Why Foreign Businesses in China Are Getting Mad?

[Markus]

Why Foreign Businesses in China Are Getting Mad?

Foreign businesses in China are voicing growing frustration about the country's heavily regulated market — a bureaucratic maze many say is designed deliberately to hamstring non-Chinese players to the advantage of their local competitors. Last week the European Union Chamber of Commerce in China joined the chorus: its annual position paper, an unwieldy, 650-page tome, lists hundreds of market-access problems for foreign companies across a range of industries. By stymieing open competition between local and foreign business, China is hurting itself too, says the organization's president, Jacques de Boisséson. "The proportion of European investments to China compared to the overall outbound investment from the E.U. is only 3%," he says. "There is not enough European investment in China."

Direct foreign investment in China has been growing in step with the nation's booming economy but not as quickly as many would like. Europe's exports to China totaled € 78.4 billion in 2008, a rise of 9% from 2007. But, says the European chamber, which represents 1,400 international businesses, trade with the small nation of Switzerland is still three times as high. Despite the 30 years that have passed since Beijing swung open the doors to foreign investment, "China still remains excessively regulated and less open to competition compared to other major economies," the paper reads. (See the top 10 Chinese knockoffs.)

Though international investors have complained for decades about the bureaucratic hoops they have to jump through to access the China market, their concerns have been sharpened in recent years by a series of regulatory changes that appear directly intended to shut out foreigners. They've made European companies wary of committing more capital to the China market, says de Boisséson. "What we are telling [the Chinese government] is that our companies are willing to invest, and for that, they need to be sure that they will be treated equally. Today they are concerned that this wouldn't be the case."

Their concerns are not unfounded. In early 2009 a set of policy proposals known as Indigenous Innovation Accreditation caused alarm among international businesses when early drafts seemed to shut the door to foreign products across the high-tech industry through a complicated licensing system that required companies to register their IPR in China before registering elsewhere in order to qualify. In a report this June, the Washington-based U.S. Chamber of Commerce said the policies were "considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before." (Watch a video about China's knockoff electric carmakers.)

While subsequent drafts of the law have been more accommodating, foreigners have also complained loudly that they are being shut out of much of the lucrative government procurement sector. The U.S. and most other Western markets are signed up to the World Trade Organization's government procurement agreement, legally forbidding them to keep foreigners out. China, however, is not signed up. Last year the European chamber stated that government tenders in the fast-growing wind-power sector were deliberately designed to keep foreign companies out of the running by inserting criteria that only Chinese companies could meet. The organization also noted that not one of 25 valuable contracts awarded to companies under the government's $584 billion stimulus package went to a foreign-owned company. (See pictures of China's infrastructure boom.)

The atmosphere does not appear to have improved. In July the heads of two of Europe's largest companies caught Beijing off guard by complaining directly to Premier Wen Jiabao that foreign businesses were being unfairly discriminated against. Jürgen Hambrecht, chief executive of BASF, told the Chinese leader that his company was being forced, by the regulations it had to accept in order to set up certain businesses, to transfer technology to China in order to access the China market. "This is not our idea of a partnership," he was quoted as saying. At the same meeting, Peter Loescher, chief executive of Siemens, complained about the uncompetitive advantage given to domestic companies in the awarding of public procurement contracts.

That same month, GE's CEO, Jeffrey Immelt, sparked a p.r. crisis when remarks he made in private about the deteriorating market environment in China were leaked: "I really worry about China ... I am not sure that in the end they want any of us to win or any of us to be successful," he was quoted in the Financial Times as saying to an audience of top Italian executives in Rome.

The American Chamber of Commerce in China has also echoed these concerns. "For the high-tech sector, the ITC industry and industries that are heavily dependent on intellectual property, there is a great concern about the operating environment in the future, because of the regulatory-policy changes and narrowing of market access," says Christian Murck, the organization's president. "Companies say that China remains their top priority for future investment, but of course that future investment will depend on the degree to which there is scope in the market for foreign companies to operate."

The very public airing of grievances has clearly rattled China's leaders, who have made an equally well broadcast show of placating foreign investors in recent days. "China is actively engaged in making a more open and better investment environment for foreign businesses," Chinese Vice President Xi Jinping assured international investors in a speech this week. "We have adjusted our definition of 'indigenous innovation' and confirm that foreign businesses are part of China's manufacturing force." (Comment on this story.)

