McDonald's teaming up with a Chinese state-owned giant will have super-sized consequences for local business, consumers, and workers, activists say.
April 13, 2017
A major Chinese state-owned conglomerate is now on track to become the world's largest McDonald's franchise owner, leaving local competitors at risk of being edged out of the fast-growing market by a state-backed competitor.
Earlier this year, China’s state-owned CITIC Group agreed to buy a majority stake in McDonald’s franchising rights in the country for the next two decades. Should the $2 billion plus sale be approved, the company will take control of more than 1,700 McDonald’s restaurants, with a stated goal of opening another 1,500 in the next five years — setting it up to become the company’s biggest franchise owner, ahead of Brazil’s Arcos Dorados.
It could also put competitors — both domestic franchises and international brands — in a tough spot.
This will be the first time a state-owned company has taken a majority stake in a major player in the fast-food space, according to R.J. Hottovy, a consumer equity analyst for Morningstar who focuses on McDonald’s and KFC-owner Yum Brands. Although a Chinese sovereign wealth fund and a state-owned bank have invested in a financial backer of Yum China, their control and influence is negligible, he said.
“Put it this way,” he said. “There isn’t a state-owned body exerting any pressure on Yum China.”
Some fear this level of state backing for a foreign brand like McDonald’s will be bad for Chinese fast food companies, consumers, and workers. A maverick Chinese business consultant and an American union are each trying rally support for a Chinese government investigation into the effects of the deal on competition in the market, similar to scrutiny of foreign companies such as Apple and Coca-Cola in recent years. Each wants authorities to impose new terms on McDonald’s and to protect the rights of its competitors, such as the domestic franchise Dico's.
With state backing, “McDonald’s can expand rapidly, which may harm your business,” wrote a leader of the US-based Service Employees International Union in a letter to fast food operators in China this week. “You have an opportunity to express your concerns regarding the transaction as MOFCOM [the Chinese commerce ministry] considers an appropriate review of the competitive impacts of the deal.”
The SEIU’s meddling in the China deal is part of it’s multi-front pressure campaign against McDonald’s, including the flagship Fight For $15 campaign to raise wages back in the U.S. Scott Courtney, the SEIU executive who sent this week’s letter, has played a key role in the global campaign, building cases against McDonald’s in courts around the world, targeting anti-competitive practices, labor violations and tax fraud.
In China, the union’s work is happening alongside efforts by Li Su, a businessman whose Beijing-based consulting firm has lobbied on behalf of domestic Chinese companies against foreign competitors, with tactics including calls for antitrust investigations. His consultancy has successfully pushed regulators to block Coca-Cola from acquiring a local company and required Apple to pay to use the iPad trademark in China.
Read the complete article here.