Western Companies Face Obstacles to Doing Business in China Chinese Communist Party has a long history of monitoring dissidents and limiting freedom of expression. The sales of foreign movies, books, and music has long been restricted, even though a World Trade Organization (WTO) ruling in August 2009 held that these policies violate China’s legally binding commitments to the international trade system. China appealed the ruling, but in the meantime sought to strengthen its domestic encryption industry: the government has all the decryption codes but is withholding the government certifications that foreign-owned companies need to sell their products on Chinese market. Google’s reaction to operation obstacles in China reflects general foreign business sentiment, which is said to be pessimistic and full of unpredictability. The long-standing general consensus that no one can afford not to be in China, is being questioned as a result of the government’s attitude toward multinationals. Chinese business environment has always been difficult for foreign companies. For a long time, they have been complaining of being cheated by joint venture partners who go on to set up parallel businesses or disappear with venture’s assets. In addition, government policies have always protected Chinese companies from international competition by allowing them to grow in a large market to prepare for exporting to less-protected foreign markets. While many other countries have policies that favor domestic companies, they operate under relatively strict WTO controls. When China joined WTO in 2001, it promised to quickly negotiate joining WTO’s agreement on free trade in government procurement, but it has never actually done so. As a result, China follows its own buy-Chinese government procurement policy and uses its enormous buying power to direct the contracts to Chinese companies. On June 4, 2009, China’s National Development and Reform Commission, the top economic planning agency in the country, issued an order that mandates national, provincial and local government agencies to buy only Chinese-made products as part of the country’s $600 billion economic stimulus plan. Foreign substitutes may be purchased only when no suitable Chinese products are available. On the exports side, China has imposed restrictions on mineral exports, for which it mines a large part of the world’s supply. Due to these export restrictions which include high export tariffs, tonnage quotas and even export bans, many manufacturers choose to locate their factories in China to ensure they have a supply of raw materials free from export taxes. The U.S. and the EU have filed a WTO case in June 2009 challenging China’s export restrictions on zinc and bauxite, but China has denied any wrongdoing. With respect to intellectual property, Western companies have suffered great damages from China’s weak protection of patents and trademarks, as a result of which large industries make goods in direct competition with Western competitors but are spared any significant marketing or research expenditures. To fight the counterfeiting, many Western companies are trying to respond by limiting the intellectual property transferred to China. Despite all these concerns, companies are unwilling to leave a market as big as China. For Google and other companies whose primary assets lay in intellectual property, the concept of staying in China is more complex since they risk losing those assets. But then again, China’s market is so large and competitive that many Western companies offer their latest technology in fear of losing market share. In auto sector, China has developed the world’s largest market, but foreign auto manufacturers are limited to a 50% stake in auto assembly plants, and are assessed high tariffs on imported cars. Chinese joint venture partners in auto industry are now starting to produce their own models, developed and built almost exclusively for China. Similar policies have been introduced forcing international companies to transfer their best technology in industries such as railroad locomotive manufacturing and aircraft assembly. China has also tried to give market preference to domestic companies that invest in developing their own technology, even if that technology is initially inferior to foreign technology. In November of last year, Chinese government notified both domestic and foreign companies that the government will give preference to products that use technology developed in China and carry trademarks that were first registered in China
01/14/10 10:42 PM Filed in: China
On
January 14, 2010, The New York Times
reported on difficult
business conditions in China for Western
companies. Companies have complained that they
are subjected to a long list of obstacles to
doing business in China, including “buy Chinese”
government procurement policies, increasing
restrictions on foreign investments, and
widespread violations of intellectual property
rights.
The obstacles are said to be a result of China’s desire to control internal dissent efforts and to successfully compete in international markets. In protest to these policies many call discriminating, Google has threatened to pull out of the country. In mid-January, Google complained about attacks on its computers that originated in China and stated it was no longer willing to censor its Chinese site’s search results.
Chinese Communist Party has a long history of monitoring dissidents and limiting freedom of expression. The sales of foreign movies, books, and music has long been restricted, even though a World Trade Organization (WTO) ruling in August 2009 held that these policies violate China’s legally binding commitments to the international trade system. China appealed the ruling, but in the meantime sought to strengthen its domestic encryption industry: the government has all the decryption codes but is withholding the government certifications that foreign-owned companies need to sell their products on Chinese market.
Google’s reaction to operation obstacles in China reflects general foreign business sentiment, which is said to be pessimistic and full of unpredictability. The long-standing general consensus that no one can afford not to be in China, is being questioned as a result of the government’s attitude toward multinationals.
Chinese business environment has always been difficult for foreign companies. For a long time, they have been complaining of being cheated by joint venture partners who go on to set up parallel businesses or disappear with venture’s assets.
In addition, government policies have always protected Chinese companies from international competition by allowing them to grow in a large market to prepare for exporting to less-protected foreign markets.
While many other countries have policies that favor domestic companies, they operate under relatively strict WTO controls. When China joined WTO in 2001, it promised to quickly negotiate joining WTO’s agreement on free trade in government procurement, but it has never actually done so. As a result, China follows its own buy-Chinese government procurement policy and uses its enormous buying power to direct the contracts to Chinese companies. On June 4, 2009, China’s National Development and Reform Commission, the top economic planning agency in the country, issued an order that mandates national, provincial and local government agencies to buy only Chinese-made products as part of the country’s $600 billion economic stimulus plan. Foreign substitutes may be purchased only when no suitable Chinese products are available.
