Executives at foreign companies in China increasingly believe the Chinese government targets their companies for unfair enforcement of anti-monopoly and other laws, according to the results of a new survey. The result, they say, is that if conditions fail to improve, they may cut investments.
In a survey conducted last month by the American Chamber of Commerce in China, 60 percent of the respondents said they feel foreign business is less welcome in the country than before. That percentage is up from 41 percent in a late-2013 survey. Furthermore, 49 percent said foreign companies are being singled out in recent pricing or anti-corruption campaigns.
American Chamber members say they have “growing perceptions that multinational companies are under selective and subjective enforcement by Chinese government agencies,” Greg Gilligan, the group’s chairman, wrote in a report, a recent Bloomberg article reports. Laws and rules “lack transparency and are at times only vaguely related to the particular case,” Gilligan continued.
Dozens of foreign companies—in industries such as pharmaceuticals, medical devices, high technology and autos—are being targeted, according to Les Ross, the American chamber’s vice chairman. For instance, Chinese regulators opened an anti-monopoly investigation into Microsoft Corp. in July.
Perhaps the example that gathered the most attention was that in July, China fined 10 Japanese auto parts firms more than $200 million in total for price-fixing, reportedly the biggest-ever such penalties. The auto parts companies were found to have implemented monopoly pricing agreements for more than 10 years, the National Development and Reform Commission (NDRC) regulator said in a statement. A number of those companies have since announced price cuts of vehicles or spare parts.
What’s puzzling though, is that the situation is a clear reversal for companies that welcomed plans unveiled by the ruling Communist Party in 2013 to open the state-dominated economy to more private competition. The ruling party under President Xi Jinping has promised to make China’s economy more productive by opening more industries to private and foreign competition. However, foreshadowing what may come to pass, China is also trying to create industry leaders in industries such as automotive, telecommunications and aerospace. That, some business leaders say, is what has prompted regulators to use a six year-old antimonopoly law and other regulations to shield domestic companies from competition.
Responding to the U.S. Chamber’s report in Bejing, Qin Gang, a Foreign Ministry spokesman, said China’s anti-monopoly measures are transparent, fair and done in accordance with the law, the Bloomberg article notes.
“China will always welcome foreign companies and enterprises to develop cooperation in all fields and build a good market economy,” Qin said. “At the same time, we request foreign companies observe Chinese laws while in China.”
In perhaps the most cut and dried statement, Kim Woodard, a former vice chairman of the American Chamber, said foreign companies used to have a “sense of cooperation” with Chinese regulators but believe that has changed over the past two years, according to an article in The Seattle Times.
“Now, what’s happening is you have aggressive enforcement actions against selected companies,” said Woodard. “That starts to look like another barrier to market access.”
It’s challenging enough to conduct business in foreign countries. But if it seems the deck is stacked against them by a government trying at the same time to create a favorable environment for national companies, it certainly makes business more challenging. If the situation doesn’t change—and it looks like it won’t be changing anytime soon—one must wonder if those U.S. companies will follow through on cutting future investments.
What are your thoughts? What else can those companies do?