Dong Mingzhu replied to 21 reporters: The old case of Gree Overseas has been handled and will not affect the company

21st Century Business Herald reporter Ye Bihua Guangzhou report On October 31, Gree Electric Appliances (000651. SZ) issued notes on the company's litigation cases in the United States. In the note, Gree confirmed that it had recently reached an agreement with the Consumer Protection Division of the U.S. Department of Justice and the U.S. Attorney's Office for the Central District of California (collectively, DOJ) for the company's export dehumidifiers manufactured between 2005 and 2012.

At the same time, Dong Mingzhu, chairman and president of Gree Electric Appliances, also replied to this reporter that (the product involved) is a product in 2005, and at the end of 2011, some users found that there was a smoke phenomenon, when the American agency company did not deal with it in time, and then it was complained to the local consumer committee, "It has been handled at present, and it will not affect our Gree." Dong Mingzhu said.

Under the terms of the deferred prosecution agreement, Gree Electric agreed to settle and pay a $91 million fine against their criminal charges, and agreed to provide compensation to any uncomplaimed victims of a fire caused by the company's defective dehumidifier.

Gree has aroused widespread concern, and now more and more Chinese companies are beginning to "go global" and seek development in overseas markets, how should enterprises prevent the legal risks faced by going overseas?

In this regard, Ma Pingchuan, deputy director of Guangdong Dehuan Law Firm, said: "In addition to commercial risks, enterprises must have full expectations for local political and legal risks when they go to sea, on the one hand, they must fully investigate local policies and laws and actively cooperate with local legal service agencies." More importantly, it is necessary to cultivate the habit of respecting local customs and laws, and avoid copying domestic practices abroad. ”

<h4>Reached a deferred prosecution agreement in the United States</h4>

On October 29, local time in the United States, the US Department of Justice released a message on its official website that Gree Electric Appliance Co., Ltd. (000651. SZ) and the U.S. Department of Justice reached a Deferred Prosecution Agreement (DPA).

According to the above website news, between 2007 and 2013, Gree sold more than 2 million dehumidifiers produced in Gree Zhuhai and imported by Gree Hong Kong in the United States. In September 2012, after receiving reports of fires caused by consumers due to dehumidifiers, Gree's top management and employees learned that the dehumidifiers were defective, which could cause overheating and fire, and gree America continued to sell defective dehumidifiers in the United States for at least six months.

Gree did not report information about the fire to the CPSC for about 6 months, and did not report defects in the dehumidifier for about 9 months. Finally, nearly a year after learning that the product had dangerous defects, Gree recalled these defective dehumidifiers. The U.S. Department of Justice circular document said.

In recent years, Gree has continuously strengthened overseas strategic planning and global market layout, expanded overseas markets, and actively promoted its own brands. According to the data, in 2001, Gree Electric Appliances U.S. Branch (hereinafter referred to as "Gree America") was formally established in California, USA, marking the official entry of Gree Electric Appliances into the US market. Gree semi-annual report shows that in the first half of this year, the company achieved a total operating income of 92.011 billion yuan, an increase of 30.32% year-on-year; of which, overseas revenue was 12.725 billion yuan, accounting for 13.83%. Compared with rivals Midea Group and Haier Zhijia, Gree's overseas sales revenue is not high, but this incident has aroused widespread concern.

Ma Pingchuan, deputy director of Guangdong Dehuan Law Firm, said in an interview with this reporter that Gree violated the provisions of the Consumer Product Safety Act (CPSA) on deliberately not reporting consumer product safety information to the US Consumer Product Safety Breach Society (CPSA). "Gree's Deferred Prosecution Agreement (DPA) with the U.S. Department of Justice is a voluntary alternative prosecution agreement in which the prosecution is willing to trade non-prosecution as a transaction and obtain the defendant's consent to certain conditions or requirements."

Under the terms of the deferred prosecution agreement, Gree Electric Appliance Co., Ltd. agreed to settle and pay a $91 million fine against their criminal charges, and agreed to provide compensation to any uncomplaimed victims of a fire caused by the company's defective dehumidifier.

Ma Pingchuan said, "DPA as an agreement, both parties have obligations to fulfill. On the one hand, fines, from the content of the disclosure, Gree also needs to cooperate with the Consumer Protection Division of the civil department and the U.S. Prosecutor's Office in future investigations and prosecutions, and regularly submit reports to the U.S. Department of Justice on its compliance program and internal control status. ”

<h4>Gree stressed that "it will not affect the performance of this year"</h4>

On October 31, Gree Electric Issued a Note to Respond to its lawsuit in the United States. Gree said in the note that the company received an accident complaint in 2012 and filed a report with the U.S. Consumer Product Safety Commission (CPSC) in June 2013. "Due to the untimely filing, in 2016 our company and the CPSC reached a civil settlement and paid $15.45 million. In 2017, the DOJ held us accountable for the same incident. After several rounds of negotiations, we recently reached an agreement with the DOJ to pay $75.75 million. If we comply with the agreement, the DOJ will close the case at the end of the three-year period. ”

Gree also stressed that the problems involved in the above agreements occurred 8 years ago, and there were no similar problems after 2013. For the fine of $91 million, Gree said that the amount involved in the agreement has been fully calculated and will not affect the company's normal operation and the results of this year.

