China’s Smoke And Mirror Game: Yum! Brands, Inc. (YUM), Wal-Mart Stores, Inc. (WMT), McDonald’s Corporation (MCD)

While the company doesn’t break China out to the same degree as Yum! Brands, there’s no question that the spillover from KFC has ensnared McDonald’s. In early January it noted a small drop in sales in the fourth quarter, but highlighted that the decline was lingering into the new year.

In fact, McDonald’s Corporation (NYSE:MCD) found itself a target of a Chinese television show last year. That very public exposure resulted in an embarrassing apology by the company. This year, in what management calls a coincidence, it is giving away food just as that same show airs its annual expose on corporate malpractice. Giving away food is an expensive way to offset negative press.

Wal-Mart Stores, Inc. (NYSE:WMT) is also making a push into China, a country in which it has operated for years. The recent drive is to expand more aggressively in the Internet retailing space. Disproportionate negative coverage of a the company could scuttle those efforts.

For example, Wal-Mart Stores, Inc. (NYSE:WMT) found itself accused of food safety violations last year. While not started by a television program, the Beijing Food Safety Administration’s accusations obviously made it into the press. Unfortunately for Wal-Mart Stores, Inc. (NYSE:WMT), its China CEO voluntarily stepped down in 2011 over another food quality dust up. That’s a bad trend.

Any more negative press for Wal-Mart Stores, Inc. (NYSE:WMT) could be a notable drag on performance. For its part, it’s got an adopt-a-tree promotion going just in time for the annual expose that may or may not have led McDonald’s to give away free food.

A Free Press

One of the greatest things the United States has is a free press. This allows the media to call out problems where they exist without fear of reprisal. China operates with different rules–and a free press isn’t one of the rules we have in common. This can make a problem turn into a disaster. It can also make coming back from a problem that much harder. Remember this when reviewing companies investing in China.

The article China’s Smoke And Mirror Game originally appeared on Fool.com and is written by Reuben Gregg Brewer.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.