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Foreign Companies in China Feel 'Targeted'

Foreign Companies in China Feel 'Targeted'

By Associated Press | Updated: 2 September 2014 16:08 IST

Foreign companies in China feel increasingly targeted for unfair enforcement of anti-monopoly and other laws and might cut investment if conditions fail to improve, a U.S. business group said Tuesday.

The American Chamber of Commerce in China's report adds to mounting complaints about a flurry of investigations of global automakers, technology suppliers and other companies. It is a reversal for companies that welcomed plans unveiled by the ruling Communist Party in late 2013 to open the state-dominated economy to more private competition and adds to pressures at a time of slowing growth and rising competition from local rivals.

Almost half of companies that responded to a survey last week believe they are targeted for "selective and subjective enforcement" of anti-monopoly, food safety and other rules, the chamber said in a report. It said China faces a growing risk it "will permanently lose its luster as a desirable investment destination."

"Many areas of regulation are overly focused on foreign multinationals," said the chamber's chairman, Greg Gilligan.

Out of 164 people who responded to the survey, 60 percent said they felt "less welcome" in China, up sharply from a survey in late 2013 in which 41 percent of 365 respondents expressed the same sentiment.

The ruling party under President Xi Jinping has promised to make China's economy more productive by opening more industries to private and foreign competition. But at the same time Beijing is trying to create "national champions" in fields from autos to telecoms to aerospace. Business groups say that has led regulators to use a 6-year-old anti-monopoly law and other regulations to shield domestic companies from competition.

The European Union Chamber of Commerce in China also expressed concern last month about the anti-monopoly investigations. It said it received reports companies were pressured by regulators to accept penalties without a full hearing and avoid involving their governments.

Trade officials from the United States, the European Union and Japan say they are watching the investigations but have yet to announce whether they consider them a violation of China's free-trade commitments.

Industries targeted by regulators include pharmaceuticals, medical devices, high technology and autos, according to Les Ross, the American chamber's vice chairman. He expressed concern regulators might be "taking down" foreign companies to narrow the gap with Chinese competitors.

Beijing has announced fines totaling $202 million against 12 Japanese auto components suppliers on charges of price-fixing as part of a sweeping investigation of the industry. Officials say Mercedes Benz, Audi and Chrysler also will face punishment. In separate probes, Microsoft and chip maker Qualcomm also are under scrutiny.

Foreign business groups welcomed the anti-monopoly law in 2008 as a step toward clarifying operating conditions. Since then, they have said it is enforced more actively against foreign companies than against local rivals.

Regulators deny they favor domestic companies. They point to actions such as fines last year against two Chinese liquor producers for price-fixing.

"We believe the fairness of the law enforcement will be better reflected as the number of cases increases," said the director of the anti-monopoly bureau of the Cabinet's planning agency, Xu Kunlin, in comments Tuesday in the China Daily, an English-language newspaper aimed at foreign readers.

Foreign companies used to have a "sense of cooperation" with regulators but believe that has changed over the past two years, said Kim Woodard, a former vice chairman of the American chamber.

"Now, what's happening is you have aggressive enforcement actions against selected companies," said Woodard. "That starts to look like another barrier to market access."

That period coincides with the time since Xi became Communist Party leader in 2012. But Woodard, Gilligan and Ross said it was unclear how much of the change was driven by ruling party leaders and how much by other forces such as factions that might oppose reform plans.

Beijing also is reducing purchases of goods from foreign-owned companies, said Ross.

The government procurement agency announced in May it would not buy computer equipment that runs Microsoft's Windows 8 operating system. It gave no explanation, but state media said Beijing wants to develop its own operating system to compete with Windows and with Google Inc.'s Android.

Uncertainty over regulatory conditions adds to challenges for foreign companies at a time when China's growth is slowing and they face competition from ambitious local rivals. Growth of 7.5 percent in the three months ended in June was barely half of 2007's rate of 14.2 percent.

China is one of the world's top investment destinations. The government says it receives in excess of $100 billion a year, thought economists say a large share of that is money brought home by Chinese companies.

But fewer companies report substantial revenue growth and those reporting slight decreases are "more prevalent," the chamber's report said.

"Companies are increasingly cautious about future investments," it said.

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