Business Environment for Foreign Companies in China

Asia Pacific Forum has just published an article I’ve written on the topic: “Business Environment for Foreign Companies in China”. The article deals with the fact that, although media has been portraying quite a negative picture of the business environment for foreign companies, a recent survey carried out by AmCham Shanghai shows foreign companies based here sound absolutely positive.

You can read the article here. !! Update: the link to this article is no longer available. You can read the original post bellow:

China Business Environment for Foreign Enterprises.
Media Perception not Shared by Foreign Companies Here.

There has been plenty of press coverage on the deterioration of business environment for foreign companies in China. In response, the American Chamber of Commerce in Shanghai took the initiative to conduct a “Hot Topic Survey” (March 24th-31st) on the “Business Climate in China- 2010 1st Quarter” to assess whether American companies felt the situation had changed in recent months. Good news are coming from the survey findings: companies based here do not seem to share these pessimistic views the press presents to us.

Some key findings from the survey:

  • 90% of companies feel their business has either improved or stayed the same in the last six months (sample size= 217)
  • 78% of companies feel business environment has either improved or stayed the same over the past six months (sample size= 218)
    • Even within the 22% that perceives situation to have worsened, 69% still feels that their business itself has improved or stayed the same!

  • 63% of companies have not changed their company’s plans in the last six months (sample size= 218)
    • Out of the 37% that changed them… more than 80% were actually increasing their activity in China (investment, manufacturing, procurement, R&D…)

So, if companies sound so undeniably positive why is the perception we get from the press so unmistakably negative?

I guess there are plenty of signs that are helping to build this feeling that things are going the wrong direction. Just to mention the most obvious ones, there has been a series of Government announcements that have got potential investors uneasy:

  • New regulations on Foreign Investment with its emphasis on welcome vs. unwanted investments (announcement highlights)
  • Tighter regulations affecting the Set Up of Representative Offices (regulations summary)
  • Tax Increases for Representative Offices (further info on the topic).
  • Indigenous Innovation Policy (which would discriminate in favor of Chinese technology when competing to access government procurement business )

But I must say that a good amount of this type of news is no news at all. There have been previous announcements on favored investment industries, R.O.s may be further restricted but WFOEs (Wholly Foreign Owned Enterprises) are easier and cheaper to set up than some years ago and the Indigenous Innovation Policy has already got modifications that improve the access of foreign companies to government procurement business (updates on the Indigenous Innovation Policy draft).

So, what is my take on all this? China has always been a challenging investment environment. And that is not going to change now, to make it easier for us, precisely when the country is in less need of investment. Announcements of the type mentioned above are always going to cause anxiety due to the uncertainty they bring about for these operating here or planning to set up in the future. But, China is still a market full of opportunities and growth rates that every economy has probably envied during the recent economic downturn. And we all want to get our share of it.

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