News / Asia

China Increasing Restrictions on Foreign Businesses

Peter Simpson

For three decades foreign companies have been taking advantage of the warm welcome given to them by an emerging China. But now many international companies say they face a growing number of obstacles to doing business in the country.  Peter Simpson reports from Beijing.

When China began opening up 30 years ago, foreign enterprises were given VIP treatment by officials eager to learn Western business ways and take advantage of billions of investment dollars.

Foreign companies in turn sought to tap the vast number of potential customers in China, as well as its pool of workers.

But these days, sentiment among international companies has turned bleak.

Foreign business executives say there has been a sudden change in policy and an increase in restrictions that favor Chinese companies and smack of protectionism.

China business consultant James McGregor is the former chairman of the American Chamber of Commerce, a long-time journalist in China and best-selling business author.

During his 20 years of observing the business environment in China, he says he has seldom seen the foreign business community more angry and disillusioned than it is today.

"The foreign business community is really concerned about where things are headed," noted McGregor.  "Many foreign companies are doing well and making money here after 20 years building up their businesses. But as they look at new policies coming their way, they are concerned that future opportunities are narrowing."

The European Chamber of Commerce in China expressed concern last week that its members suffer under what it calls an unexpected and impregnable blockade erected by the Chinese in recent months.

In an open letter, the European chamber says some its members are contemplating leaving China because they are weary of slogging through what the letter calls an unpredictable business environment with the odds deliberately stacked against them.

The main bone of contention is the indigenous innovation policy, that instructs provincial and regional governments to choose Chinese companies over foreign ones for contracts.

European Chamber of Commerce Secretary General Dirk Moens says there are risks businesses will suffer damaging losses because of confusing and inconsistent regulations, and favoritism.

He says many Europeans companies have demanded action and have asked his group to seek dialogue with the Chinese government.

"Our members are pushing us to engage with the relevant authorities and the good news is we are doing that," said Moens.  "The authorities are willing to engage in this discussion as they realize the reaction means their policies lack clarity and there is a need to engage with business organizations to clarify."

Many link the hostile business environment to the arrest and lengthy imprisonment of Rio Tinto's Chinese staff, Google's pull out from China because of censorship and the accusations that the Chinese manipulate their currency.

But McGregor says these issues, especially the dispute over the value of the yuan, are not the main concerns of foreign businesses.

He says the bigger problems include rampant intellectual-property theft, state penetration of multinationals through unions and Communist Party organizations, and politicized courts and agencies that almost always favor local companies. And many foreign companies complain of what he describes as creative and selective enforcement of World Trade Organization requirements.

"There's been a lot of foreign companies in the last five years that have decided to put almost all their eggs in the China basket because they saw this place as growth and they saw opportunity," added McGregor.  "And now I think they are starting to see opportunities narrowing and closing and they are going to be reassessing. There are board rooms all around the world right now that are having a lot of discussions about this and reassessing the China opportunity."

McGregor also says the financial crisis has seen the long-held respect for the Western business model lost and in its place the emergence of Chinese triumphalism.

He says many Chinese policy makers now believe their market model is superior to those of Washington and Brussels.

Both he and Moens warn the change in attitude could drive companies out of China.

However, the Chinese government denies the environment has changed toward foreign companies.

During its annual parliamentary session last month, Premier Wen Jiabao was at pains to say international businesses are always welcome, and that he would try to create a level playing field.

Senior Chinese officials from the Foreign and Commerce Ministries do appear to have gauged the current mood.

In recent weeks they have gone on a charm offensive and have met with foreign business leaders to calm rising anger.

And Foreign Ministry spokesman Qin Gang firmly denied China violates World Trade Organization rules.

Qin says there is no discrimination against foreign companies. He says that since joining the WTO, China has treated international firms like family members, and adds that all foreign companies are welcome to do business in the country.

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