Google, Rio Tinto & The China Business Environment

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Two stories – Google’s exit, and Rio Tinto’s trial – have dominated the China business news over the past week(s). While the cases are very different (see some links below this post), they have appeared together in many reports, and conversations. This is because they both relate to foreign firms facing problems in China, and as they are both part of a wider story about the business environment (for foreign firms).

The changing business environment was reported by AmCham recently (VOA, US Companies Feel Increasingly Unwelcome in China):

    “A growing number of American businesspeople feel unwelcome in China because of what they see as discriminatory government policies and inconsistent legal treatment. The findings come in a survey released…by the American Chamber of Commerce in China.

    Amcham-China president Michael Barbalas says a survey of 203 members of his organization shows growing pessimism among American businesses operating in China.

    “A question that we had asked before is, ‘Are companies increasingly unwelcome to participate and compete in the Chinese market?’ which we had in this survey, we had 38 percent saying yes. In 2008, when we asked a similar question, only 23 percent [had that response], so we’re up 15 percent in just a little over a year and we thought that was pretty significant,” he noted.

    He attributes the business community’s change in attitude to Chinese government regulations requiring something known as “indigenous innovation.” The policy discourages companies – both Chinese and foreign – from using or purchasing foreign technology and instead encourages them to use domestically developed technology.”

The wider story incorporates many aspects, but a non-exhaustive list of business issues (in addition to the general, headline-induced nervousness caused by Big Corporates hitting a seemingly hard Chinese Wall) includes:

    • Censorship (and accusations of hacking): Google knew when going into China that it would have to follow Chinese law and censor search results, but decided that it no longer wanted to comply due to changing circumstances.

    • Legal Uncertainty: The Rio case initially sparked fears due to the “state secrets” charges (since dropped), and as an Australian citizen was seemingly denied consular access. Bribery and commercial secrets charges are also in the frame. IP risks, and enforcement of legal judgments, are not related to the case, but continue to cause concern for foreign companies.

    • Bribery & Corruption: There have long been issues around local business practices, and most companies have strategies and policies to deal with this. It is illegal in China (see Rio), but the implications can also follow companies home, as in the current Daimler case (China Daily: Daimler Benz accused of bribery in China)

    • FDI & ODI & M&A Approvals: Both in-bound (Coke’s bid for Huiyuan) and out-bound (Tengzhong’s bid for Hummer) deals have faced regulatory hurdles – and caused some consternation.

    Labour & Environment Laws: The Labor Law, along with more focus on environmental protection, has helped increase the administrative burden, as well as costs.

    • Protectionism: Recent moves towards “buy China” and “indigenous innovation” rules by China have created concerns for many international companies hoping to sell into the market.

    • RMB valuation: And the risk of US branding China a currency manipulator, and possibly sparking a trade war.

As we have reported, there is no doubt that attitudes to foreign business in China have changed with the economic times. As China has developed it has relied less on foreign investment. And, as economic crisis has gripped the world, it has emerged as a more confident political and economic power.

Successful businesses adapt to changing conditions, and there are still plenty of opportunities in China (especially in the more open, less sensitive sectors), but it is important to stop and challenge comfortable assumptions from time to time. Rio Tinto and Google have caused many companies to do just that – GoDaddy and Dell, are just two that have already appeared in the news:

    • …but looks like Dell also seeking “safer” environment / legal system in India. China + 1 strategy? http://ow.ly/1qEbA h/t @allroads 8:02 AM Mar 25th (Note: later reports suggest that Dell are denying a pull-out, but a seed of truth?)

    GoDaddy plans to stop China domain registrations (Note: some have suggested a bit of PR at play here…)

But it is not all bad news, and China is trying to provide some reassurances, as the VOA article also notes:

    “The government has been reaching out to the foreign business community in China. Commerce Minister Chen Deming met recently with foreign businesspeople, and in a news conference this month, Premier Wen Jiabao said he also would like to meet with foreign businesspeople.

    Wen says such exchanges would allow them to better understand China’s policies. But he says he also would be interested in hearing their opinions as to how China can attract more foreign investment.

    Amcham’s Barbalas is optimistic about these meetings, saying he hopes they result in clarifying and improving the laws and regulations.”

Overall, our experience of talking to, and working with, companies is that there is still a lot of interest in China, and that good business is being done. Chinese officials are also being surprisingly open and engaged. The key is to understand both the opportunity and the risk (from a stakeholder as well as a market perspective), to plan accordingly (but also flexibly) for the long term, and to avoid politicising the issues.

Notes:

Some of the past week’s Rio & Google news for additional background:

Rio Tinto

• [Update 6/4/10]

RT @taniabranigan: Rio Tinto fires all 4 http://bit.ly/dCqpqB “Clear evidence …they accepted bribes”; “ethical behaviour at heart of… 4:55 PM Mar 29th

Digging deep RT @goldkorn: RT @isaac: Rio Tinto hires Henry Kissinger as China advisor http://bit.ly/aC7hPn 力拓聘请基辛格担任中国顾问 3:52 PM Mar 31st

RT @chinahearsay: Latest China Hearsay: “Some Thoughts on the Rio Tinto Verdicts” http://bit.ly/aXj1M8 — Rule of law, SOEs, crap like that 4:52 PM Mar 29th

10 years for Hu #RioTinto RT @wbaustin: Prison for four Rio Tinto executives in China http://bit.ly/9hxUX4 8:13 AM Mar 29th

#RioTinto RT @taniabranigan: RT @limlouisa: All four guilty on all charges, wang yong gets 14 years   7:59 AM Mar 29th

10 years for Hu #RioTinto RT @wbaustin: Prison for four Rio Tinto executives in China http://bit.ly/9hxUX4

