!["Operation and marketing cost in China [are] different from those in the US and other countries" - Starbucks (China).](http://cdn.i.haymarketmedia.asia/?n=finance-asia%2fcontent%2fstarbucksChina.jpg&h=684&w=1216&q=100&v=7c07f1e36c&c=1)
It is one thing for local media to highlight perceived injustices meted out by foreign corporations, but China’s state TV station’s “expose” of the price of Starbucks’ coffee appears rather more frothy than defending consumer rights.
CCTV, the country’s official broadcaster, on Sunday questioned the global coffee brand in one of its news programs; complaining that the price of a 354ml café latte in Beijing, at Rmb27 ($4.4), was higher than in London, Chicago and Mumbai, where the same drink costs Rmb24.25, 19.98 and 14.6, respectively.
The report, however, was more of a decaff than a double-shot latte and failed to compare Starbucks with other international coffee chains operating in China, such as the UK’s Costa Coffee or Hong Kong's Pacific Coffee.
After a bit of digging, FinanceAsia found that Costa and Pacific Coffee are also at it – if not moreso. For a same-sized latte, consumers in Beijing can expect to pay 5%-10% more than in Starbucks.
If one were to be uncharitable, it could be said that the local media might find it difficult to target Pacific Coffee because, well, it is no longer a foreign company. That is the view of at least one Beijing-based analyst with a global investment company. The chain is now owned by China Resources Enterprises, a listed subsidiary of large state-owned China Resources Group, which acquired the group in June.
Another problem was the basic economics of the issue, which is that, in a fair and free market, price is subject to the demand-and-supply relationship and costs comprise not only production materials but also other local expenses.
For example, CCTV said in the program that Starbucks pays only Rmb4 for one latte in China but it did not mention others costs that are especially hefty in China, including taxes, rent and maintenance costs.
"The operation and marketing cost in China [are] different from those in the US and other countries," Starbucks (China) said in a company statement on Monday.
Analysts also pointed out that US and China are very different markets in terms of culture, logistic, table turnover rate and other areas.
Furthermore, although coffee keeps the world turning for many people, the report also failed to contextualize with the other myriad costs hitting consumers in their everyday lives.
“Coffee is a competitive industry… Why not question industries such as salt, oil, telecoms fees or imported cars,” commented Ma Guangyuan, a Chinese independent economist, implying where more gratuitous profiteering continues unabated.
It is of course a valuable service for consumers to have a media that looks out for them; highlighting any difference in price or quality between domestic and global markets.
In March, state newspaper People’s Daily published a series of reports slamming Apple for the disparity between its after-sale services to Chinese and US customers. Also, on Monday, Korean mobile company Samsung came under fire for its guarantee policy.
“There is growing unease with the market economy all the time,” said Ren Zhiqiang, president of Beijing Huayuan Construction Group, through Weibo, when responding to the Starbucks issue.
CCTV quoted the chairman of the Coffee Association of Shanghai, who said that Starbucks was able to sell coffee in China at high prices, “mainly because of the blind faith of local consumers in Starbucks and other Western brands”. This does of course resonate not just regionally but globally.
But the latest media attack comes at a sensitive time for Beijing, which is in the middle of an unprecedented liberalization of its markets, precisely because missives from central official media are usually read as policy directions or thoughts of the leadership.
Therefore, “coffee bean-gate” highlights at best a lack of joined-up thinking or, perhaps worse, a contradictory policy attitude; either of which could ultimately undo any advances made by encouraging foreign capital through official channels.
As the Communist Party prepares to hold the 3rd plenum - which is expected to happen in November - and announce its plan for the next ten years, markets are keenly hoping to hear more good news to further push ahead the financial and social reforms, instead of more conservative policies and ideologies that counter market liberalization.
There are already concerns in the market that the 3rd plenum will not be a watershed moment for reforms as “new leaders are not ready yet”, according to Lu Ting, China economist with Bank of America Merrill Lynch.
“There will most likely be no material reforms on SOEs [state-owned enterprises], especially central government SOEs,” said Lu in a research report on October 22.
China’s market liberalization is obviously a work in progress and - of course - media will be media but Beijing needs to rein-in clumsy foreigner-bashing unless it wants to see investment going elsewhere for its coffee.
