For many multinationals, the China market is crucial to their bottom line. But how much revenue do they actually generate from China? For the world’s most recognized brands, that answer is surprisingly elusive. 

A review by The Wire of more than 100 multinational firms found that in recent public filings only about a quarter of them disclosed what share of global revenue they derive from their China operations. For a variety of reasons, analysts say global firms routinely mask their China sales, making it difficult for analysts, investors and even tax collectors to assess their exposure to China.

This week, The Wire looks at how much multinationals make in China, how that’s changed over time and why so many companies are unwilling to disclose that information. 

10-Ks AND N/As

Above is a selection of companies whose share of revenue from China is publicly disclosed. These firms represent a minority. After examining the annual reports of more than 100 large, mostly consumer brands, The Wire found that the vast majority did not disclose how much they sold in China last year.¹Our sample included 100 companies on Forbes’ Most Valuable Brands list and a handful of additional firms selected from a list by Calcbench. Financial institutions and Chinese companies were excluded.

There is no question, of course, that multinational companies have made it big in China. The foreign affiliates of U.S. companies alone generated more than $573 billion in revenue in China in 2019, according to the U.S. Commerce Department’s Bureau of Economic Analysis. That was up from about $238 billion in 2009. But getting sales data for the China operations of companies is challenging.

Chipmakers tend to be among the most forthcoming about their China sales. They also tend to be highly reliant on it. A review of 2020 annual reports by Calcbench, a data provider, found that among the firms that disclosed their China revenue, chipmakers and industrial equipment suppliers were some of the most dependent on China for their sales. Qualcomm, the huge San Diego-based chip design firm, said that last year it generated 67 percent of its revenue from China. Other chip makers that are also heavily dependent on China sales include Texas Instruments (55 percent), Intel (27 percent), and Nvidia (26 percent).

Consumer brands, on the other hand, have a mixed record of breaking out their China-based revenue, making it difficult for analysts and investors to forecast a firm’s outlook and profits. For instance, Swedish fast fashion retailer H&M had for years broken out its China revenue, reporting that 5.2 percent of its global sales derived from China in 2020. But the company stopped reporting figures for China this year. That move came after the company announced last year that it would stop using cotton sourced from China’s far west Xinjiang region amid concerns about forced labor. A nationalist backlash against the company sent sales plummeting, though how much remains unclear. A spokesperson declined to comment.

Fast Retailing Co., the Japanese firm that owns Uniqlo, has been more forthcoming — and more fortunate. After controversy broke out over sourcing from Xinjiang last year, Uniqlo refused to say whether its supplies originated in the region, claiming political “neutrality,” and thereby avoiding the type of bruising consumer boycott that pummeled some of its competitors. In its latest annual report, the company says it got 25 percent of its global revenue from China, a larger share than many of its competitors. 

Most global brands choose to aggregate their sales at a regional level, by attributing them, for example, to the Asia Pacific region. Many leading luxury goods makers adopt this approach, producing results that can appear peculiar at times. While the brands love to tout their aggressive marketing efforts in China, they appear reluctant to say how much revenue comes from the country. For example, the French conglomerate LVMH has a major presence in China, with 100 subsidiaries and 27,900 employees (or about 16 percent of its global workforce).²Pages 103, 272 But the company aggregates its China revenue into a category that is defined as Asia excluding Japan. While Asia (which one assumes is primarily China) accounts for 35 percent of its global revenue, 15 percent comes from Europe and 7 percent from Japan. LVMH is not unique. Luxury goods brands like to promote their China growth strategies in press releases without offering precise details about what revenue is generated there.

Company	What They’re Saying About China	What They’re Reporting
Rolex	“The global market for exports has experienced a significant increase in mainland China, now the leading market.”	No geographic segment breakdown
Richemont (Cartier)	“Triple-digit sales growth in mainland China more than offset declines in locations affected by a halt in tourism, notably Hong Kong SAR and South Korea”	China: N/A Asia Pacific: 45%
L’Oreal	“In mainland China, L’Oréal reported strong double-digit growth in 2021, twice that of the beauty market. In the last quarter, L’Oréal China achieved like-for-like growth of more than 50% compared with 2019.”	China: N/A North Asia: 30.5%
Kering (Gucci)	“Asia was one of the main drivers of the recovery, and to a very large extent this was attributable to China…”	China: N/A Asia Pacific: 39%
Hermes	“Asia and America recorded the highest growths, compared to 2020 as well as to 2019… Asia excluding Japan…pursued its dynamic growth, driven particularly by the sustained performance in Greater China, Australia and Singapore…”	China: N/A Asia Pacific (ex. Japan): 47%

FUN WITH GEOGRAPHY

So why don’t so many companies report their China sales? The first thing to know is that companies decide how to segment their revenues in different ways.

“Firms can choose to define their segments by geography or by line of business,” explains Mark Ma, an assistant professor of business administration at the University of Pittsburgh. “For example, Apple could choose to define their segments by product — iPhone, iPad, and other products — or by region, like the U.S. or North America.” 

Investors, creditors, bankers, regulators, politicians — they all want country by country reporting. But companies have pushed back saying they don’t want to give up their competitive advantage.

Wayne Thomas, a professor of accounting at the University of Oklahoma

One problem is that the rules for disclosure are largely left open to interpretation for companies that choose to segment revenue by geography. Firms are required by regulators, including the Securities & Exchange Commission, to disclose revenues from “material countries,” but regulators don’t define the term “material.” 

That ambiguity suits companies just fine, both for tax and reputational reasons. Aggregating revenues by region can be an effective way for companies to minimize their tax burdens and the scrutiny of their sales practices. Because high revenues attributed to known tax-havens can attract the attention of regulators and those who accuse multinationals of hiding profits, firms may try to conceal the origins of some of that revenue by aggregating it with revenue generated from other countries. Such behavior is particularly prevalent among companies in the natural resources and retail sectors, according to a 2017 study.

Companies may also seek to obscure what they earn in a country as a competitive practice, to keep business rivals from knowing too much about their global operations, sourcing and offshore tax structures. Many global firms employ practices such as “transfer pricing” to allocate profits to nations that tax profits at a lower rate. 

Political sensitivity may be another key consideration. Aggregating revenues at the regional level can help a company obfuscate sales in markets that are sensitive or underperforming. H&M’s discontinuation of its reporting of country-level sales, for example, has made it harder to know how much money the company lost as a result of last year’s consumer boycott in China. The same 2017 study found that companies that sell products direct to consumers (such as the retail sector) — which are more susceptible to customer boycotts — are more likely to aggregate their revenues than businesses that sell to other businesses (such as chipmakers).

Experts say it’s unlikely that these practices are going to end soon. “Investors, creditors, bankers, regulators, politicians — they all want country by country reporting,” says Wayne Thomas, a professor of accounting at the University of Oklahoma. “But companies have pushed back saying they don’t want to give up their competitive advantage.”

---