New rules will serve to level business playing field
Print Edition
Foreign businesses in China should put the victim mentality to rest for good and embrace new rules set to protect their own interests in order not to miss the boat as the Chinese economy matures.
Multinational companies were reportedly given the “jitters” after Chinese lawmakers adopted a new national security law that expands legal reach to almost every aspect of public life.
In particular, the new law stipulated a review system to reinforce the country’s ability to examine incoming foreign investments for national security threats.
The law is seen by some as a sign of a worsening business climate in China, with fears that such a move would bring uncertainty to future investments in the world’s second-largest economy.
Multinational firms in China need to realize the new law is not targeted at the legitimate operations of overseas investors or at blocking much-needed inbound foreign investment. It’s about safeguarding national security.
After all, security is the cornerstone of a country’s development.
An insecure China — a country with 1.3 billion people and the top trading partner for more than 130 countries — is bad news for all.
Foreign businesses need to stop seeing themselves as victims of a rule that sets out to protect their interests in the first place by trying to create a more law-based business environment.
Long-standing practice
National security reviews are a long-standing practice both in China and worldwide. China’s Foreign Trade Law, which came into force in 1994, stipulated that the country could restrict or prohibit imports and exports of goods and technology for the sake of safeguarding national security.
A Foreign Investment and National Security Act, effective in the United States since 2007, allowed for intensified security checks over foreign investment in key infrastructure projects and the high-tech industry.
Singling out China’s national security review rules while turning a blind eye to similar practices overseas is hypocritical. Nevertheless, multinational companies have been increasingly grumpy about a perceived deterioration of China’s business environment, especially in the wake of rising operating costs.
For decades, foreign investors have reaped handsome profits from one of the world’s fastest-growing economies while sitting on cheap labor, generous consumers and a “super national treatment” that includes hefty and exclusive tax breaks.
Victim card
These have prompted many to feel entitled to favorable policies while on Chinese soil, and to play the victim card in order to continue to press for advantageous policies in the face of rising labor costs and when authorities try to treat them as the equals of domestic firms.
But when an economy grows, so do labor costs. In addition, as China continues to adjust its market economy, equal treatment for domestic and foreign firms has become an irreversible trend. An equal playing field for all is in the long-term interests of everybody.
The lenient policies of yesterday have worn out their usefulness, and foreign companies should keep that in mind.
Of course, foreign investment is still much needed in today’s China as its economy enters a period of plateauing growth. The Chinese economy in 2014 grew 7.4 percent, its weakest annual expansion in 24 years. The government has further lowered this year’s growth target to approximately 7 percent.
Authorities have long vowed to restructure the economy from exports and massive state-directed investments into one more responsive to the growing needs of a consumer-driven society.
Financial input from overseas and expertise in the process will be welcome, and the restructuring also means new business opportunities for foreign firms. But they should first abandon the victim complex and learn to adapt to the new norms in order to continue to thrive.
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