China: If You Are Not First You Are Last

The last week or so, I did a couple of "big picture" posts on China's future.  The first, "The Rise of Great Nations/What China Wants," discussed how China seeks to shape its future as a great power.  The second, "China And Yao Ming Rising?" discussed how China sees itself among nations now and its future.  Both posts highlighted China's rising confidence. 

In a post entitled, "China Steps Up," the Diligence China Blog analyzed how China's increasingly confident view of itself will likely impact foreign business in China, and I found the following two points particularly salient: 

If you're not first, you're last. Ok, I apologize for the Will Ferrell, Ricky Bobby reference, but the Middle Kingdom has always had issues when it comes to playing nicely with others. They pay lip service to the 'joining the community of nations' line that we all love, but China considers parity to be a milestone on the way to its true destiny. One aspect of China's 4000 year cultural history is the notion that China stands between Heaven and the Barbarians of the Underworld. Guess which one you are? Look for Chinese companies to get more competitive as they prepare to go head-to-head with western MNCs. The Lenovo gambit has been a limited success, but HuaWei is looking like a winner. Chinese MNCs are going to go international in the developing markets first, and try to climb the value chain.   

Will it make market entry easier or more difficult? Maybe it's counterintuitive, but a confident China will be easier to deal with. China seems to feel that it is coming into its own, and that its policy of 'learning from the foreigners' is working out just fine. WTO has been a big hit for China, and we can expect Beijing to honor the treaty obligations for as long as the WTO stands. But SOEs [state owned entities] will be protected. Anyone looking for foreign involvement in TV, telecom, education or other culturally sensitive industries is in for a long wait. Entry will get easier ' but exit may be trickier. Look for China to be increasingly sensitive about profit repatriation and changes in corporate ownership. If you don't have an exit strategy, you ought to drop a line to your international lawyer and start looking at a range of scenarios.

Much as I like the part about dropping "a line to your international lawyer," I do not see China instituting new laws restricting profit repatriation.  However, I do see China getting much tougher in enforcing its existing laws relating to foreign business as I have already seen this happening in many areas (I received yet another call last week from a foreign consulting company in trouble for operating in China without having registered to do so) and I see this only continuing to pick up.  In "China IP Protection Rising -- Just As Prediced," I wrote about China's stepped up legal enforcement of intellectual property rights and in "URGENT ALERT: Register Your Company In China NOW," I talked about how the government has mounted a crackdown on foreign businesses operating illegally. 

I am skeptical China is going to toughen its corporate ownership rules beyond the M&A (mergers and acquisition) changes that recently occurred, but I definitely concur with Diligence China in predicting Chinese companies will increasingly be developing their overseas business, particularly in developing countries. 

And speaking of not being first (I am currently in second place), please click here to vote for the Best Asian Blog Award.