• BBQ for Hu? RT @NiuB: The closing of the Stern Hu [Rio Tinto] trial: a legal analysis (Chinese Law Prof Blog): http://bit.ly/cma1bR 10:14 AM Mar 21st via Echofon

• RT @aimeenbarnes: Rio Tinto employees “admitted to receiving several million dollars in bribes” in China. http://tinyurl.com/ygkdjlh NYT 1:18 PM Mar 22nd via Echofon

• RT @shanghaidaily: Trial of 4 Rio Tinto employees ended in Shanghai, 3…contesting charges of stealing commercial secrets. http://xpo.sh/lq 8:17 AM Mar 25th via Echofon

• Monday for more Rio RT @vfchina: China: Date set for Rio Tinto bribe trial verdict – CNN.com http://vf.cx/2mbQ 2:54 PM Mar 25th via Echofon

Google

• RT @niubi: Official Google Blog: A new approach to China: an update http://bit.ly/9fJhW7 7:41 PM Mar 22nd via Echofon

• And of “it’s not over yet” RT @goldkorn: “There’s a lot of lack of clarity” Sergey Brin on Google & China http://is.gd/aTErD 6:06 AM Mar 23rd via Echofon

• RT @imagethief: Agreed: RT @fuzheado: James Fallows interview of Google’s Drummond absolutely required reading http://bit.ly/aO2T1J 7:45 AM Mar 24th via Echofon

• Headline of the day! RT @China_Daily: Google is not God http://tinyurl.com/yddgusm 8:13 AM Mar 25th via Echofon

14 Responses to “Google, Rio Tinto & The China Business Environment”

  1. Archive » Briefly…Top Ten Tweets (From Rio’s Trial & Google’s Going, To Food Safety & Certifiable Protectionism)| China Business Blog Says:

    […] Ten Tweets (From RMB, WTO & Google Angst, To Expo, Fast Food & T2 Opportunities) Google, Rio Tinto & The China Business Environment » March 26, […]

  2. Tweets that mention Archive » Google, Rio Tinto & The China Business Environment| China Business Blog -- Topsy.com Says:

    […] This post was mentioned on Twitter by China Business Blog, William N.. William N. said: Google, Rio Tinto & The China Business Environment: Two stories – Google’s exit, and Rio Tinto’s trial – have domi… http://bit.ly/ckbIfB […]

  3. Archive » Google, Rio Tinto & The China Business Environment … | China Law | China's Law Says:

    […] Read more:  Archive » Google, Rio Tinto & The China Business Environment … […]

  4. Archive » Briefly…Top Ten Tweets (From Going Global, RMB Wrangling & Google Fallout, To Luxury Goods, Bribery , Dell)| China Business Blog Says:

    […] have covered Google and Rio already so, while they continue to generate headlines, we will (mostly) focus on other news, from our […]

  5. Administrator Says:

    Also see China Law Blog on these issues, as they relate to FDI (or not):
    Google, Rio Tinto And The Truth About China FDI. BTW, They Are Not Even Really Related.
    http://www.chinalawblog.com/2010/03/googleriotintoandthe_truth.html

  6. Archive » Briefly…Top Ten Tweets (From RMB Manipulation, Protectionism & Princelings, To ODI, FCPA & Autos)| China Business Blog Says:

    […] not to see anything here on Rio Tinto? If so, please refer to our earlier post, now updated with the latest […]

  7. Archive » Briefly…Top Ten Tweets (From Bribery, Fakes & Scams, To New Rules, Megatrends & Entertaining IPR)| China Business Blog Says:

    […] kick off with more insight into the Rio bribery case (but are storing up some more bribery stories including both local and foreign firms – this is […]

  8. Archive » Briefly…Top Ten Tweets (From Expo, Trials, & Frugal Innovation, To Employment Contracts, Investment & Procurement Policies)| China Business Blog Says:

    […] and for foreign companies going into China. Nothing too dramatic but, as we have noted before, the business environment has changed. Corruption is an old story, but the Rio case , along with Google’s exit, has heightened […]

  9. Google, Rio Tinto & The China Business Environment | India Economy Says:

    […] more: Google, Rio Tinto & The China Business Environment Copyright © 2010 India Economy The information contained in India Economy is […]

  10. Archive » Don’t Quote Me (On Apple – Or GE – In China)| China Business Blog Says:

    […] Such open criticism is rare (and rarely a good idea) in China, but the frustration is common (as we noted here). Lobbying at national, industry and company level continues to go on behind the scenes, and this […]

  11. Archive » Briefly…Top Ten Tweets (From Manipulation, Ratings & IPOs, To Cities, Consumption & Labour Woes)| China Business Blog Says:

    […] domestic market may be appealing but, as we have noted before, it is not without challenges. Over the past few months Google has been experiencing a lot of them, […]

  12. Archive » Briefly…Top Ten Tweets (From Rankings, Relocations & Consumption To FDI, Exports & Gifts)| China Business Blog Says:

    […] issue we have covered is the state of the China business environment but, interestingly the failure of the largest foreign takeover of a Chinese company to date (a […]

  13. Archive » Briefly…Top Ten Tweets (From Unreliable Figures, Non-Performing Loans & Competition, To Challenges, Consumers & Brands)| China Business Blog Says:

    […] we return for an update to an old story – Rio Tinto’s trials (literally) and tribulations in China. The New York Times reported […]

  14. Archive » Briefly…Top Ten Tweets (From Market Access & Level Playing Fields, To R&D, SOEs & Taxes) | China Business Blog Says:

    […] have also covered the growth of the “business environment” issue many times in these posts, and will do so again…this time it is the European […]

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