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

The Fruits—and Boots—of Capitalism

To traverse the emptiness of the almost treeless steppes of Liaoning province in Manchuria, but at the same time drive on a magnificent, eight-lane freeway that runs parallel to a new high-speed overhead rail line (linking the port of Dalian to the provincial capital of Shenyang), is to experience one more of those seemingly infinite moments of counterintuitive amazement that now regularly jolt visitors to China.

As our van passes through hundreds of square kilometers of rolling cropland whose red earth has been manicured into squares of meticulously pruned vineyards and orchards of apple, pear, peach, and cherry, Liu Mei, who, with her sister, Liu Yan, founded one of the most successful fruit-distribution businesses in China, tells me her family’s story. Her tall, spike-heeled black-leather boots, dark-silk evening wear, and stylish coiffure hardly suggest the surrounding countryside, much less her odyssey from penurious post–Cultural Revolution watermelon vendor to mega-agri-entrepreneur. But of course, in today’s China, such rags-to-riches stories are not unusual. Liu Mei, who has adopted the English name Lucy, tells me how Walmart advisers initially visited the family-owned Dalian Xingyeyuan Group to explain how, by selling directly to large outlets, the business—and the co‑ops with which it worked—could be more efficient and profitable.

“We learned a lot about quality, pricing, and management from Walmart,” she says. “At first, we didn’t quite understand, but they patiently explained consumer demand to us. So we came to understand that Walmart not only had vision about these things, but also were the strictest in maintaining standards. Now we have started moving from green to organic.”

We arrive at her company’s local fruit-packing plant, the Dalian Glory Times Logistics Company, a large U-shaped building, once a school, standing alone in the midst of a patchwork of orchards. Here Dalian Xingyeyuan’s fruit is collected, sorted, stored in nitrogen-filled cold rooms, packaged, and shipped to its 1,000-plus warehouses in more than 100 cities all over China.

“Over the last couple of years, the problem of food safety has made people think hard about the origins of what they eat,” Liu earnestly tells me. “There are companies that put profit ahead of quality, so many consumers are coming to trust big names like Walmart, which has been a leader in organic food here and does pay real attention to inspections and standards.” She pauses before adding, “We have learned from Walmart how to become a company with a social conscience.” Then, suddenly sounding a little like a Catholic pilgrim reporting back on a tour of the Vatican, Liu proudly announces that she has actually been to Bentonville.

Dealing with China’s out-of-control industrial pollution has in many ways been far harder for Walmart than greening its agricultural product lines. One thing the company did early on was enlist the help of NGOs to monitor and train workers at its suppliers’ factories. This was a bold move, especially in a country where not only are NGOs still relatively undeveloped, but the government and the Party have a deeply ambivalent relationship with civil society.

One of the people Walmart turned to was Ma Jun, whose Institute of Public and Environmental Affairs maintains a detailed database, the China Water Pollution Map, that uses government statistics on illegal wastewater emissions to keep track of polluting factories. When Walmart representatives sought Ma out, he was as dubious as when he first arrived at the China Sustainability Summit, which he attended, as he put it to me, “without any confidence that they would eventually do anything different.” Several months after that first meeting, however, he got a call saying that a Walmart procurement team wanted to visit his Beijing office. “To our surprise, there were 15 people,” he recounted. “We didn’t even have that many chairs, so some of them had to sit on the tea table.” Now Walmart relies heavily on the institute’s database to identify factories violating China’s environmental-emissions regulations. “By late 2008, every month, they would do a comparison of their list of suppliers with our list of violators,” Ma told me. “This is exactly what we wanted them to start with.”

“Boldly Revolutionize the Towel!”

As dawn breaks over the North China Plain, the industrial smog is so thick that the sun reveals itself only as a blurry, fluorescent glow. The outskirts of Jinan, the capital of Shandong province, present an endless maze of high-rise buildings, freeway overpasses, industrial smokestacks, hourglass-shaped power-plant cooling towers, and factories, creating the kind of charmless tableau that has became a hallmark of “the China boom.”

