Insight: China CCTV Starbucks report set off storm inside network BEIJING (Reuters) - A China state television investigative report accusing Starbucks of overcharging local customers for coffee triggered enormous disquiet among journalists at the network and even some soul-searching after it aired. The October segment - the brainchild of a network executive who noticed Starbucks coffee cost more in China than in Britain - was mocked by Chinese Internet users and criticized by economic experts. But the reaction inside China Central Television (CCTV), which has targeted numerous foreign firms this year, was just as harsh, said a person with direct knowledge of how the Starbucks report came together, and a former employee who left weeks ago. However, those misgivings were all expressed in private or on a Chinese mobile phone chat application, illustrating how journalists in China are still reluctant to challenge editors in a system beholden to the ruling Communist Party. I couldn't find you a single person at CCTV who genuinely agreed with that report. Everybody thought it was very silly," said the person with direct knowledge of the segment. Of course, during meetings, the higher-ups all said it was right to do the report and no one disagreed. The person didn't want to be named because of the sensitivity of the matter. CCTV did not respond to requests for comment. The network has taken many foreign firms to task this year over pricing, poor quality and shoddy customer service. They include Apple, Samsung Electronics, the KFC restaurants of Yum Brands Inc and British drugmaker GlaxoSmithKline PLC. Last week, CCTV accused foreign carmakers of charging local customers more for repairs than in other markets, singling out Audi, Subaru, and Jaguar Land Rover. In some cases, the reports have won plaudits from viewers and forced companies to change their practices. For example, Apple apologized to Chinese consumers for poor communication over its warranty policy and changed some of the terms. The two sources said they were not aware of any government directive to CCTV to target foreign firms. At the same time, CCTV editors were praising reports focused on the rights of Chinese consumers, they said. Chinese government bodies and state-owned firms are usually too sensitive to investigate, putting foreign companies in the firing line for hard-hitting corporate stories, experts said. "Criticizing foreign companies is very safe," said Zhan Jiang, a journalism professor at the Beijing Foreign Studies University. Leaders don't pay any attention to it, people will support it, and it won't bring the network any trouble. Indeed, notes summarizing an editorial meeting before the Starbucks report aired shows how much foreign firms are in the cross-hairs. It's not just coffee. At the same time, it's lots of luxury goods, like cars, international brands, they've all come to China to dig for gold," said the notes, taken by an employee at the meeting and obtained by Reuters. For most of them, their prices in China are the highest in the world. CCTV is China's state broadcaster. Its Chinese-language news channel, CCTV 13, functions as a primary vehicle for government propaganda as well as a platform for legitimate reporting, including on crime, social issues and business, experts say. The 18-minute Starbucks report, which appeared to use hidden cameras, showed CCTV reporters in Beijing, Chicago and Mumbai asking people on the street what they thought about the price and value of Starbucks coffee. It criticized the Seattle-based company for charging higher prices than in others markets, which it said helped Starbucks earn "fat" profit margins given its costs in China were not very high. In an e-mailed statement, Starbucks said it understood the concerns raised in the CCTV report, but that its prices are based on local market costs including infrastructure, labor, ingredients and rent, which are different in each market. A separate internal CCTV memo describing the thinking behind the report, also obtained by Reuters, shows staff believed Starbucks was taking advantage of a lax Chinese regulatory environment. "We need a lawyer to explain what punishment Starbucks would receive in the U.S. if it just hiked its prices as it pleased - this section should be as complete as possible," said the memo. The broadcast report did not use any U.S. lawyers. In a market economy like the United States, companies are free to charge whatever they want for their products. According to the memo, the CCTV reporters overseas were told to ask passers-by outside Starbucks: "Is it reasonable to sell at such an expensive price in a low-income country? In the U.S., does this violate any principle? When the report aired, Internet users chided the network for tackling a minor issue compared to China's many challenges. Economists said CCTV had failed to grasp the concept of supply and demand, noting it was normal for a company to charge different prices for its products in different countries. "Of course Starbucks has the right to charge premium prices - if that's what consumers want, that's what they'll go to," said Mark Tanner, managing director of China Skinny, a marketing, online and research agency. CCTV's expertise also came under scrutiny last month when it said local property developers owed as much as 3.8 trillion yuan ($624 billion) in unpaid land taxes. The tax bureau, while not naming CCTV, said the estimates were inaccurate and a misreading of tax policy. The person with direct knowledge of the Starbucks report said many journalists thought it was a bad idea to begin with. "There wasn't a single person before the broadcast who was brave enough to stand up and say this report is problematic and we can't do it like this," the person said. After it was broadcast, journalists lambasted the report within the corridors of CCTV's headquarters in Beijing or in groups on the popular WeChat app run by Tencent, a Chinese Internet company, said the two sources. The story idea was put forward by the network executive, who both sources declined to identify. The project was given to reporters in the economics editorial team, they said. According to the internal memo, it became part of the team's push to report on the "windfall profits by foreign brands." "U.S. enterprises hike prices as they please in China, but in the U.S., Chinese enterprises don't dare to do the same," the memo said. After the widespread criticism of the report, it was raised quietly as a cautionary tale in low-level editorial meetings, said the former CCTV employee, who left the network for personal reasons and who also declined to be identified. She said a senior producer who did not work in the economics department told reporters after the Starbucks report aired that they should use discretion and judgment in choosing topics to avoid a viewer backlash, including from social media. Still, senior editors see foreign firms as key targets for investigative reports. "It was not a cohesive theme, but was suggested at general meetings - the idea that we have to be vigilant against these foreign companies that are short-changing Chinese people," said the former employee.