In my previous article Investing In China? Think Again!, I wrote about how cultivating connections with Chinese officials will put one at their mercy, and the actual reasons why some social networking sites such as Facebook, Twitter, Youtube, etc were officially banned in China.
Though there are still foreign investors who are yet present in China but salivate at the prospect of China’s economic growth and eagerly wanting to have a share of the pie, most established foreign investors in China are living in fear and would have withdrawn their investments if they have to had it not been for their huge investments and the amount of time and effort spent in cultivating the market.
However, when these foreign businesses started to harvest from their investment, troubles always never seem to be too far away. Many of those who had invested in China are airing their dissatisfaction and grievances publicly this time.
Causes of Dissatisfaction
The main dissatisfaction faced by these foreign investors can be categorized as follows:
- Intellectual Property – new rules are forcing these companies to unconditionally hand over new technologies to their Chinese partners in exchange for market share;
- Unequal Treatment – unlike their local counterparts, these foreign companies are discriminated whenever tender for state projects are involved;
- Mergers & Acquisitions – foreign companies are required to partner with Chinese companies on a 50-50 split basis;
Foreign companies are getting more concerned by what they see as barriers to market entry and unfair treatment in China.
Foreign investment has transformed provinces such as Guangdong and Fujian into the world’s largest suppliers of items such as microwaves, electronic goods and toys. Labor disputes are constant reminders of pressures that are pushing costs up, and there no longer appears to be the limitless pool of cheap labor that there once was. This has had a knock-on effect on prices.
Foreign manufacturers have also had to deal with the tougher employment regulations in the Contract Law of early 2008. Companies, hence, are caught in a quandary:
- China is no longer the cheap manufacturing base it used to be; but
- there is no easy alternative destination boasting factories on such a scale and good links to the international supply chain.
Chinese officials, led by Premier Wen Jiabao, have disputed these barriers. Liu Yajun, director of the Department of Foreign Investment Administration of the Chinese Ministry of Commerce, rejected the World Bank’s findings at a press conference. Minister of Commerce Chen Deming told the U.K.-based Financial Times that China repeatedly lowered the entry barrier for foreign companies since it joined the WTO, and many international companies that were severely affected by the global financial crisis have found new revenue sources in China.
China is known to have use taxpayers’ monies to heavily subsidise state-owned enterprises with certainty of government purchase to compete with foreign companies. One the more recent case is that of US solar company Solyndra, which despite having received $500 million in federal-loans, collapsed along with some other US solar companies.
A group of U.S. solar-panel manufacturers, led by SolarWorld AG, a German company that makes panels in Oregon, had asked Washington to punish Chinese solar firms for allegedly dumping products on the U.S. market. A Chinese solar firm, Suntech Power Holdings Co., rejected the charges as U.S. “protectionism.”
To Stay Put or Withdraw
Despite facing barriers to market entry, many of these foreign companies have little choice other than staying put in China.
As the sun is setting for manufacturing in China to be exported by multinational companies, the only growing incentive to remain there is manufacturing for its local market.
Although Beijing has been very clear with its stance on foreign companies, and with many foreign companies threatening to withdraw their investments, very few have indeed done so.
The reason being that these foreign companies have already been sucked into an economy which they have very little understanding and knowledge, with the exception of its large consumers market and low costs, and that too much time and money had already been spent to withdraw. In addition, these companies are also in their harvesting stage.
Some giants such as Google, Goldman Sachs, General Electric, Wal-Mart and Carrefour, are companies in the fields of Information Technology, Banking and Finance, Industrial and Retail.
Google, which had initially invested in Baidu prior to Google’s sole venture into the Chinese market had withdrawn from China, amid briefly, after a heated dispute with the Chinese authorities following some cyberattcks on its servers in China that targeted more than 34 companies and entities.
However, it returned to the Chinese market, purportedly, because of its huge investment and the market which it had painstakingly cultivated.
Goldman Sachs has always ingratiated itself with the Chinese Communist Party that it chose to remain silent when accused of “sucking gold and silver out of China” by the local Chinese media.
The CEO of General Electric, Jeffrey Immelt, was reportedly expressing concerns about China and uncertainty as to whether China wanted companies to be successful, which thereby triggered a media flurry within and outside China.
However, Jurgen Hambrecht, chairman of BASF, and Peter Loescher, chief executive of Siemens, went further in breaking the unspoken rule of remaining silent when they met Premier Wen Jiabao, alongside German Chancellor Angela Merkel, on July 19 2010 on a public occasion, complaining about the need to transfer technology to Chinese partners for deals to go ahead, obstructions put up against them in getting access to the Chinese domestic market, and intellectual property violations.
In October 2011, Wal-Mart, with retail outlet across the China, was fined 3.65 million yuan for “mislabeling” and was forced to close all its 13 retail outlets in Chongqing, with 2 employees arrested and 35 detained by local authorities.
Officials had alleged that the company had fraudulently sold ordinary pork as more-expensive organic pork. The scrutiny has resulted in a big public-relations hit to the company in China.
Between February and April of 2010, China Labor Watch (CLW) investigated four Carrefour suppliers: Dongguan Lanyu Toy Company, Kiddieland Toys, Shenzhen Nanling Toys Products and the Xinlong factory. Many employees at these manufacturers were not contracted (a violation of China’s 2008 Labor Contract Law) and averaged workdays of 11 to 12 hours. They were housed in overcrowded dormitories and found that conditions created an environment in which resigning would be exceedingly difficult.
Andrew Michael Teo 