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The climate for foreign biz in China

Marketplace Staff Apr 20, 2010

The climate for foreign biz in China

Marketplace Staff Apr 20, 2010


Kai Ryssdal: Google has nothing to say about that story in The New York Times today about the Chinese hacking attack of late last year. That was the attack that eventually led to Google’s decision not to censor search results in China and so effectively led to Google’s pull out of the Chinese market. The Times says a key Google password system was the target of those attacks. Google is just the highest-profile company to have problems in the world’s biggest market. While Beijing does still insist it’s open for business, our China correspondent Scott Tong has seen some evidence to the contrary. Hey Scott.

Scott Tong: Kai, hello.

Ryssdal: So let’s review here for a second, all right. We’ve got Google having pulled out of China. We’ve got foreign executives at Rio Tinto, the big mining company sitting in a jail in Shanghai some place. The American Chamber of Commerce is screaming about protectionism, and how hard it is to do business over there now. Is it getting a little tense, the mood?

TONG: There is grumbling, not from every sector. But let me tell you about the American Chamber of Commerce in Beijing, which represents the big American companies in China. And in a new report they say there’s a mounting number of challenges here, which is a very nice Chamber of Commerce way to say it. Privately, business people are saying China is acting like big man on campus. And there are other less radio-friendly ways to say what they really think. It’s in that environment that these new Chinese regulations came out. And they basically say the welcome mat is still out for the foreigners. We still welcome foreign acquisitions of Chinese companies. We have new tax breaks for R&D centers to be set up in China. There’s new openness in China’s financial sector. We’re now going to let foreign companies issue stocks and bonds in China. So Chinese investors can buy shares of HSBC Bank or General Electric the same way they snatch up chicken nuggets and Levi’s, Kai.

Ryssdal: Yeah, so it sort of sounds like they know that foreign investment is key but… right?

TONG: Well, yes, because foreign investment, opening up to the rest of the world, is a centerpiece to the China story of the last 30 years. Foreign companies come, they bring their ideas, they bring their capital, they bring their technology and management, and they match it up with Chinese land and Chinese labor. And that’s been a big part of the China story. It sounds really easy, but in the early days it was really difficult, because the foreign companies had to come into state-run China and kind of teach capitalism 101. I spoke to a man named Michael Morris, who was here in the stone ages in the late 70s with the Pepsi company, and they set up a factory here. And in the early days they had to teach the line workers you know what, some of this property belongs to the company, you’re not allowed to take it home.

MICHAEL Morris: We would have trucks that would just disappear. And the forklifts would disappear. And you would say to these guys what happened to the trucks? Oh, I had some coal to ship.

TONG: Well, now fast forward 30 years, Kai, and it’s the Chinese who are laughing now to the tune of the third largest economy in the world. And on Japan’s tail for number two right now. And a lot of it, as they say, is foreign investment, Kai.

Ryssdal: Yeah, so China’s been the factory to the world for 30 years now. How much longer can that really go on though?

TONG: Well, there is a shelf life. Labor costs are going up and a lot of Chinese don’t necessarily want to be the factory to the world anymore. The idea is, you know, the Chinese government isn’t going to make things that easy for the foreigners any more.

Ryssdal: Yeah, what they want to do — to borrow from the world of sports — is they want to raise their game, right?

TONG: Well the sports parallel is the professional sports league in China, the professional basketball league. Every team gets a couple of foreigners to raise the level of play — usually it’s a couple of washed-up players from the NBA who come. But the idea is we want to import this talent for a little while and then build it up for us. And then thank you very much, goodbye. We’re going to get pickier over time. And as far as businesses, China is saying, well going forward we don’t want the foreigners if they’re polluters, or if they waste energy. If they’re high-tech, if they set up call centers, if they set up regional headquarters, yes, we want you. If you’re in one of those sectors — kind of the future of China, China 2.0 — then the future may still be pretty good. If you’re not, one investment manager said you better put a sweater underneath that parka because the environment is getting a little chillier.

Ryssdal: Scott Tong, at our bureau in Shanghai. Thank you, Scott.

TONG: All right, thanks Kai.

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