Multinationals welcome, but they must adapt to rules of the game
Foreign companies in China have every right to feel targeted. Investigations into their operations and business practices have multiplied over the past year, with a rising number of fines being meted out for offences.
Foreign companies in China have every right to feel targeted. Investigations into their operations and business practices have multiplied over the past year, with a rising number of fines being meted out for offences ranging from corruption to price-gouging. An article and commentary in the , the Communist Party's mouthpiece, this week added tax evasion to the list of accusations, saying that inquiries should be opened into multinationals shifting profits overseas to avoid paying the 25 per cent corporate tax. A worrying message has been sent that authorities have to do more to counter.
The accused multinationals of exploiting goodwill after having taken advantage of labour, land, resources and the nation's huge market. This is hopefully not the government's opinion. It contradicts Premier Li Keqiang's recent comments in Europe that foreign investors and companies are welcome in China. He has contended that anti-monopoly investigations are aimed not at overseas companies, but at creating a fairer environment for all businesses.
That is as it should be. Yet the stepping up of antitrust investigations under a 2008 fair trade law has prompted foreign business groups to voice concern about unfair treatment by regulators. Among the 30 multinationals that have been fined or are under investigation are three German carmakers, 12 Japanese manufacturers of vehicle parts, six infant milk formula companies, pharmaceuticals giant Glaxo-Smith-Kline for bribing doctors, and Microsoft, which is being scrutinised for "monopolistic behaviour". Coupled with a slowing Chinese economy and competition from mainland firms heating up, some companies have had enough and are pulling out.
There have always been hurdles to doing business on the mainland, red tape and corrupt local officials being the biggest obstacles. But even with the challenges of rising costs from higher salaries and attracting talented workers, the size of the market is still too enticing to ignore. Preferential treatment given a decade or two ago is no longer available and foreign firms have to adapt. They will still prosper if they can ensure good governance, boost productivity and entice consumers.
Li and other officials have made clear China needs multinationals. They help grow the economy, set high standards and provide jobs. But firms should not expect a blind eye to be turned to bad practices or law-breaking. What applies overseas also has to apply in China.
