Maze of purchase rules, joint venture demands frustrate foreign firms
By Grace Ng 03 February 2010
When a European company applied to sell its high-tech equipment in China last year, it was stunned by the conditions demanded by the Chinese authorities.
The company would have to allow an inspection team - which included a Chinese rival - to come to its headquarters to scrutinise its plant and examine its closely guarded industrial drawings before the product could be certified for sale.
‘We thought we were prepared for the difficulties of operating in China, but this was too much,’ said the company’s Beijing-based executive, who declined to be named due to the sensitivity of ongoing negotiations.
Such tricky situations are often recounted by foreign companies weighing the high costs of getting access to one of the world’s largest markets.
The challenges are stark for foreign players in critical, fast-growth areas such as telecoms, green technology, auto and high-tech equipment, where China is looking to grow its own national champions.
The obstacles faced by foreign companies doing business in China were once again thrust into the limelight last week, as United States Commerce Secretary Gary Locke criticised Beijing’s recent moves to create barriers against foreign companies.
His comments came in the same week that saw major US business groups writing to the Obama administration to complain about Beijing’s plan to promote ‘indigenous innovation’.
Under that initiative, Beijing announced last November that it would establish a catalogue of products - those developed, owned and trademarked in China - which would get major preferences when local government agencies make purchases.
Such a requirement is almost unheard of in other countries, said Mr. Jeff Hardee, regional director of the Business Software Alliance (BSA), which represents companies including Microsoft, Adobe and Cisco.
‘To our knowledge, this policy to discriminate based on whether the intellectual property is locally developed and owned is unique in the world,’ he told The Straits Times.
Foreign companies in the computer, software, telecoms and green technology sectors were the first to be hit by the procurement rules. But there are concerns that the rules may eventually cover other industries.
Foreign companies in the auto and chemical sectors already face policies that put them at a disadvantage.
They must form joint ventures to transfer technology to local firms - in some cases, the authorities may require them to team up with a local competitor. And last year, China’s state-owned railway system was barred from using foreign technology in some projects funded by the government’s four trillion yuan (S$826 billion) stimulus package.
European wind turbine companies have also claimed that they were prevented from bidding for wind projects financed by the stimulus programme.
Dr. Mei Xinyu of the Chinese Academy of International Trade and Economic Cooperation argued that such policies are the reasonable and rightful prerogative of every country.
But Beijing-based business consultant Christine Li pointed out that China arguably puts up more barriers to foreign participation than most other countries. ‘Compared to markets that welcome foreign investors such as Singapore or South Korea, China’s subsidies of its state-owned enterprises’ market share and protection of their monopolies in key sectors such as steel and oil make it a relatively tough operating environment.’
Some observers, however, are optimistic that things will change. Said economics expert Tian Feng from the Chinese Academy of Social Sciences: ‘The China market is opening up. And it’s creating a more level playing field for all companies, local or foreign.’
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Trading secrets for business in China
Maze of purchase rules, joint venture demands frustrate foreign firms
By Grace Ng
03 February 2010
When a European company applied to sell its high-tech equipment in China last year, it was stunned by the conditions demanded by the Chinese authorities.
The company would have to allow an inspection team - which included a Chinese rival - to come to its headquarters to scrutinise its plant and examine its closely guarded industrial drawings before the product could be certified for sale.
‘We thought we were prepared for the difficulties of operating in China, but this was too much,’ said the company’s Beijing-based executive, who declined to be named due to the sensitivity of ongoing negotiations.
Such tricky situations are often recounted by foreign companies weighing the high costs of getting access to one of the world’s largest markets.
The challenges are stark for foreign players in critical, fast-growth areas such as telecoms, green technology, auto and high-tech equipment, where China is looking to grow its own national champions.
The obstacles faced by foreign companies doing business in China were once again thrust into the limelight last week, as United States Commerce Secretary Gary Locke criticised Beijing’s recent moves to create barriers against foreign companies.
His comments came in the same week that saw major US business groups writing to the Obama administration to complain about Beijing’s plan to promote ‘indigenous innovation’.
Under that initiative, Beijing announced last November that it would establish a catalogue of products - those developed, owned and trademarked in China - which would get major preferences when local government agencies make purchases.
Such a requirement is almost unheard of in other countries, said Mr. Jeff Hardee, regional director of the Business Software Alliance (BSA), which represents companies including Microsoft, Adobe and Cisco.
‘To our knowledge, this policy to discriminate based on whether the intellectual property is locally developed and owned is unique in the world,’ he told The Straits Times.
Foreign companies in the computer, software, telecoms and green technology sectors were the first to be hit by the procurement rules. But there are concerns that the rules may eventually cover other industries.
Foreign companies in the auto and chemical sectors already face policies that put them at a disadvantage.
They must form joint ventures to transfer technology to local firms - in some cases, the authorities may require them to team up with a local competitor. And last year, China’s state-owned railway system was barred from using foreign technology in some projects funded by the government’s four trillion yuan (S$826 billion) stimulus package.
European wind turbine companies have also claimed that they were prevented from bidding for wind projects financed by the stimulus programme.
Dr. Mei Xinyu of the Chinese Academy of International Trade and Economic Cooperation argued that such policies are the reasonable and rightful prerogative of every country.
But Beijing-based business consultant Christine Li pointed out that China arguably puts up more barriers to foreign participation than most other countries. ‘Compared to markets that welcome foreign investors such as Singapore or South Korea, China’s subsidies of its state-owned enterprises’ market share and protection of their monopolies in key sectors such as steel and oil make it a relatively tough operating environment.’
Some observers, however, are optimistic that things will change. Said economics expert Tian Feng from the Chinese Academy of Social Sciences: ‘The China market is opening up. And it’s creating a more level playing field for all companies, local or foreign.’
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