About two hours from Jinan, Binzhou is just one more of the provincial Chinese cities whose hell-bent economies have helped hundreds of millions rise from poverty. Despite the existence of 160-plus cities in China with populations of more than 1 million (the United States has only nine), most Westerners have never heard their names. These cities have gone about development with every bit as much competitive fervor and totalism as they exhibited when the “correct line” called on them to foment Maoist class revolution. And their success has been even more revolutionary.

I have come to Binzhou to visit Loftex, one of Walmart’s suppliers of high-end bath towels. After the 2008 China Sustainability Summit, Walmart solicited some 200 of its largest provincial suppliers to join an Energy Efficiency Program, dedicated to achieving a 20 percent savings in energy use by 2012. Working with advisers from the Environmental Defense Fund, the National Resources Defense Council, and Business for Social Responsibility, Walmart challenged these companies to examine their supply chains for ways to save energy and cut costs. Loftex is one success story.

Just driving through the gates of Loftex’s sprawling headquarters and plant tells me that this company is striving for something. Giant signs emblazoned with slogans goad its 3,000 workers not to carry out class revolution, but to Boldly Revolutionize the Towel! and to Escape the Ordinary and Produce Top-quality Textiles! But most of the company’s slogans proclaim the need for employees to strive for greater environmental sensitivity. One reads: Enterprises Must Develop, but They Must First Protect the Environment.

The factory has its own coal-fired power plant, a wastewater treatment facility, and acres of floor space filled with machines that annually churn through more than 50,000 tons of cotton, largely from the United States. It runs 24/7, carding, spinning, weaving, dyeing, labeling, and packing towels, most of them destined to return to U.S. shores.

In a Loftex conference room decorated with tabletop bouquets of plastic lilies, a Venus de Milo–like statue (with arms!), a cast-iron sculpture of a bucking bronco (homage to Frederic Remington?), and some abstract oil paintings, I ask the factory’s general manager, Wang Hongxing, a smart, affable middle-aged man in a dark suit and tie, if he was present when Lee Scott gave his 2008 Beijing speech.

“I was, and our first thought was that it was a good thing,” he tells me cheerfully. “But our second thought was that the new policy was going to put a lot of pressure on us, and we didn’t know if we could accomplish Walmart’s goals. We had no idea what sort of investment it would involve. But we also didn’t realize that Walmart would have so many programs to help advise us on how to reduce energy and water use and reduce emissions.” Since then, Loftex has invested more than 4 million RMB (about $650,000) and cut electricity use by 25 percent and water use by 35 percent, achieving its 2012 energy-reduction goals a year ahead of schedule.

“Now, whenever we create a new towel, we always think about the environment!” pipes up Li Yongzhi, the assistant manager, reminding me of how the heads of Revolutionary Committees used to boast during the Great Proletarian Cultural Revolution about how many jin of corn they could harvest from so many mu of land, under the guidance of Chairman Mao. “We have begun experimenting with such things as new fibers derived from bamboo, and even from milk, which we mix with our cotton stock so that it will be faster-drying, and thus produce more-energy-saving towels.”

No doubt, Loftex’s exemplary progress in its sustainability crusade was why Walmart urged me to visit this model plant: I leave Loftex thinking of Wang, the general manager, as the bright kid in class who, because he always raises his hand with the right answer, gets called on by the teacher whenever important visitors stop by.

But Chinese industry abounds with bad actors, and some of them can be found in Walmart’s network. Ever since Walmart established its Ethical Standards Program in 1992 to improve labor standards among its suppliers, some critics have challenged the program’s effectiveness. In fact, the forthcoming book Walmart in China calls the whole effort into question, citing the company’s own admissions that serious violations have been a persistent problem. “The Corporate Social Responsibility industry,” observes Xue Hong, one of the book’s contributors, “has become a cat-and-mouse game between suppliers and their buyers.” Instead of engendering better compliance, Xue argues, such efforts have given rise to a massive new, and profitable, “corporate social responsibility” auditing industry that offloads responsibility for compliance from Walmart to outside auditors and suppliers.

