‘Enticing’ China market trickier for foreign businesses to navigate
Visitors walk on the Bund in Shanghai, China, on Friday, February 12, 2021.
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BEIJING — Foreign companies are trying to hold on to lucrative opportunities in China, even if new regulations and the pandemic have made international operations harder.
As these businesses watch a crackdown on domestic tech giants, the Chinese government has continued to promote the world’s second-largest economy as opening further to overseas capital.
In just the last few weeks, local authorities in the cities of Beijing and Shenzhen have followed those in Hainan — an entire island province that is becoming a free trade zone — in announcing new benefits for foreign capital in special development districts. Similar, but not identical business-friendly policies were introduced in the past. However, mixed results have been achieved.
Adam Dunnett from the EU Chamber of Commerce, China secretary general said that this policy is more focused than ever before.
“Now, you have to demonstrate that China is interested in what you offer or China has no desire to compete with you,” Dunnett said.
The Chinese authorities launched this year their five-year long development plan. It contains ambitious goals for technological advancement in the face of rising pressure from the U.S. Beijing also wants to build up the economy’s reliance on domestic consumption, rather than exports.
Dunnett stated that “some companies will be pushed from the market.” “They will fight for their rights as long they can. They have other things to offer. It’s a good market and they are open to offering it. Others, frankly speaking, live in sensitive areas and are able to continue their success with very little disruption.
When it comes to the overall operating environment, leaders of American and European business interest groups in China said members haven’t seen significant progress on Trump-era calls for more equal access in the country. In a Thursday paper, the EU Chamber of Commerce in China stated that Chinese government procurement policies favor local business over foreign.
Beijing’s crackdown on regulatory issues isn’t helping the sentiment. In July, Chinese authorities ordered ride-hailing app Didi to suspend new user registrations just days after its New York IPO, and told after-school tutoring companies to slash operating hours. Companies from Tal Education to Tencent have seen shares plunge.
Greg Gilligan of Beijing’s American Chamber of Commerce said, “We’ve seen some crackdowns across entire sectors in ways that aren’t quite understandable or predictable.” Business need predictability and stability.
Gilligan stated that another pressing issue for companies is getting visas approved to executives, spouses, and their children. This restriction on travel is directly impacting the foreign investment decision in a bad way.
China’s National Economic Planning Agency acknowledged the specific impact on foreign investment during a conference on encouraging direct investment. The support for worker relocation was not mentioned, rather there were general remarks about easing restrictions on foreign capital.
The country’s rapid growth into the world’s second-largest economy relied heavily on foreign investment. For years, foreign businesses complained that they were required to bring their proprietary technology into China in order for them to operate there. Chinese authorities prohibited foreign firms from entering sensitive areas and forced them to join forces with local companies.
The Chinese government has removed many of these restrictions in recent years, most notably in the finance and auto sectors.
Joerg Wuttke (president of the EU Chamber of Commerce China) stated on a phone call that Chinese authorities are more open to European manufacturing these days.
“They don’t mind having [a] foreigner supply it,” he said, “as long as they’re within the Great Wall of China.”
Local authorities are also relaxing controls in a targeted way.
The “Two Zones” policy was introduced in Beijing’s capital last year. It removes all local restrictions that prevent foreign ownership of aircraft maintenance businesses. Liu Meiying (deputy director of “Two Zones”) spoke at the forum organized by the Center for China and Globalization.
According to her, “Two Zones,” has reduced by half the capital assets that a parent company of foreign investments must own in order for them to be able invest in audiovisual production.
The central government also announced in September that Qianhai, the free trade zone linking Shenzhen to Hong Kong, would grow eightfold, from 120.56 kilometers (46.5 mi) This expansion comes at a time when the mainland is increasing its control over Hong Kong.
Klaus Zenkel (general manager of Imedco Technology in Shenzhen and vice president of the EU Chamber’s South China chapter) said that he is optimistic about Qianhai’s plans, including the possibility of granting it a high degree administrative autonomy.
However, it is still unclear how these plans will be executed. The announcements by the authorities in Hainan’s southern island province have been made quickly. Although these tax cuts and other policies are expected to be implemented soon, Chen Jie (general manager of Keyestone Group, a Hong Kong developer) said that foreign companies will not benefit from them immediately.
Chen pointed out that, aside from consumer brands and businesses operating in the area under new policies, many companies will look at how other businesses are doing. A Hello Kitty-themed theme park is being built in Hainan by the company. It will be open in 2024.
China’s growing middle class and massive size remain a magnet for foreign businesses, regardless of government politics or policies. Official data shows that non-financial, foreign direct investments into China increased by 27.8% over the previous year. This brought the total to $113.78 Billion in U.S. Dollar terms.
Matt Marguiles from the U.S. China Business Council, said that “the market opportunity is very attractive.” Most companies either stay the same or grow. Each company will have to decide.
But Marguiles said compliance is a growing issue due to new Chinese laws such as those on personal data protection.
“There’s some concerns for data security, some laws in Europe, some laws in China, so you need to be careful which data you can use,” the EU Chamber’s Zenkel said. As is also the case with supply chains, There are restrictions on both sides that must be respected.