Once, it’s a fluke. Twice, it’s a coincidence. Three times, it’s a trend.
Let’s take a closer look.
The backstories
This past week, Chinese authorities announced they they were investigating The Coca-Cola Company (NYSE:KO) employees for the improper use of GPS devices. The Chinese government keeps tight control on the use of this technology for reasons of “national security.” The Coca-Cola Company (NYSE:KO) uses GPS devices in their delivery trucks in an effort to increase efficiencies, and company officials are cooperating with Chinese authorities.
Last year, The Coca-Cola Company (NYSE:KO) controlled 16.6% of the soft-drink market in China, down from 17% the year before. Increasing efficiencies is likely a way for Coke to continue to pad the bottom line, even though market share is declining.
In late January, Caterpillar Inc. (NYSE:CAT) announced that it would be taking an $850 million write off because it found that a Chinese company it had purchased for just more than $650 million had fraudulently reported higher revenues in their books. Caterpillar Inc. (NYSE:CAT) said this fraud was a multiyear scheme that the Chinese company deliberately manufactured. The company produced and sold mining equipment, which is what caused Caterpillar Inc. (NYSE:CAT) to become interested in the organization in the first place, but apparently it wasn’t making quite the amount it reported.
And finally, we have Alcoa Inc (NYSE:AA). It started with the steel industry, and now it seems that have moved to aluminum: U.S. steel manufacturers have been bounded over the past 10 to 20 years, as Chinese companies dump cheap product on the markets. The price of steel fell to a price in which the U.S. producers could no longer compete, dramatically hurting the steel industry here at home.
Now the Chinese are moving into the aluminum industry as the metal becomes a more important product for aircraft and car manufactures. Competition in the country is heating up, stockpiles of the metal are at 50% throughout the country, and aluminum prices are falling. Over the past year, the metal’s price has fallen 7.7%, and Alcoa Inc (NYSE:AA)’s stock price has followed along. Year to date, shares of Alcoa are down 0.58%, while the Dow is up 10.76%. That’s after ending 2012 down 2.9% while the index was up 7.26%.
But the competition from China’s aluminum producers may decrease in the future for Alcoa. In mid-February, a Chinese state-owned organization purchased a 13% stake in Australia’s Alumina. That company’s largest asset is a 40% stake in Alcoa World Aluminum and Chemicals, which is a joint venture with Alcoa, which holds the other 60% of the business.
This new partnership could benefit Alcoa Inc (NYSE:AA) in the future, but as we have seen in the past, when it comes to the Chinese government, nothing is set in stone and there’s very little rhyme or reason behind some decisions.
The article The Cost of Doing Business in China originally appeared on Fool.com and is written by Matt Thalman.
Fool contributor Matt Thalman has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. Check back Monday through Friday as Matt explains what caused the Dow’s winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter: @mthalman5513.
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