While researching this piece, I repeatedly asked Walmart executives how many Chinese factories had actually been given “red” status and been “disapproved” as ongoing suppliers by Walmart’s Global Audit system, as Lee Scott had threatened back in Beijing. A clear answer was hard to come by. When I checked the company’s “2011 Global Responsibility Report,” I found China grouped with Japan and South Korea simply as the “Far East,” a region that was itself strangely incomplete, making one wonder if Scott’s threat was more bark than bite. When the company’s Ethical Standards team finally responded, it said that it does not “provide breakouts below the regional level.” The team did say, however, “The majority of the [failing] factories in that region are in China.”

Still, none of the environmentalists I spoke with viewed Walmart’s progress toward greater sustainability as simply a PR stratagem. Indeed, just as China’s tenacity and ability to deliver economic growth have recently begun to win new respect for its development model, Walmart’s perseverance in attaining its environmental goals has also won over a host of surprising new admirers. “Of course, journalists are always skeptical at first,” Jib Ellison tells me. “Everyone is always looking for the soft underbelly of Walmart. But in my experience, when they actually look under the hood, they are almost always blown away.”

By 2009, even The New York Times was effectively proclaiming a reincarnation of Walmart’s corporate soul. “The company that democratized consumption … has begun to democratize environmental sustainability,” it enthused. And when interviewed by Bloomberg Businessweek, Andrew Hutson, a supply-chain specialist at the Environmental Defense Fund, found himself not only explaining, but defending, the company’s often-reviled practice of exerting extreme pressure on suppliers to lower prices. “Lowest cost doesn’t have to come from past methods—the squeeze-’em-till-they-bleed approach,” he said. Acknowledging that such tactics had led to environmental degradation in the past, he insisted that Walmart was now doing something different by helping suppliers save money.

“Walmart is one of the most environmentally active and vocal companies,” Ma Jun, of the Institute of Public and Environmental Affairs, tells me admiringly. “I respect them for being willing to stick out their head. The globalized economy has created a big transfer of pollution to China. We export all these cheap products, but the waste gets dumped in our backyard, contaminating China’s water, air, soil, and coastal seas. I don’t think Walmart wants to see the day come when all this is blamed on its sourcing practices and they are held responsible for much of the damage. They want to do something now to change it.”

Measuring the Walmart Effect

Even if Loftex and the Dalian Xingyeyuan Group (to which Walmart had also sent The Washington Post) are Potemkin villages of a sort, what is telling about them is not simply how they have greened their supply chains, and saved a bundle in the process, but how they serve as important models for transforming Lee Scott’s vision from theory into practice. The use of such models is, of course, a time-tested Communist Party way not only to experiment with a new reform, but then to propagandize for it “among the broad masses,” and Walmart seems to have learned that technique well, at the hand of the master.

Through the so-called Walmart Effect—according to the scholars who study the enormous global footprint of the company’s management decisions—whatever Walmart does will profoundly influence all its competitors. So Walmart’s reincarnation as a company devoted to sustainability is, in fact, a catalyst for a positive global shift. When Michael Duke took over as CEO from Lee Scott in 2009, he not only reaffirmed Scott’s goals of ultimately having Walmart rely completely on sustainable energy, produce zero waste, and sell only sustainable products, but he began referring to these goals as the company’s “new normal.” “The great thing about Walmart’s green effort,” says Edward Humes, “is that, however they do it, it pushes other manufacturers to match them. And they are now exerting very positive influence at many levels.”

Perhaps Walmart executives such as Lee Scott, Michael Duke, and Leslie Dach will, with the help of environmental free-booters like Jib Ellison, prove to be clairvoyants in their ability to divine ineluctable environmental trends and green-market demands. They certainly seem to have arrived at a profitable and mutually advantageous partnership with the Chinese government. As China’s economy has decentralized, and many provincial and municipal governments have become rich fiefdoms riddled with corruption, Beijing has struggled to deal with tens of thousands of local polluting factories and hundreds of thousands of small-scale food producers, many of whom have been wantonly violating environmental regulations. But in large, well-organized companies like Walmart that operate nationally in China, the government has found auxiliary sources of public education, control, and regulation—all at no extra public cost.

