In going through my hard copy of Asia Legal Business today, I came across an article I wrote a few months back. The article is called “A China That Can Say No,” and though it was written at the very beginning of the Google imbroglio, I think it holds up well. Its thesis is that Google is not terribly central to what most businesses involved in China should be focusing. China is changing separate and apart from Google and though Google may certainly be seen as a sign of that, it is not what happened to Google that should matter to most businesses. It is the change that is going on everywhere else that matters:
The recent Google China brouhaha is both less and more important than depicted by the media. It is less important because when all is said and done, little to nothing will have changed in China as a result of it. Yet it is more important than painted in that when all is said and done, little to nothing will have changed in China.
Let me explain.
The Google China fight is a perfect symbol not so much of where China is heading than as where it sees itself right now. That conflict crystallizes how China now considers itself as being able to thrive without foreign investment. That conflict also highlights how China no longer fears using its own laws to reign in foreign businesses and give competitive succor to its own domestic companies. I do not purport to know why China did what it did with Google nor do I purport to know why Google did what it did with China, but I do know that China has been tightening its legal enforcement against foreign companies, Google included, and I am certain that will only continue.
The direct corollary of China having become less beholden to foreign enterprises is that those enterprises have lost their previously favored status. The best example of this is how foreign enterprises no longer receive special tax benefits not provided to domestic entities. For the last decade, China has had a framework for regulating foreign businesses but has not placed great emphasis on applying it. Now, however, those days of benign neglect are over and the Chinese government is increasingly cracking down on foreign violators of existing regulations, and issuing new guidelines and circulars to enhance what is already on its books.
With China being hailed as the world economy’s savior, its government has concluded it should put more effort into enforcing its laws against foreign businesses. This new world view is already impacting foreign business in China and it will continue. In particular, my law firm has seen the following changes for foreign business in China:
— China’s local governments are more often delaying or denying applications for wholly foreign owned enterprises (WFOEs) and joint ventures. Chinese officials have come right out and said they no longer care whether foreign businesses come to China.
— Registration of technology licenses is more often being prohibited or restricted. The idea seems to be that Chinese businesses should not be required to pay for access to foreign technology.
— Visas for foreign workers are increasingly being delayed, denied or restricted. The view on this is that Chinese workers are available to do any job.
— China is greatly stepping up enforcement of its tax laws against foreign companies.
The Chinese government’s unwillingness to bend in its fight with Google is very public proof of how China’s ascendancy has changed things for foreign businesses in China. For those of us who handle China business law matters, it is a prominent example of the sorts of things we see every day.
What do you think?