De Boisséson acknowledges that Beijing is talking a good game, but he cautions that sweet words from the leadership do not always translate into law. "We would like to see concrete steps on the ground that show all China is united around this policy," he says, adding that China can no longer assume that the lure of access to more than a billion potential customers will always trump foreign investors' concerns about the market environment. "If one day conditions are unacceptable for European companies, I suppose they might change their plans," de Boisséson says. "Nothing is there forever."


Foreign Businesses Say Chinas Regulations Shut Them Out - TIME

 

[中国万岁-ProsperThroughCo-]

From Financial Times, responding to the complaints of GE's CEO and others one week earlier.

Wen calls bluff of moaning multinationals
By Geoff Dyer in Beijing
Published: July 20 2010 18:09 | Last updated: July 20 2010 18:09

Beware the wrath of a corporate titan scorned. A year ago, the bosses of the world’s largest companies oozed with praise for China’s handling of the global crisis. “Man, these guys are good,” Jeff Immelt, head of GE, told an audience at West Point.

Maybe it is the summer weather, but when the subject of Beijing comes up these days, multinationals seem to get hot under the collar. Mr Immelt confessed at a dinner in Rome earlier this month: “I am not sure that in the end they want any of us to win, or any of us to be successful.”

At the weekend, Jürgen Hambrecht, chief executive of German chemicals group BASF, and another corporate leader who has assiduously courted China, told Wen Jiabao, premier, that Beijing’s current approach to foreign companies “does not exactly correspond to our views of a partnership”.

According to reporters present, the exchange was so sharp that Mr Wen asked his German visitor to “calm down”.

Clearly, something has changed for many multinationals in China, even if there are few obvious new policies to explain the shift. In the technology sector, Beijing wants to use new “encryption” rules to get companies to hand over core software, while foreign companies are also hit by its public procurement policies and weak protection of intellectual property.

Some multinationals say they are getting a rougher ride from Chinese bureaucrats, despite all the hours spent courting them at banquets or making painfully polite speeches. Others complain that while their business is expanding, it is well short of expectations or the growth in their market.

Chinese companies are also getting better, fast. Although few are close to building international consumer brands, many Chinese groups are winning global success in markets for, say, power equipment, or machine tools or locomotives. It is no surprise complaints are coming from industrial groups such as GE and Siemens.

And in truth, China has always been a difficult place for foreign companies – and for local private businesses. The difference is that China is no longer a project for the future: it is so central to the prospects of many multinationals that routine difficulties and frustrations are top of the in-tray of the companies’ senior executives.

For all the obstacles, however, it is hard for multinationals to act too surprised. As Mr Immelt told his audience at West Point last year, China’s leaders “do exactly what they say they will do”. And one of the clearest objectives for the past three decades has been to leverage access to its vast market into technology transfers by foreign companies.

Nor is this some dastardly Chinese plan. Plenty of other nations have used a mixture of subsidies, tariffs and technology policies to try to kick-start their industrialisation including Japan, South Korea and – whisper this softly! – Germany and the US.

Ultimately, multinationals have only one real source of leverage – their investments. Foreign factories have played a key role in boosting Chinese productivity, bringing not only technology, but also skills, management techniques and international best practices. All the things, indeed, that China still needs to keep modernising its economy.

Beijing hopes it can have it both ways, using policy to boost its own companies while receiving new foreign factories. At a now infamous meeting last year in Brussels, Wang Qishan, vice-premier, dismissed complaints from a group of European executives. “You are going to invest there anyway,” he said. And he was right. Even with the crisis, foreign direct investment to China jumped 19.6 per cent in the first half of this year. China is essential to many industries, either because of the depth of its supplier networks or the size of its market.

However, there are also plenty of companies that have realistic alternatives for new facilities. And if Beijing saw that foreign investment really was dropping off, the bureaucracy would be very worried. Multinationals have a choice, therefore. They can complain as loud as they like about Chinese industrial policies, but if they continue to behave as if there is no alternative, Beijing will keep calling their bluff.

Btw, the U.S. is complaining that China has a trade surplus with the U.S. Well, the U.S. has had a trade deficit the last decades with other countries, and China wasn't the first country. Maybe if the U.S. relaxed its export bans on "hi-tech" products (which aren't hi-tech anymore) which were enforced to hinder Chinese development, China finally could buy products that it wants. As Wen Jiabao said, "the U.S. will only export soya beans and aircrafts to China".