Indeed, the commercial proselytizing by Walmart managers about the need to respond to consumer demands may end up changing China far more than previous generations of Western Christian missionaries, educators, or advocates of democracy and human rights ever did. For in such giant global corporations, which must please China’s increasingly demanding middle-class consumers in the marketplace, Chinese are becoming accustomed to wielding an influence that they have not hitherto had in the political arena. How Communist Party leaders will deal with such rising expectations is hard to predict. And, as Walmart surely understands, China can be a fickle mistress. Such liaisons of convenience can easily fall apart, especially if interests begin to diverge.

Even if the company has found accommodation and something of a global sweet spot in its efforts to go green and make more money, several other challenges elsewhere continue to bedevil it. Particularly in the United States, Walmart’s reputation continues to suffer from the company’s low hourly wages, fractious relationship with labor unions, allegations of failure to extend women staffers the same pay and promotion opportunities as men, and the damage done to communities and small businesses by the opening of new Supercenters nearby.

What’s more, the company may, by drifting from its old working-class values and customers, risk turning “the people’s store” into a big-box boutique. By appealing more to the kind of upscale clientele that goes from yoga lessons to Whole Foods, Walmart might just kill, or at least unsettle, the Sam Walton goose that has been laying golden eggs for several decades. In fact, with Walmart’s U.S. sales declining during the past nine quarters, critics are already asking how the company’s new green identity will sit with its traditional base, especially in the American South, now awash with rampaging Tea Partiers seeking to defeat climate-change legislation and defund the Environmental Protection Agency. A hint of blowback appeared this April, when The Wall Street Journal reported that the company had decided to launch an “It’s Back” promotional campaign to let its “core customers” in America know that the company would be restoring fishing tackle, bolts of fabric, and other “heritage” merchandise that it had removed from store shelves in what the paper called “a flubbed renovation effort.”

As I roamed through Walmart stores, visited factories, traipsed around co-op farms, and listened to corporate executives in China, I found myself pondering a question that I couldn’t get out of my mind, but that had little to do with Walmart’s immediate success in China or the world: However smart, prescient, and successful Walmart’s sustainability efforts actually turn out to be, just how “sustainable” is the whole bloody global-retail proposition that lies at the heart of the company’s amazing progress? Maybe Walmart’s new initiatives will pencil out in a business sense for the company and, within the terms of the current retail game, even serve as a model of good environmental stewardship. But will the hyperactive retail-consumption model that it has pioneered for global consumers pencil out for the world?

“Yeah, I worry that people will read my book and think that I have drunk the Kool-Aid,” says Edward Humes, reflecting on his admiring study of Walmart’s green progress. “When I started, I didn’t imagine I would be convinced that Walmart was green. And actually, they are not green, but they are a lot better than they were. And the efforts they are making are influencing not only their suppliers, but other businesses as well. Now Walmart is acting something like a private regulator. Nonetheless, the nature of their outsourced business model is not, ultimately, sustainable. But,” he says, laughing at the irony of what he is about to say, “we have created a situation where crazy-sounding things make sense.”

In fact, one could say the same thing about China, which—after so many decades of defiant proletarian opposition to capitalism, consumerism, and American imperialism—has embraced the American-style market and is ardently following the Walmart path to prosperity. Indeed, allowing, even encouraging, people to consume as much as they want, or can, has become one of the Chinese Communist Party’s key strategies for political legitimacy and social stability. Party leaders may label their version of development “scientific” or “sustainable,” but it’s still development. The bitter reality is that even if unrestrained consumerism becomes less environmentally destructive per unit of production than it was in the past, it is still unsustainable in the long run. So even as this most innovative of corporate and statist green strategies may represent an environmental breakthrough and good business for Walmart, and good politics for the Chinese government, it may nonetheless end up being very bad business for humankind.

Correction: The article originally referred to David J. Davies as Derek J. Davies.

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