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Doing Business In China: What It Is Really Like.

By Dan Harris on Posted in China Business, Legal News, Recommended Reading

Absolutely excellent, must read piece in today’s New York Times, entitled, “Foreign Companies Chafe at China’s Restrictions.” Better than anything else I have read, this article, written by Keith Bradsher, conveys what foreign companies have been facing in China recently.
The reality is that China is simply less excited and less desirous of foreign direct investment now than it was even as recently as one year ago and it is putting up hurdles against it. I intentionally used the word hurdles (and not roadblocks) because my clients have so far been able to jump over the new obstacles thrown their way.
If you are doing business in China or thinking of doing business in China, I urge you to read Bradsher’s piece. For more on how China is tightening the noose around foreign investment, check out the following:
– China’s Changing Worldview Is Bad For Your Business.
– With China’s New Standing Come New Errors.
– China Whets Its Enforcement Appetite. And It’s YOU It Wants.
– China Business And Regulation. The Times They Are A Changing.
– Foreign Business In China. Can’t Live With ‘Em, Can’t Live Without ‘Em.
– Foreign Investment (FDI) In China. The Glass Is Half Empty Not Half Full
What are you seeing out there?

  • http://taikongren.net/ Jesse Covner

    Here is the thing. As discussed here and elsewhere, we have not seen a powerful Chinese consumer brandname…or any brandname yet. And in spite of all these articles that claim that Chinese now have “the know-how”, I do not know of any technology developed in China which is being exported to the West. INCLUDING railway technology and Green Tech. Name one Chinese-developed technology that is on the cutting tech. In Suzhou, I know that the photo-resist and chip-tester equipment sales-people sell tech which is two generations behind. That means that the back-end of the value chain is lagging. New photo-voltaic cell plants (in Suzhou) import most of their main machinery. From my friends and contacts in pharmaceuticals, they do not know of one breakthrough meds coming from Chinese pharmaceutical companies.
    So to me the question is: how can Chinese economic nationalism be in any way sustainable? My answer is that it is not sustainable…and only exists in certain areas because its so obviously unsustainable.
    The back end of the value chain (ie. photoresists, chip-makers) and the front end (ie. marketing, brand-name) are both lagging compared to international markets. I believe what IS happening is that China is solidifying its hold on lagging-end tech markets, because those are the only markets where China has an advantage. Power switchgear and devices. lagging-curve green-tech. Chemical formulation. Infrastructure engineering.

  • fickle

    “how can Chinese economic nationalism be in any way sustainable?”
    “economic nationalism” is the new provocative buzz word every time an exec feels they are losing ground to a competitor whether it’s because they are losing out due to government policy or because they find it harder to compete with a domestic company. Afterall, when you implement “buy American” it’s in the name of protecting American jobs while China does it, it’s “economic nationalism”.

  • http://taikongren.net Jesse Covner

    fickle, do you think that the bad news is all just hype, or are you remarking about hypocrisy of labeling China’s actions as somehow morally worse than what America does?
    When I had a discussion about this with my hard-core conservative friend (ex-Army ranger currently working as Sales Director in China), he said “Why can’t America give its stimulus money to Americans? China is doing the right thing!”
    The more I look at this issue, the more it defies simple description. China is not strong in brand-names nor in technology development. Many local governments depend on foreign investment; the local real-estate markets also depend on it. The local job markets depend on it. Without FDI, Shanghai, Wuxi, Suzhou, Shenzhen, probably Tianjin… they all fall down. This is obvious. So what areas is the “economic nationalism” manifesting in?

  • fickle

    “The more I look at this issue, the more it defies simple description. China is not strong in brand-names nor in technology development.”
    According to that NYT article they’re putting up hurdles in markets such as mineral extraction which has little to do with branding, while at the same time getting foreign factories to setup shop in China which would expose locals to new technology, explain to me how this defies simple description?

  • http://taikongren.net Jesse Covner

    Mineral extraction is a back-end value chain industry. It is ONE area to look at. What happens in that sector does not necessarily relate to other sectors. Sure there are brands in extraction industries, but how important is brand-name value to the process of pulling metals out of the ground? In this area, they are getting foreign companies to set up processing plants..which is neither a brand-valuable nor particularly high-tech.
    “…while at the same time getting foreign factories to setup shop in China which would expose locals to new technology, explain to me how this defies simple description?”
    Some companies still probably transfer technology to Chinese “partners” in order to enter the market. In my experience, talking with factory managers, most Western companies transfer old, outdated patents and technologies to China in order to get large tax breaks. I believe what the China Law Blog writers have pointed out that Chinese government does not seem to believe that Chinese should pay money for foreign technology. I believe that the real issue is that the government does not feel that 20 -year – old patents should be considered as a valuable asset for China.
    Now, as I mentioned, I live in Suzhou. Which consistently attracts the largest FDI of any single city in China. And in Suzhou, just about any company which transfers patents to the China operations is labeled as a “high-tech” company. No one transfers important technology though. This is changing as Suzhou wants to reduce manufacturing FDI and wants to attract services industries. But most of the suburb industrial parks in Suzhou (just 20 minutes away from city center) are still actively inviting FDI
    Long story short: it depends where is the investment and in what sector. Which means that there is no simple description to describe the overall situation.

  • Charlie

    Jesse,
    It is true that China is putting a tight grip over lagging technology, but that is not to say Chinese are not researching cutting-edge technology. However, given the external and internal limitations imposed upon it, China cannot just leap through the entire gap between it and many developed nations (granted, it should stop calling itself a “developing nation” as that term has been traditionally defined).
    In regards to “economic nationalism,” to be sure, China will have difficulty sustaining it if it pursued a free market approach, or if the market was smaller, or any other assortment of circumstances. However, the size and facial appeal of the China market tempts FDI, and that provides the necessary sustenance China needs to maintain its growth–at least in the short-run.
    From the looks of some of the changes being proposed or implemented, e.g., China’s proposed new FDI rules, China understands the predicament it is in, and is seeking outside help. Simply put, China just does not have the experience that Western markets have. Even though the government uses critical words like “broken model,” it still recognizes the need to apply such a model.
    And like Fickle (and NYT) said, China is hording natural resources. That is probably where a lot of the “economic nationalism” plays its part–in the industrial cities such as Harbin, Heilongjiang, Chongqing, etc.–away from the glitz and glamor. Given that I am currently in China, take this data with a grain of salt, but the Chinese news reported yesterday that China consumes 50% of the world’s coal and consists of a considerable portion of the global coal industry. Not to mention China’s desire for other natural resources, such as steel, oil, gas, etc.
    I believe, in the end, what term is coined, and by whom, hardly matters. China is simply being more aggressive with its national policies than its foreign counterparts.