21st Century Business Herald reporter inquiry found that on September 14, 2013, Gree Electric Appliances issued a notice on the situation of relevant matters, the announcement shows: "The company's exports to the United States and Canada some of the dehumidifier products may overheat, smoke and fire, may cause fire or burn hazards to consumers, in line with the responsible attitude for consumers, on September 12, 2013 under the supervision and approval of the US Consumer Product Safety Commission (CPSC) and Health Canada, The company still decided to voluntarily recall these dehumidifier products. ”

The recall targets approximately 2.25 million dehumidifier products sold in the U.S. and Canada between January 2005 and June 2013 for 12 brands, including SoleusAir, Kenmore, and Frigidaire. In the above announcement, Gree also said that due to the large time span, brands, retailers, e-commerce and a wide sales area, the company's actual recall of dehumidifier products can not be determined.

In the expanded recall in January 2014, Gree recalled about 350,000 DEhumidifiers involving the GE brand. The recalled dehumidifiers were sold in stores in the U.S. and Canada between January 2005 and August 2013, as well as on Amazon and Ebay websites, and included Gree, Danby, De'Longhi, Fedders, Fellini, Frigidaire, GE, Kenmore, Norpole, Premiere, Seabreeze, SoleusAir and SuperClima 13 brands, the manufacturers are Gree electric appliances.

In March 2016, the U.S. Consumer Product Safety Commission announced that Gree had agreed to pay a civil fine of $15.45 million (about 100 million yuan) to the U.S. federal government to settle the matter. On August 18, 2016, Gree Electric said in its semi-annual report that on September 12, 2013, it applied for a recall of dehumidifiers sold in the United States and Canada under the approval of the U.S. Consumer Product Safety Commission (CPSC) and Health Canada, and the company calculated sufficient expenses according to the expected losses. By the time the report was released, the dehumidifier recalls in the United States and Canada had been largely completed.

In addition, the reporter noted that in the 2019 annual report, Gree Electric Appliance listed a major expenditure called "other" in the "non-operating expenditure" account, which reached 583 million yuan. Gree Electric further explained that this is mainly the settlement of the recall of the DEHUmidifier in the US market.

<h4>How to prevent the risk of going to sea? </h4>

In recent years, more and more Chinese enterprises have begun to "go global" and seek development in overseas markets. At the same time, with the expansion of the scale of foreign investment, the risks and challenges faced by enterprises are also increasing.

For example, Ma Pingchuan said that Chinese enterprises mainly face legal risks when they go to sea, including uncertainty in the policies of the target country and trust risks. For example, in 2018, Western countries blocked Huawei products and intellectual property risks, such as overseas intellectual property complaints and 337 investigations. In addition, there will be some specific regulatory policy risks, such as financial policies, foreign investment ratio restrictions, anti-monopoly, etc.

"Generally speaking, enterprises can avoid risks through some preventive measures, such as entrusting local research institutions and law firms to do the necessary policy and legal investigations; hiring local law firms to provide comprehensive legal services; actively seeking help from Chinese embassies and consulates in the local area; and establishing contacts with local chambers of commerce and enterprises to understand local policies." Ma Pingchuan stressed, "We must not follow the experience of operating in China to be rigid. ”

The company's latest financial report shows that in the third quarter of this year, Gree's operating income was 47.083 billion yuan, down 16.5% year-on-year; net profit attributable to shareholders of listed companies was 6.188 billion yuan, down 15.66% year-on-year; net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses was 5.971 billion yuan, down 9.34% year-on-year, and basic earnings per share were 1.10 yuan, down 10.57% year-on-year.

In the first three quarters of this year, the revenue of Gree Electric Appliances was 138.135 billion yuan, an increase of 9.73% year-on-year; the net profit attributable to shareholders of listed companies was 15.645 billion yuan, an increase of 14.21% year-on-year. In the same period, Haier Zhijia achieved a cumulative revenue of 169.964 billion yuan in the first three quarters, an increase of 10.1% year-on-year; the net profit attributable to the owners of the parent company was 9.935 billion yuan, an increase of 57.7% year-on-year. Midea achieved revenue of 261.341 billion yuan, an increase of 20.57% year-on-year; net profit attributable to owners of the parent company was 23.455 billion yuan, an increase of 6.53% year-on-year.

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