Finance News

As China cracks down, international corporations try to determine the place they slot in

Visitors walk on the Bund in Shanghai, China on Friday February 12, 2021.

Qilai Shen | Bloomberg | Getty Images

BEIJING – Foreign companies are trying to hold onto lucrative opportunities in China even as new regulations and the pandemic have made international operations difficult.

As these companies see crackdown on domestic tech giants, the Chinese government has continued to campaign for the world's second largest economy to open up further to foreign capital.

It is only in the past few weeks that local authorities in Beijing and Shenzhen have announced new benefits for foreign capital in special development areas to those in Hainan – an entire island province that is becoming a free trade area. Similar business-friendly policies have been introduced in the past with mixed results.

"The main difference is that it is much more targeted than before," said Adam Dunnett, secretary general of the EU Chamber of Commerce in China.

"Now you really have to show that you have something that China wants, or that China does not feel that it is a competitor to its own interests and needs," he said.

The Chinese authorities launched their latest five-year development plan this year. It contains ambitious targets for technological advancement in the face of mounting pressure from the United States. Beijing also wants to build the economy's dependence on domestic consumption, not export.

"In our view, some companies are being pushed out of the market," said Dunnett. "They will fight as long as they can. Others have something to offer and they are ready to offer it because the market is there and it is good and they are trying to hold it for as long as possible. And others, quite frankly , are located in areas that are not considered to be sensitive and that will continue to hold their own with relatively little interference. "

In terms of the general operating environment, leaders of American and European business interest groups in China said members have not seen significant progress in the Trump-era demands for equal access in the country. In particular, a paper released by the EU Chamber of Commerce in China on Thursday found that government procurement policies still favor local companies over foreign ones.

Beijing's regulatory crackdown is not adding to sentiment. In July, Chinese authorities ordered the ride-hailing app Didi to suspend new user registrations just days after it went public in New York, and urged tutoring companies to cut operating hours. Companies from Tal Education to Tencent have seen prices decline.

"We have seen some sector raids recently, in ways that are not entirely understandable or predictable," said Greg Gilligan, chairman of the American Chamber of Commerce in Beijing. "Of course, companies need stability and predictability."

The other pressing challenge facing businesses is getting visas approved for executives, their spouses and children, Gilligan said. "This restrictive travel policy has a direct negative impact on foreign investment decisions."

China's national economic planning agency recognized this specific barrier to investment at a press conference this month to encourage foreign direct investment. There was no talk of support for the relocation of employees, but rather general statements on easing restrictions on foreign capital.

Read more about China from CNBC Pro

The country's rapid growth into the world's second largest economy depended heavily on foreign investment. However, foreign companies have been complaining for years that they have to transfer proprietary technologies into the country in order to operate there. The Chinese authorities also banned foreign companies from operating in sensitive industries or forced joint ventures with local actors.

The Chinese government has lifted many of these restrictions in recent years, particularly in the financial and automotive sectors.

Jörg Wuttke, President of the EU Chamber of Commerce in China, said in a call with reporters that the Chinese authorities have welcomed more European production in the past two years.

"They don't mind that (a) foreigner delivers them," he said, "as long as they are inside the Great Wall of China."

opportunities

The municipalities are also loosening the controls in a targeted manner.

Liu Meiying, deputy director of Two Zones, said at a forum hosted by. The Think Tank Center for China and Globalization was held in early September.

She added that "Two Zones" halved the amount of assets required by the parent company of a new overseas investment company to $ 200 million, and the area is the only one in the country that allows foreign investment in audiovisual production.

Also in early September, the central government announced that the Qianhai Free Trade Zone, which connects Shenzhen City with Hong Kong, will be expanded eight times to 120.56 square kilometers (46.5 square miles). The expansion of the financial center, which is already home to UBS and HSBC, comes as the mainland has strengthened its control over Hong Kong, a global financial center.

Klaus Zenkel, General Manager at Imedco Technology (Shenzhen) and Vice President of the EU Chamber in South China, was optimistic about plans for Qianhai, such as granting the district a high degree of administrative autonomy.

How well such plans will be implemented is still uncertain. As for the southern island province of Hainan, where authorities accelerated their announcement of tax breaks and other business-friendly measures this year, those changes are not enough to get overseas companies to come right away, said Chen Jie, general manager of Hong Kong-based developer Keyestone Group.

Chen noted that most companies, aside from consumer brands, will first watch how others already operating on the island fare under the new guidelines. The company is building a Hello Kitty theme park in Hainan, due to open in 2024.

New laws require more compliance

China's growing middle class and enormous size remain a magnet for foreign companies, regardless of government policy or policy. Official data shows that non-financial foreign direct investment in China in the first eight months of the year in US dollars rose 27.8% year over year to $ 113.78 billion.

"The market opportunity is very tempting," said Matt Marguiles, vice president of China Operations for the U.S.-China Business Council. "Most companies either stay where they are or grow. That will be company-specific."

However, Marguiles said compliance is a growing problem due to new Chinese laws such as those protecting personal data.

"There are some data security concerns, some laws in Europe, some laws in China, so you have to be careful what data you can use," said Zenkel of the EU Chamber. As with supply chains, there are "restrictions on both sides that must be observed".

Related Articles