As if the Western countries does not protect its own industries. They will not allow China to buy foreign companies. How many times haven't we heard about the "national security" reason? The U.S. had import quotas on japanese cars during the 80's etc. The pot is calling the kettle black.

Meanwhile, from Financial Times again:

China economy shows strength in buoyant data

BEIJING (September 11) - Chinese factories ramped up production in August and money growth easily topped expectations, showing that the economy remained buoyant despite government efforts to clamp down on bank lending and property speculation.

Investment was also resilient, while inflation sped to its fastest pace in 22 months, though the bulk of price rises stemmed from higher food costs, which analysts have said should be transitory after a spell of bad weather across China this summer.

Markets have been worried that global weakness alongside the official campaign to rein in property prices and bank loans could weigh on China, but the suite of August data painted the picture of an economy that was gliding into the softest of landings.

“People were already talking about a soft landing. Now we’re bouncing along the runway without even touching the tarmac,” said Tom Orlik, an economist with Stone & McCarthy Research Associates in Beijing.

The uptick in inflation to 3.5 per cent in the year to August from 3.3 per cent in July was more or less in line with expectations.

The gains in industrial output and money growth were more surprising.

Industrial production rebounded to rise 13.9 per cent year on year after slowing to 13.4 per cent in July. Economists polled by Reuters had forecast a rise of 13.0 per cent.

The broad M2 measure of money growth sped up to 19.2 per cent in August, blowing past expectations of a 17.5 per cent increase. The rise came alongside slightly stronger-than-expected bank lending, with the stock of outstanding loans in the economy up 18.6 per cent, the first acceleration in four months.

Investment was another data point that revealed unexpected strength, with capital spending in urban areas up 24.8 per cent in the first eight months of the year compared with the same period in 2009. Economists had forecast a 24.5 per cent rise.

Despite the market’s focus on property tightening, Yu Song and Helen Qiao, economists at Goldman Sachs, argued that the government had in fact been loosening policy by speeding up infrastructure investment in recent months.

“The magnitude of such a loosening was never clear and yesterday’s imports and today’s fixed-asset investment and industrial production suggest the magnitude might be greater than we initially expected,” they wrote in a note to clients.

The figures on Saturday followed a leap in imports that was reported on Friday, also underlining the momentum in China, which has already overtaken Japan as the world’s second largest economy by some measures.

“The August economic indicators and the recovery in industrial output in particular confirm the stabilising trend of our economy and shows that it has more internal drive,” said Wang Han, an economist with research and advisory firm CEBM in Shanghai.

 

[somebozo]

Well chinese have a right to regulate their market and so does India. The forgieners are free to leave if they dont like it there. You cant have all the benefits in your favour. If you are getting cheap labour and energy its gotta be traded with something.

 

[aristocrat]

dosen't matter how so much they complain.as long as they are able to make some adjustments/compromises and earn profits they will remain in china.

 

[StingRoy]

It is true the protectionism has been a part of the govt policies worldwide to provide opportunities for the local talent to flourish... This protectionism is somewhat subdued in truly capitalist economies like the US... but given the recent visa restrictions and regulations against outsourcing... US is also not the purest one...
As long as the companies see it fit and profitable to operate within the conditions that the Chinese govt provides.... they should be happy to embrace the regulations.... more so the risks are higher in communist countries like China...

 

[Nomenclature]

China responds to growing 'protectionism' complaints - Telegraph

Xi Jinping, China’s vice-president and the man in line to succeed the current president Hu Jintao in 2013, told an investment forum that China would not discriminate when it came to government procurement.

“With regard to government purchases and construction projects, the Chinese government will adopt an open, transparent plan to let foreign companies and technological products enjoy equal treatment," Xi said, according to state-run television.

His remarks come a week after the European Chamber of Commerce in China released a 650-page report detailing the continuing barriers to market access faced by foreign businesses trying to operate in China.

High up among their concerns was the policy of ‘indigenous innovation’ announced last year which appeared to order Chinese government departments to only purchase from companies whose products and materials had been developed in China.

Mr Xi’s pledge appears to be the latest in a series of attempts to reassure foreign businesses that they would not face discrimination. Similar assurances were given earlier in the year by China’s premier Wen Jiabao.

