Op-Ed Commentary: Chris Devonshire-Ellis
Jan. 4 – Recent media commentary has been suggesting that the business environment in China has worsened for foreign investors over the past year. Although China is still evolving as an emerging market, I disagree with the basic premise that it is becoming tougher, and even unwelcoming, to foreign investors.
A sense of foreign investors being singled out for specific abuse seems to be portrayed in certain circles, and as the founding partner of Dezan Shira & Associates – a company that has been providing consulting services to foreign investors in China for over 20 years – it is a subject of great personal interest. Yet amid these recent dissatisfied comments about China’s business environment declining, I see nothing new. Instead, it seems to be rather more of a failure to accept that compliance has become key in China. Non-compliance is now, more than ever, a false economy.
That China has not provided a particularly level playing field for foreign investment is granted. Companies are discriminated against through skewed bidding processes for contracts, by having to apply for unobtainable licenses, and when fighting through many blatantly erected barriers to foreign investment. Yet, while these realities are regrettable, the parameters regarding which industry sectors remain officially permissible yet practically awkward have long been known. So although the situation may be unfair, such knowledge is out there.
I have personally advised numerous foreign investors over the years not to enter the China market because we knew full well that barriers will be erected to discourage them from competing with domestic companies. Yet for the majority of “normal” widget-making or service industries in China, such issues have long since disappeared. It was only a little over 10 years ago that foreign investors were permitted to set up trading companies in the form of FICE. This had previously been disallowed. So although much still needs to be done, doing business in China has gotten far easier over the last decade, not more difficult.
That being said, there are issues that have cropped up over the past three years that have impacted upon China business. The global economy has sharply reduced consumption, just at the same time that operating costs in China have been increasing. But this is a global issue, and should not be portrayed as a decline in attitudes by China towards foreigners per se. After all, while China costs have been increasing, alternatives remain. Relocating operations to Vietnam, or even “re-shoring” back home has been much discussed over the past two years. This is essentially an economic matter, not a worsening of China’s business environment specifically targeting foreign investors. Business climates are always changing. Adapt or die is not a law of the corporate jungle specifically unique to the Chinese, and it is churlish to infer that it is.
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