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5 White Paper on the Business Environment in China
peaked around 36 percent in 2003 and has declined ever since But the work was never nished. Some U.S. experts, say
to about 27 percent in 2010, the most recent year for which Reuters, hold that “China turned away from market liberaliza-
data is available.”8 tion as early as 2003” 9
is decline can be attributed to several causes. For one, “Nobody who was watching China enter the WTO back
a November 2012 report by the Economist Intelligence Unit then saw this change coming,” said Heritage Foundation ana-
found that, “ half the executives surveyed in big companies lyst Derek Scissors. “It was as if a di erent government with
[out of the total 328] were concerned or very concerned they di erent priorities came in.” 9
would be forced to give up their intellectual property in ex-
change for market access.”8 General Electric CEO Je rey Immelt says, “ e notion
was, if we’re part of the Chinese economy, we should be al-
Similarly, ‘technology transfer’ can also happen through lowed to win.”9
less o cial channels: “Technology rm American Supercon-
ductor claimed 70 percent of its business disappeared in 2011 Just over ten years later, a new pragmatism seems to be
after a Chinese partner convinced one of its employees to steal o setting bright-eyed enthusiasm about the potential for far-
some of its technology.”8 reaching success in China. “Some chief executives are question-
ing whether the United States is pressing China hard enough to
According to one CEO who asked to remain anonymous, hold up its side of the bargain in joining the elite trade club.”9
“ e government can close us down suddenly, or it can help
native Chinese rms to steal our technology and gradually “Until recently,” Reuters continues, “American business
replace us in the market.”8 leaders had been loath to speak of China’s practices for fear
it would lose them lucrative contracts or result in regulatory
Another hazard for foreign investors is the fact that China scrutiny that harms their China operations. Several have gone
can “de facto nationalize assets by exercising such strict con- public in the past few months.”9
trol over taxes, regulations, and costs that it e ectively controls
and drains foreign rms’ pro ts,” as was the case with “Nearly “Indeed, China has been known to punish companies that
40 foreign electricity producers [that] rushed into China in publicly complain about doing business there,” explains For-
the 1990s [of which nearly all] have since exited, often selling eign Policy.8
their plants to the Chinese after being unable to make money
as rising coal prices outstripped electricity-rate increases set by ese issues have not escaped foreign governments’ attention.
the state and as Chinese rms bene ted from access to state “In Europe, EU Trade Commissioner Karel De Gucht even
credit and subsidized coal.”8 oated the idea of speaking out against abuses on companies’
behalf—and taking the heat—sparing companies from retali-
A 2012 survey conducted by AmCham South China’s ation triggered by the ling of o cial complaints.”8
counterpart in Beijing found that “61 percent of companies At the macro level, “Washington is growing concerned
surveyed report operating margins that are comparable to, or that China has lost its commitment to freer trade and that
less than, their worldwide margins,” with Foreign Policy add- as new leaders prepare to take over next year, China is aban-
ing that, “Many CFOs would disqualify investments that doning its march toward market capitalism in favor of state
have only a 39 percent chance of exceeding average pro ts, in mercantilism.”9
a country much riskier than their home market.”8 Foreign Policy summarizes growing pessimism about for-
eign companies’ future success in China: “U.S. companies are
None of these issues should be particularly surprising at banking their future success on tapping into the enormous
this point in time, as foreign companies in aggregate have ac- Chinese market. ey’re in for a nasty surprise.”8
cumulated extensive experience operating in the China market Simultaneously, China is becoming increasingly aggres-
for 30-plus years. What is surprising, however, is the fact that sive in its overseas ambitions. is, combined with foreign
these concerns are essentially the same ones that have colored companies’ growing dissatisfaction with their opportunities in
foreign business dealings with China since the ‘opening up’. China’s domestic economy, is beginning to have a signi cant
qualitative—if not yet quantitative—e ect: “the worsening of
For many observers, there seemed to be an implicit promise Chinese image around the world.”10
that when China joined the WTO—and as it became more Academic and commentator Minxin Pei writes: “As
prosperous—it would also adhere more closely to internation- countries around the world, for their own reasons, raise their
al norms in terms of transparency, corruption and rule of law. vigilance against Chinese in uence and start to push back,
Beijing no longer enjoys a free hand in expanding its economic
In retrospect, this was perhaps naïve. foothold and securing access to markets and resources.”11
“ e country took a huge leap in the 1990s as it prepared How this sort of resistance will change foreign-invested
for WTO entry, slashing red tape, removing layers of protec- enterprises’ experiences on the Mainland—if at all—is yet to
tion for domestic factories and farms and opening its markets. be seen.
