How Walmart Is Changing China

The world’s biggest corporation and the world’s most populous nation have launched a bold experiment in consumer behavior and environmental stewardship: to set green standards for 20,000 suppliers making several hundred thousand items sold to billions of shoppers worldwide. Will that effort take hold, or will it unravel in a recriminatory tangle of misguided expectations and broken promises?
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Susan Meiselas/Magnum Photos

A Greening in Shangri-La

With some 30,000 Chinese factories making things for Walmart, the company’s future was tied to China in the most elemental way. So Scott and his team knew that Walmart could never truly “green” its supply chain without taking on its Chinese partners. But, if China was going to be the laboratory of the future, it was difficult to imagine how even Walmart could wrangle such a far-flung and disparate range of suppliers into a responsive group.

On October 22, 2008, the CEOs and factory managers of more than 1,000 Chinese Walmart suppliers sat waiting in the Valley Wing Grand Ballroom of Beijing’s Shangri-La Hotel, for the beginning of Walmart’s China Sustainability Summit. Many of the attendees anticipated a significant new environmental announcement, and not a few of them were concerned. After all, Walmart was famous for pressuring suppliers to cut costs and reduce prices to the point where profit margins vanished. Moreover, the world economy had begun to careen toward breakdown, with countries like the United States cutting back precipitously on orders from abroad.

Heralded by a blast of pop music, Lee Scott strode to the podium. In characteristically flat tones, he started off with a few pleasantries about the Olympic Games, complimenting his Chinese audience for being part of a nation “that really gets things done.” Then he leaned into the topic at hand. “When Walmart first came to China,” he declared, “the government said that it expected us to be a model retailer. We have worked hard to try to meet those expectations … and to save money in the process.” He spoke without any dramatic oratorical pauses or expressive hand gestures. “And with the Chinese government expanding its goals for sustainability … it just makes sense that Walmart would be committed to being a more sustainable company here in China.”

As Scott continued in the cavernous and, by now, completely still room, he conveyed utter conviction. “Look around: we have 1,000 suppliers here. A year from now, each and every one of you who chooses to make a commitment will be a more socially and environmentally responsible company. And that will make a difference. It will make a difference for you, for Walmart, for China, for our customers, and yes, for the planet.”

Acknowledging that Walmart customers “need low prices,” he said he also believed that “more and more, they will be looking at the entire life cycle of a product: How is it made, how is it sold, how is it used, and how is it reused? To meet these customer expectations, we need to ask ourselves: Is a product made in a factory that is a responsible steward of the environment and our natural resources?”

On the crucial role of energy use, Scott declared, “The final factor that I see at work in bringing us here today is an increase in the global demand for energy and what that means for climate change.” Then, as if he were, in fact, a foreign minister, Scott warned: “This will be one of the greatest economic, environmental, and perhaps security challenges that the world will face in the 21st century … Meeting social and environmental standards is not optional. I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts, will ultimately cheat on the quality of its products.”

As his listeners were digesting all this, Scott assured them that Walmart was willing to “work with” them. But then he dropped the trap door: “If a factory does not meet these requirements, they will be expected to put forth a plan to fix any problems. If they still do not improve, they will be banned from making products for Walmart.” Like a priest admonishing parishioners to accept Communion or be excommunicated, Scott explained that each supplier would have to make a commitment to comply with these environmental standards. (Ultimately, they would also be required to open themselves to third-party auditors.)

“Some may wonder, even inside Walmart: With all that is going on in the global economy, should being a socially and environmentally responsible company still be a priority?” Scott did not yield an inch. “You’re darn right sustainability should be a priority!”

He was all but preaching now. With his hint of a southern accent and his almost religious sense of the righteousness—not to say the profitability!—of his cause, he seemed to be crescendoing toward some sort of evangelical climax. But, ever the model of middle-American restraint, Scott resisted the urge to overstep the bounds of oratorical modesty.

“I believe that as a businessman. I believe it as a person who has a responsibility to shareholders. And I believe it as a father and a grandfather. We will have better companies, better communities, and an even stronger commitment to a cause that is greater than each of us and unites us all. And we will leave a better world for future generations.”

Amen!

I turned to a Sichuan factory manager standing beside me and asked what he thought of Scott’s speech. He gave a worried frown.

At the press conference that followed, a Wall Street Journal reporter asked Scott, almost accusatorily, if these new demands on suppliers would simply presage a further squeeze of their already meager profit margins. In a tone as close to testy as he could come, Scott asked the reporter if she wouldn’t rather pay a few cents more for something that was made well and would not harm the environment.

No Benzyladenine in Your Bean Sprouts

What made Scott’s sermon so timely was the buildup in China of political and economic forces that augured well for the idea of a large and trustworthy foreign-owned company “going green.” Whereas up until about 2005, Party leaders had been dedicated to unfettered development, whatever its environmental cost, the five-year plan that went into effect in 2006 introduced the concept of kexue fazhan, or “scientific development,” which was a way of injecting the idea of a more environmentally sound kind of development into the equation without directly impugning all the previous efforts to promote economic progress. Then, over the next few years, the Party began heralding the notion of kechixude fazhan, or “sustainable development.”

