China Business and Regulation: The Times They Are a Changing

The Asia Business Media Blog just did a post, China’s attitude shift, on a James McGregor talk today in Hong Kong.

McGregor, a “journalist, media entrepreneur, investor and long-time resident of China gave a sobering talk” on how China is beginning to treat foreign businesses in its midst:

McGregor says that he loves both countries, but he thinks there has been an unsettling attitude shift in China recently. He believes that the arrogance that was once a less-than-appealing feature of U.S. businesses abroad has been adopted by the Chinese at an alarming rate.

Some of McGregor’s other observations included:

  • A belief in “exceptionalism,” which was once an American position, is now common amongst Chinese business leaders and officials.
  • More than ever before, Chinese authorities are moving to implement regulations to rig markets in favour of Chinese businesses. These regulations are designed to replace foreign businesses.
  • “Indigenous Innovation” is a policy gaining traction at all levels of government in China. McGregor notes however, encouraging innovation which is protected from global competition by a net of regulations is not a plan that is likely to succeed.
  • State-owned enterprises are enjoying a resurgence as Beijing has rediscovered its interest in maintaining an economic constituency that it can count on and control. Privately-owned Chinese businesses are beginning to feel they are at a disadvantage in their own country.

This is pretty much what we wrote at the beginning of this year:

With China being hailed as the world economy’s savior, its government has concludedthis is its century. The West is irrelevant and China will lead a vanguard of new players — and the game will be played by Beijing’s rules. Particularly in the area of trade and investment, China hopes to jettison the constraints of world trade law for a return to the policy of national interest and raw power. In this new world order, Beijing sees little need for foreign economic or technical assistance.

From the standpoint of foreign investors in China, this new self-image is already having a significant impact:

• Applications for wholly foreign owned enterprises (WFOEs) and joint ventures are more often being delayed or denied by demands for documents or capitalization not required by law. Officials openly state they are no longer interested in encouraging foreign investment.

• Registration of technology licenses is either prohibited or restricted in direct violation of law. The idea is that Chinese business should no longer be required to pay for access to foreign technology.

• Visas for foreign workers are increasingly being delayed, denied or restricted. The position is that Chinese workers are available to do any job.

• Investments in China used to be falsely profitable as foreigners qualified for tax breaks unavailable to domestic businesses while employment and wage rules were not enforced. This position has completely reversed. Chinese and foreign companies are expected to operate under exactly the same rules, making many foreign ventures unprofitable.

As China lawyers, we have certainly been “feeling it” as we have in the last few months encountered a number of instances where we filed applications/registrations 100% pursuant to Chinese law (and exactly as we have successfully done over the last few years) and some Chinese government officials are telling us to do more. And when we point out that we have already done everything required, we are told that doesn’t matter. We have yet to be denied anything in the end, but there is absolutely no doubt that the legal hoops foreign companies are being required to jump through in China have, in many instances, been raised.

Are you seeing the same thing?

Read More

Legal News