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