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Master Kong: How Internet rumors can affect share prices

Master Kong Stock Chart

The chart above illustrates how Internet rumors can ravage a company’s stock price. The company in question is Master Kong (康师傅), China’s best-loved brand of instant noodles.

In 2011, Master Kong ranked second only to Sony in a survey of the most valued brands in China, as conducted by research firm TNS. Master Kong was founded in Tianjin, China, in 1991 by two Taiwanese brothers, and listed on the Hong Kong Stock Exchange in 1996 as Tingyi (Cayman Islands) Holding Corp. (This article will refer to the company as Master Kong for simplicity.)

Although the company’s board includes Taiwanese and Japanese members, Master Kong has always existed and operated only in mainland China. The company is the leading player in China’s instant noodle restaurant market as well as a producer of drinks and snacks (and soon even a smart phone). In the last few months of 2012, Master Kong experienced a PR crisis when rumors linked the company to the wrong side of the Diaoyu Islands dispute.

In the shadow of the Diaoyu Islands

On September 5 2012, the Japanese government announced that it had reached agreement with the Kurihara family, the so-called private owner of three of the five Diaoyu or Senkaku islands, on “nationalizing” the uninhabited islands. The previous month had seen contentious visits to the islands by nationalist activists from Hong Kong and Taiwan, as well as Japan. On September 15, the biggest anti-Japanese protests since China and Japan normalized diplomatic relations in 1972 broke out in cities across China, and the Japanese embassy in Beijing was besieged by thousands of protesters. Over the next couple of days the protests turned violent, with protesters clashing with police, attacking Japanese-made cars, and barricading Japanese restaurants.

In this tense atmosphere, the heat was also turned up on Chinese social media, and at some point during September, speculation started to appear on Weibo that Master Kong was owned by Japanese capital and should therefore be boycotted. On the September 20, Master Kong issued a statement in which it denied the speculation. On October 8, however, the speculation regarding Master Kong’s true owners was surpassed by the appearance of a potentially deadly rumor in the context of the Diaoyu Islands dispute raging at the time. It is impossible to pinpoint where and from whom exactly the rumor originated, but a definite early source was the Sina blog 逆风松涛的博客 (Mifeng Songtao’s Blog). On the afternoon of 8 October, a short post entitled “Master Kong donated 300 million yen to Japan for it to buy the Diaoyu Islands” (康师傅为日本购中国钓鱼岛捐三亿日元) was posted on the blog, which read in part:

Tear off Master Kong’s outer layer, and a sheepskin of Japanese goods appears! It has been revealed online that the company which calls itself Taiwanese has actually been bought out by Japan’s Asahi Breweries. With Master Kong’s drinks and noodles visible everywhere on Chinese soil, this grieves us greatly! We are firmly resolved not to buy anything from Master Kong from now on. Everybody spread this message, let all our compatriots know! Asahi Breweries contributed 300 million yen for Japan to buy the Diaoyu Islands, this trashy company!

The rumor spread over the Internet rapidly. Four days later, on October 12, Master Kong’s stock price on the Hong Kong Stock Exchange began a steady decline that would continue into the new year.

From rumor mongering to turf war

Master Kong continued to deny the rumors, even soliciting help from the Chinese government: On October 31, the spokesperson of the Taiwan Affairs Office of the State Council, a PRC government body, denied that Master Kong is in any way a Japanese brand.

A few days later, on November 3, the plot thickened considerably when the mainland newspaper China Times (华夏时报) published a story outlining Master Kong’s views on recent events. A representative from Master Kong revealed in the article that his company had started noticing the strange rumors appearing online from September 18, and it had started collecting evidence from this date. Eventually, after piecing together various bits of information, Master Kong was able to get to the bottom of the rumors, and identify (as the company’s representative put it) the “manipulator behind the scenes” (幕后操纵): none other than Uni-President (统一集团), one of Master Kong’s chief competitors in the instant noodle market in China.

The article explained that although the Japanese firm Sanyo Foods invested in Master Kong in 1999, it never became a majority shareholder; the Taiwanese company Ting Hsin International Group (顶新集团) retained this position throughout.  For its part, Uni-President denied any involvement when The China Times reporter contacted them for a response to Master Kong’s accusations.

In early December The Beijing Times (京华时报) also ran a piece on what it called “unfair competition” in the instant noodle market in China. It noted that the rumors regarding Master Kong were being spread by text message and social media. The next day, Global Times reported on the story for the first time in English.

In the first week of January 2013, Master Kong’s stock price arrested its long decline that started in October. Yet if Master Kong can now finally turn the corner from the rumors that dogged it from September last year, its experience serves as a reminder of how damaging and unpredictable Internet rumors can be in the age of social media.

Links and sources
Want China Times: Master Kong parent targets instant smartphone success
Wall Street Journal: Noodles and Electronics: Asia’s Most Valued
逆风松涛的博客: 康师傅为日本购中国钓鱼岛捐三亿日元
CNTV: 国台办发言人否认“康师傅”是日本品牌
China Times (华夏时报): 800亿方便面市场无间道
The Beijing Times (京华时报): 康师傅称再遭黑手造谣攻击
Tencent News: 康师傅 大灾面前涌大爱
Global Times: Master Kong to fight back