at work is widely credited inside and outside China with
turning the country into the industrial dynamo of today.”9
34
peaked around 36 percent in 2003 and has declined ever since But the work was never nished. Some U.S. experts, say
to about 27 percent in 2010, the most recent year for which Reuters, hold that “China turned away from market liberaliza-
data is available.”8 tion as early as 2003” 9
is decline can be attributed to several causes. For one, “Nobody who was watching China enter the WTO back
a November 2012 report by the Economist Intelligence Unit then saw this change coming,” said Heritage Foundation ana-
found that, “ half the executives surveyed in big companies lyst Derek Scissors. “It was as if a di erent government with
[out of the total 328] were concerned or very concerned they di erent priorities came in.” 9
would be forced to give up their intellectual property in ex-
change for market access.”8 General Electric CEO Je rey Immelt says, “ e notion
was, if we’re part of the Chinese economy, we should be al-
Similarly, ‘technology transfer’ can also happen through lowed to win.”9
less o cial channels: “Technology rm American Supercon-
ductor claimed 70 percent of its business disappeared in 2011 Just over ten years later, a new pragmatism seems to be
after a Chinese partner convinced one of its employees to steal o setting bright-eyed enthusiasm about the potential for far-
some of its technology.”8 reaching success in China. “Some chief executives are question-
ing whether the United States is pressing China hard enough to
According to one CEO who asked to remain anonymous, hold up its side of the bargain in joining the elite trade club.”9
“ e government can close us down suddenly, or it can help
native Chinese rms to steal our technology and gradually “Until recently,” Reuters continues, “American business
replace us in the market.”8 leaders had been loath to speak of China’s practices for fear
it would lose them lucrative contracts or result in regulatory
Another hazard for foreign investors is the fact that China scrutiny that harms their China operations. Several have gone
can “de facto nationalize assets by exercising such strict con- public in the past few months.”9
trol over taxes, regulations, and costs that it e ectively controls
and drains foreign rms’ pro ts,” as was the case with “Nearly “Indeed, China has been known to punish companies that
40 foreign electricity producers [that] rushed into China in publicly complain about doing business there,” explains For-
the 1990s [of which nearly all] have since exited, often selling eign Policy.8
their plants to the Chinese after being unable to make money
as rising coal prices outstripped electricity-rate increases set by ese issues have not escaped foreign governments’ attention.
the state and as Chinese rms bene ted from access to state “In Europe, EU Trade Commissioner Karel De Gucht even
credit and subsidized coal.”8 oated the idea of speaking out against abuses on companies’
behalf—and taking the heat—sparing companies from retali-
A 2012 survey conducted by AmCham South China’s ation triggered by the ling of o cial complaints.”8
counterpart in Beijing found that “61 percent of companies At the macro level, “Washington is growing concerned
surveyed report operating margins that are comparable to, or that China has lost its commitment to freer trade and that
less than, their worldwide margins,” with Foreign Policy add- as new leaders prepare to take over next year, China is aban-
ing that, “Many CFOs would disqualify investments that doning its march toward market capitalism in favor of state
have only a 39 percent chance of exceeding average pro ts, in mercantilism.”9
a country much riskier than their home market.”8 Foreign Policy summarizes growing pessimism about for-
eign companies’ future success in China: “U.S. companies are
None of these issues should be particularly surprising at banking their future success on tapping into the enormous
this point in time, as foreign companies in aggregate have ac- Chinese market. ey’re in for a nasty surprise.”8
cumulated extensive experience operating in the China market Simultaneously, China is becoming increasingly aggres-
for 30-plus years. What is surprising, however, is the fact that sive in its overseas ambitions. is, combined with foreign
these concerns are essentially the same ones that have colored companies’ growing dissatisfaction with their opportunities in
foreign business dealings with China since the ‘opening up’. China’s domestic economy, is beginning to have a signi cant
qualitative—if not yet quantitative—e ect: “the worsening of
For many observers, there seemed to be an implicit promise Chinese image around the world.”10
that when China joined the WTO—and as it became more Academic and commentator Minxin Pei writes: “As
prosperous—it would also adhere more closely to internation- countries around the world, for their own reasons, raise their
al norms in terms of transparency, corruption and rule of law. vigilance against Chinese in uence and start to push back,
Beijing no longer enjoys a free hand in expanding its economic
In retrospect, this was perhaps naïve. foothold and securing access to markets and resources.”11
“ e country took a huge leap in the 1990s as it prepared How this sort of resistance will change foreign-invested
for WTO entry, slashing red tape, removing layers of protec- enterprises’ experiences on the Mainland—if at all—is yet to
tion for domestic factories and farms and opening its markets. be seen.
at work is widely credited inside and outside China with
turning the country into the industrial dynamo of today.”9
34