On the export side, China has imposed restrictions on mineral exports, for which it mines a large part of the world’s supply. Due to these export restrictions which include high export tariffs, tonnage quotas and even export bans, many manufacturers choose to locate their factories in China to ensure they have a supply of raw materials free from export taxes. The U.S. and the EU have filed a WTO case in June 2009 challenging China’s export restrictions on zinc and bauxite, but China has denied any wrongdoing.
With respect to intellectual property, Western companies have suffered great damages from China’s weak protection of patents and trademarks, as a result of which large industries make goods in direct competition with Western competitors but are spared any significant marketing or research expenditures. To fight the counterfeiting, many Western companies are trying to respond by limiting the intellectual property transferred to China.
Despite all these concerns, companies are unwilling to leave a market as big as China. For Google and other companies whose primary assets lay in intellectual property, the concept of staying in China is more complex since they risk losing those assets. But then again, China’s market is so large and competitive that many Western companies offer their latest technology in fear of losing market share.
In auto sector, China has developed the world’s largest market, but foreign auto manufacturers are limited to a 50% stake in auto assembly plants, and are assessed high tariffs on imported cars. Chinese joint venture partners in auto industry are now starting to produce their own models, developed and built almost exclusively for China.
Similar policies have been introduced forcing international companies to transfer their best technology in industries such as railroad locomotive manufacturing and aircraft assembly. China has also tried to give market preference to domestic companies that invest in developing their own technology, even if that technology is initially inferior to foreign technology.
In November of last year, Chinese government notified both domestic and foreign companies that the government will give preference to products that use technology developed in China and carry trademarks that were first registered in China. This last step led to a strongly worded letter of protest by 34 industry associations to China’s Ministry of Commerce.
The obstacles are said to be a result of China’s desire to control internal dissent efforts and to successfully compete in international markets. In protest to these policies many call discriminating, Google has threatened to pull out of the country. In mid-January, Google complained about attacks on its computers that originated in China and stated it was no longer willing to censor its Chinese site’s search results.
Chinese Communist Party has a long history of monitoring dissidents and limiting freedom of expression. The sales of foreign movies, books, and music has long been restricted, even though a World Trade Organization (WTO) ruling in August 2009 held that these policies violate China’s legally binding commitments to the international trade system. China appealed the ruling, but in the meantime sought to strengthen its domestic encryption industry: the government has all the decryption codes but is withholding the government certifications that foreign-owned companies need to sell their products on Chinese market.
Google’s reaction to operation obstacles in China reflects general foreign business sentiment, which is said to be pessimistic and full of unpredictability. The long-standing general consensus that no one can afford not to be in China, is being questioned as a result of the government’s attitude toward multinationals.
Chinese business environment has always been difficult for foreign companies. For a long time, they have been complaining of being cheated by joint venture partners who go on to set up parallel businesses or disappear with venture’s assets.
In addition, government policies have always protected Chinese companies from international competition by allowing them to grow in a large market to prepare for exporting to less-protected foreign markets.
While many other countries have policies that favor domestic companies, they operate under relatively strict WTO controls. When China joined WTO in 2001, it promised to quickly negotiate joining WTO’s agreement on free trade in government procurement, but it has never actually done so. As a result, China follows its own buy-Chinese government procurement policy and uses its enormous buying power to direct the contracts to Chinese companies. On June 4, 2009, China’s National Development and Reform Commission, the top economic planning agency in the country, issued an order that mandates national, provincial and local government agencies to buy only Chinese-made products as part of the country’s $600 billion economic stimulus plan. Foreign substitutes may be purchased only when no suitable Chinese products are available.
On the export side, China has imposed restrictions on mineral exports, for which it mines a large part of the world’s supply. Due to these export restrictions which include high export tariffs, tonnage quotas and even export bans, many manufacturers choose to locate their factories in China to ensure they have a supply of raw materials free from export taxes. The U.S. and the EU have filed a WTO case in June 2009 challenging China’s export restrictions on zinc and bauxite, but China has denied any wrongdoing.
With respect to intellectual property, Western companies have suffered great damages from China’s weak protection of patents and trademarks, as a result of which large industries make goods in direct competition with Western competitors but are spared any significant marketing or research expenditures. To fight the counterfeiting, many Western companies are trying to respond by limiting the intellectual property transferred to China.
Despite all these concerns, companies are unwilling to leave a market as big as China. For Google and other companies whose primary assets lay in intellectual property, the concept of staying in China is more complex since they risk losing those assets. But then again, China’s market is so large and competitive that many Western companies offer their latest technology in fear of losing market share.
In auto sector, China has developed the world’s largest market, but foreign auto manufacturers are limited to a 50% stake in auto assembly plants, and are assessed high tariffs on imported cars. Chinese joint venture partners in auto industry are now starting to produce their own models, developed and built almost exclusively for China.
Similar policies have been introduced forcing international companies to transfer their best technology in industries such as railroad locomotive manufacturing and aircraft assembly. China has also tried to give market preference to domestic companies that invest in developing their own technology, even if that technology is initially inferior to foreign technology.
In November of last year, Chinese government notified both domestic and foreign companies that the government will give preference to products that use technology developed in China and carry trademarks that were first registered in China. This last step led to a strongly worded letter of protest by 34 industry associations to China’s Ministry of Commerce.