As it happened, just at this time, growing numbers of Chinese were also becoming worried, even frightened and angry, about pollution, adulterated foods, and the corruption that kept local government agencies from taking remedial actions. And because more and more Chinese were not only erupting into spontaneous protests as a way to get action, but also looking to NGOs rather than to the government for relief, and because even the press had become more activist, the government became concerned about the impact of environmental damage on the stability of the country.

The number of scares involving illegal chemical additives in food was creating particular alarm. In 2008, milk products were found to contain melamine, a coal-based industrial chemical that, when ingested, can cause kidney stones and renal failure. (Melamine had been regularly used to give milk powder and baby formula a seemingly higher protein content.) As a result, some 300,000 Chinese consumers were sickened and at least six infants died. The Chinese government reorganized its food-inspection system in response, and its new Food Safety Law went into effect in 2009. Nonetheless, the dairy industry was hit again with scandals this year.

In the spring, hundreds were sent to the hospital when hogs from 16 provinces were found to have been fed a “lean meat powder” containing the toxic chemical additives ractopamine or clenbuterol, to produce less-fatty pork. In Guangdong province, authorities discovered and destroyed 45 tons of vermicelli noodles adulterated with industrial wax and ink; in Shenyang, police seized 40 tons of bean sprouts that had been illegally bathed in urea, sodium nitrite, antibiotics, and the plant hormone 6-benzyladenine, to make them grow faster and appear fresher. The food-safety situation became so serious that on April 14, Premier Wen Jiabao took the unprecedented step of speaking out, saying the recent scandals indicated that “dishonesty and moral degradation” had become a serious problem.

No wonder, then, that many in China’s burgeoning middle class, especially those with children, are seeking refuge in brand-name restaurants—particularly fast-food chains such as McDonald’s and KFC—and grocery markets such as Walmart. Walmart has several times come under fire in China for selling produce tainted with toxic chemical residues, and for mixing organic and nonorganic foodstuffs: this fall, for example, the Chongqing municipal government fined Walmart, and temporarily closed some of its stores, for mislabeling pork as organic. Still, because Walmart is a well-known multi-national corporation with so much at stake in terms of its global brand, Chinese shoppers have assumed that it will be a more trustworthy outlet. (Of course, Americans and Europeans have exactly the opposite reaction, seeking safety in small organic producers rather than big corporations.) And since the Chinese government, too, is concerned about people’s health and social stability, and its own legitimacy, it tends to see these larger, well-branded outlets as both models and responsible allies. “The government is still the most powerful force in China, and they have just adopted their 12th five-year plan, emphasizing food safety and domestic consumption,” David Gao, Walmart’s government-relations director for China, told me in the company’s Shenzhen headquarters. “If we want to push sustainability efforts and grow here, we have to have government support. So we want to align our strategy with government interests. And quite frankly, because the overall business climate for sustainability is favorable, I can’t think of any reason for not doing this.”

At the Shijingshan Sam’s Club on the periphery of Beijing, produce counters are stocked with three kinds of fresh products: youjide (organic), lusede (green), and wugonghaide (hazard free). A deputy manager tells me that sales of organic produce, meat, eggs, and oils have grown by almost 20 percent a year. When I stop a number of shoppers in the organic-produce section to ask them why they are willing to pay substantial premiums for food that looks the same as ordinary food, most show a characteristically wary Chinese attitude toward answering any question from a stranger and wave me away like a bad smell. But some agree to talk. One man says that he buys organic “because there are so many fake products on the market, and I am worried about my health.”

A young woman tells me, “If my salary was high enough, I would only eat organic.”

Another woman, with daughter in tow, says, “Some places will take rotten tomatoes and put them in the middle of good ones and then wrap them up in plastic. In my local supermarket, who knows? But I trust Walmart to buy the best.”

Walmart’s green and organic products are clearly designated with special labels that name the province and region where they were grown. Much of this food is sourced from the Direct Farm Program, which Walmart established in 2007; in 2008 the commerce and agriculture ministries invited Walmart to join their new, similar program. This initiative created a national mosaic of new agricultural hezuo she, or “cooperatives,” which echo the long-dismantled mandatory collectives and communes of the Mao era, but this time around have been formed voluntarily by regional farmers banding together to gain market clout and sell directly to large chains like Walmart.

“By buying directly through these co-ops, Walmart eliminates pieces of the supply chain that are not productive,” Leslie Dach, the company’s executive vice president for corporate affairs, tells me. “And we found that we can raise farmers’ income, supply them with extension-like services, and give them greater market access. On top of that, we can get stuff fresher and thereby cut down on food spoilage, which reduces waste and helps us lower our prices.”

Direct Farm offers one other incomparable benefit: by dealing directly with farmers, a retailer is better able to control the standards of food it advertises as green or organic. This is a huge asset in a country where few people trust an organic label not backed by a recognizable brand-name source. Still, as the Chongqing scandal shows, Walmart’s supply chain—or any other, for that matter—is hardly foolproof.

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Orville Schell is the Arthur Ross Director of the Center on U.S.-China Relations at the Asia Society.

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