateral Damage For China

Beijing’s actions against American brands could hurt their mainland partners, too.

- James E. Ellis

In a fight with China, ending up on the wrong side of the country’s consumers or bureaucrats can be very costly. Consider the case of Lotte Group, the South Korean retail-and-food conglomerate that was a target last year in China’s fierce campaign against a Korea-based missile defense system. Inspired by harsh coverage in the state-controlled media, Chinese consumers boycotted Lotte and other Korean brands. Some Chinese stores emptied their shelves of Lotte products. Regulators cited alleged safety violations to shut most of Lotte’s 99 Chinese hypermarkets as well as a joint venture with Hershey Co. Revenue at Lotte Shopping Co. plunged 25 percent in 2017, and the company logged its first loss in its 16 years as a public company. Lotte this spring agreed to sell its money-losing superstores in northern and eastern China.

China’s patriotic consumers and obedient bureaucrats could again prove valuable weapons in the trade war with the U.S. that erupted on July 6. But deploying the strategy used against South Korea and other countries risks collateral damage at home: The China operations of all-American brands including Coca-Cola Co. and Walt Disney Co. are co-owned by state-backed Chinese companies.

One of Coke’s two Chinese bottlers is government-backed Cofco Corp. Shanghai Disneyland is majority-owned by a local consortium. McDonald’s Corp.’s China franchise is controlled by state-backed conglomerate Citic Ltd. and private equity firm Citic Capital Holdings. And the China operations of General Motors, Ford Motor, and Fiat Chrysler Automobiles are all joint ventures with state-owned mainland companies.