However last week Jacques de Boisseson, the president of the EU Chamber, said that while such assurances were to be welcomed, “serious concerns” over the policy remained, adding that “the proof of the pudding will be in the eating.”

China is also currently in talks to join the World Trade Organisation’s Government Procurement Agreement (GPA) protocol which would require it to treat foreign firms equally when it came to bidding for its multi-billion dollars state contracts.

Mr Xi promised that China would take a “a serious and responsible attitude” in the next round of talks due in October, however M. de Boisseson said last week that while China had made an improved offer to join the GPA it had still not gone far enough.

On Tuesday M. de Boisseson said he welcomed Mr Xi’s acknowledgment that FDI had played a crucial role in China’s development over the past 30 years.

“Even more importantly for our members are Vice-President Xi’s commitment to increase market access for foreign-invested firms in China in the future, and the assurance that Foreign-invested firms will be treated as Chinese with regards to 'indigenous innovation’ policies,” he added.

Despite the increasingly vociferous complaints of US and EU business about Chinese protectionism and regulatory double-standards, direct foreign investment (FDI) in China is expected to reach record levels this year, possibly exceeding USD$100bn for the first time.

Chinese analysts point to the growing FDI as concrete evidence that, for all the recent carping, China remains an attractive destination for foreign businesses.

Arthur Kroeber, managing director of GaveKal-Dragonomics, a Beijing-based economics consultancy, said that multi-nationals anxieties reflected fears that business conditions would deteriorated in the future as China’s homegrown competition matured.

“Foreign firms continue to do quite well in China, as evidenced by AmCham/Eurocham surveys of profitability, as well as by the continuing strong FDI numbers, but they worry about restrictions on market access and efforts to get them to trade technological "crown jewels" for market access,” he said.

“They are also, in my opinion, reacting to the fact that from the 1980s until the middle of the last decade foreign companies were treated like royalty, getting preferential tax treatment, visits to the Premier and the like, whereas today the treatment is less obsequious. This just means that China has matured.”

 

[Nomenclature]

Some charts showing why foreign business are getting mad.

First, Chinese graduates don't want to work for foreign companies as they used to do. Here's the top ten most desirable employer in China from a survey of recently graduated students:

As you can see only three of the top ten are foreign companies, what's more remarkable is they (Microsoft, Google and P&G) are the only three on the top 50 list. So China's brightest by and large no longer want to work for foreign multinationals.

Here's another chart on top consumer brands in China:

Again only three in the top 10 are foreign, and more than half of the top 100 are Chinese brands.

So Chinese workers increasingly don't want to work of foreigners and Chinese consumers increasingly no longer willing to buy foreign brands. What are foreign businesses doing to solve this problem? Complain about the Chinese government of course. As if the government can force people to work for them or buy their products.

 

[siegecrossbow]

I haven't been keeping up with the news so could someone tell me whether the tire tariff against China has been repealed yet?

Typical case of the pot calling the kettle black. As I've stated many times before these people only support Capitalism/free market when it serves them.

 

[below_freezing]

Some charts showing why foreign business are getting mad.

First, Chinese graduates don't want to work for foreign companies as they used to do. Here's the top ten most desirable employer in China from a survey of recently graduated students:

As you can see only three of the top ten are foreign companies, what's more remarkable is they (Microsoft, Google and P&G) are the only three on the top 50 list. So China's brightest by and large no longer want to work for foreign multinationals.

Here's another chart on top consumer brands in China:

Again only three in the top 10 are foreign, and more than half of the top 100 are Chinese brands.

So Chinese workers increasingly don't want to work of foreigners and Chinese consumers increasingly no longer willing to buy foreign brands. What are foreign businesses doing to solve this problem? Complain about the Chinese government of course. As if the government can force people to work for them or buy their products.

No sympathy for wall street. We have to support our industries, otherwise if a country cannot even support its own industry, what can it do besides turn into a new colonial marketplace?

 

[yangtomous]

I think the thing don't like that
on the one hand, it just to make a equal maket .for a long time China give foreign company more privilege than local company .now it only take this privilege away,we still very welcome foreign company,but you must face a equal market .on the other hand in China some field just allowed country control like railway ,electricity and so on ,China is a
socialism country this field also close for the China company . as my opinion China are more equal than Usa .they embargo many things .China can't buy Usa company ,China can't buy high-tech machine,China can't sell cheap goods.think China is a big threat,but we see USA as a partner.