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Foreign Businesses In China Are Increasingly Concerned About The Future

Post Time:2012-07-16 Source:Forbes Author:Russell Flannery Views:

For a country that has successfully attracted major investments over the years from multinationals as diverse as Starbucks, Intel, Disney and GM, the message from the European Union Chamber of Commerce in China in May was relatively downbeat. Regulatory restrictions hurt business at half of companies that participated in a recent chamber survey; some 22% of the respondents said they may move their projects elsewhere as a result.  That comes on top of consecutive year-on-year declines in foreign investment in each of the five months to April, and long-standing concerns about piracy and unfair competition.

What’s next?  To learn more, I recently talked in Shanghai with Ken Lieberthal, the author of “Managing the China Challenge: How to Achieve Corporate Success in the People’s Republic” published last year. Ken is current the director of the John L. Thornton China Center at Brookings, and was previously senior director for Asia on the National Security Council in the U.S. in 1998-2000 and a professor at the University of Michigan.  He is also the co-author of a book published earlier this year, “Bending History: Barack Obama’s Foreign Policy” and co-author with Peking University scholar Wang Jisi of a Brookings report published earlier this year, “Addressing U.S.-China Strategic Distrust.” Excerpts follow.

Q: It’s been 10 years since China entered the World Trade Organization.  There was a lot of optimism about China’s membership early on. Where do things stand today, generally speaking?

A:  A lot of American multinationals are now deeply invested here. Their return on investment, according to surveys done by the American Chamber of Commerce in both Shanghai and Beijing, is actually higher than their global averages. The growth of business has been faster than anywhere else in the world in the last couple of years since the financial crisis. So I think, generally, American-based multinationals are glad that they came, and, for many of them, this has been very important.

At the same time, there is an increasing concern — not so much about the present as about the future here.  Some are seeing both policy and regulatory decisions that seem to really disadvantage multinationals. They also are seeing a growing nationalism here. So, it’s a combination, of greater obstacles to market access, greater concerns about laws and intellectual property, and a greater sense that the Chinese are going to try and outcompete us, and play by rules that are not always our rules.

So it isn’t that multinationals are cutting and pulling out in droves. It isn’t that they have become anti-China. But, for example, you see in the U.S. Congress that multinationals that have supported maintaining a steady U.S.-China relationship have largely been sitting on the sidelines in the past two years or so. They aren’t willing to get out and use their political capital on behalf of the U.S.-China relationship. Rather, they are complaining, raising concerns to USTR and others in the government, and hoping that things turn out better than they are now worrying about.

Q: Let’s go through that list of concerns one by one. How do you size up that feeling about market access?

 A: Market access remains very substantial here. But if you’re in financial services, it isn’t. If you’re in insurance, it recently has gotten somewhat better, but for a long time, it’s been extremely restricted, with rules very much in favor of Chinese companies, especially for opening new branches around the country. And in the automotive industry, you have to be doing a joint venture, and you can’t own more than 50% of it, if it’s an assembly line operation.

So you march down that line: On the one hand, there’s been such a rapidly growing economy that the amount of business you could do has been growing in most sectors by quite a bit, as the economy is growing. On the other hand, you look at what a small percentage you’re doing of what you could do if there weren’t restrictions that prohibit you from full access, and it can get pretty frustrating.  I think what we see is that kind of mix of emotions. Companies want China to act as a free economy.

Q: What about protection of intellectual property?

A: It’s a huge problem. Some of that reflects conscious state policy. You see that especially in the clean energy sector. We remain well ahead of China for the most part in the clean energy space in terms of R&D. Our labs do things that the Chinese don’t. But when you look for finance to do test beds and to scale up in the U.S., the financing often isn’t available. You look to the government for supportive regulatory policies, and those policies either aren’t there, or they’re there but they have to be renewed every year. There’s uncertainty about the future, and so you can’t get take new technologies out of the lab, actually create the products, and scale them up to the point where they are commercially competitive.

China says, “Come hither, come hither.”   We’ll provide the financing.  We’ll provide very quick regulatory approvals. We have everything you need to make all of this work, bring your technology with you and we’ll supply market entry.


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