Foreign Investment in China: Hollow Complaints

Seriously, you can't deny that Uncle Wen is very nice

Seriously, you can't deny that Uncle Wen is very nice.

Main Link: Taiwan News, September 6, 2010

Taiwan News quotes China News Service (中新社) and Chinese deputy director at the ministry of commerce Shen Danyang (沈丹陽) as saying that some foreign media and organizations’ statements about a worsening environment for foreign investment in China reflected the importance foreign multi-national companies attached to the Chinese markets (反映了跨國公司對中國市場的重視), and that they didn’t reflect a general view among the multinationals; nor did such statements mean that the Chinese government’s policies on foreign investment had changed.

The Taiwan News report mostly reproduces arguments by the Chinese ministry of commerce available on People’s Daily Online‘s English edition, that with the global cross-border investment down 40 percent in the last year, foreign investment China absorbed only fell by 2.6 percent, and that

Ministry of Commerce data showed in the first seven months of this year, China actually used foreign capital of 58.4 billion U.S. dollars, up nearly 21 percent. China approved establishment of nearly 14,500 foreign investment enterprises, up almost 18 percent.
[Shen] said that currently foreign-funded enterprises in China are doing well and remain optimistic about China’s development prospects, which to some degree reflects that the Chinese government’s efforts to improve the investment environment has won recognition of investors and boosts the confidence of foreign investment.

The Chinese government was creating an increasingly better investment environment for foreign-invested companies (中國政府為外商投資創造了日益完善的投資環境), and the country’s attractiveness for foreign investment was incessantly increasing (日益完善).

In addition to the China News Service article, Taiwan News quotes a referral by Shen to the American Chamber of Commerce’s 2010 Business Environment Survey (2010年商務環境調查報告) as stating that last year, 71 per cent of American companies in China ran profits, that 82 per cent were optimistic about business prospects in China, and that 91 per cent of them were optimistics about the prospects within the coming five years. The survey, apparently of April this year by the AmCham Shanghai, quotes its Shanghai office’s president Brenda Foster as saying that

“We don’t see a dramatic change in sentiment from our membership […] Is China a challenging place to do business? Yes. It always has been and we will continue to work with the national government to develop a more competitive, open market in China.
But our member companies remain committed to the China market and we’re seeing many of them expand their operations here.”

The survey adds that

Though the overall perception of the business environment in China remains positive, American companies surveyed believe that the United States must continue to engage China on a number of important issues. In order to enhance the competitiveness of American companies in China, survey respondents note that the U.S. government should press China for improved market access and strengthened intellectual property rights (IPR) enforcement. Companies also ranked the need to maintain a consistent U.S. trade policy as a key priority.

It also points out that the Indigenous Innvoation Policy, a directive issued in November 2009, would, after implementation, hurt business in the view of thirty per cent of AmCham member companies in China. AmCham believed that the policy will restrict market access for foreign companies in information technology and other high-tech sectors.

Referring to the directive as the “National Indigenous Innovation Product Accreditation”, or “Order 618”, the European Chamber of Commerce in China (EUCCC), in its Position Paper 2010/2011 published – not cited in the above-mentioned Taiwanese and Chinese sources -, also voices misgivings. As it explicitly connected indigineous innovation to government procurement, it would discriminate against foreign-invested innovative business, on the basis of the geographic location of the registration of the patents and trademarks upon which their products were developed and marketed. The EUCCC also criticizes non-tarriffal barriers and intellectual-property policies restricting market access.

The EUCCC expresses the hope that its position paper would help to turn recent statements by senior Chinese government leaders (i. e. Chief State Councillor Wen Jiabao while talking with EU Commission President Jose Manuel Barroso and European business leaders in April, and German chancellor Angela Merkel in July) that foreign-invested companies in China would be treated as Chinese companies into concrete actions.

Wen Jiabao (温家宝) has traditionally been the Chinese government’s empty shirt for proclaiming a better future, among Chinese people, and now for foreign investors, too. But foreigners shouldn’t hold their breath. In recent days, a speech by Wen in Shenzhen, concerning the need for political reform, sparked another discussion about more transparent government operations. Deng Yuwen (邓聿文), associate senior editor of Study Times, a publication of the Central Party School, argues that a safer legal foundation for Chinese journalists and smaller numbers of restricted “red-head documents” could help to hold officials accountable. That said, such a legal base for journalism supervising power without changes on the political system, was “easier said than done” (谈何容易).

That said, the Chinese government appears to have an irrefutable point in arguments with foreign investors: action speaks louder than words – and companies that complain about but still accept the rules as they come in China are no credible plaintiffs after all. Rants alone make no difference, and companies won’t act in a political way.

The CCP’s lack of transparency was criticized by Chinese media – apparently including party mouthpiece People’s Daily -,   as early as in 1984. It’s hard to see why Wen Jiabao’s speech on political reform in Shenzhen should lead to a level playing field. In 2012, his two terms at the helm of government will be history. He has sparked the debate about reform issues just in time to pass the issues on to his successors, for neglection as usual.

If China indeed doesn’t play by the WTO roles, its access to European markets should be restricted correspondingly. That isn’t a matter of “justice”, which doesn’t count for much in business anyway, but a matter of Europe’s economic and technological survival.

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Related
Reform without Zijiren, October 5, 2009

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