Trying times for foreign companies in China
Western firms say red tape and rising costs make mainland operationsincreasingly difficult
Companies from IBM to Starbucks are struggling with new obstacles on the mainland as Communist Party officials tussle over the direction and depth of economic reforms.
IBM's China revenue fell 22 per cent in the third quarter, which contributed to the first-ever sales decline in the company's growth-markets division, as state-owned companies started delaying orders, including for mainframes and servers.
"The operating environment for foreign firms has deteriorated in the past year in a serious way," said Shaun Rein, the managing director of China Market Research Group in Shanghai. "In my 16 years in China, it's some of the worst business sentiment among foreign executives. They don't feel as welcome as they used to."
When the US-China Business Council, a Washington-based trade group, surveyed US executives this month, the chief complaints included rising costs and bureaucratic red tape. Almost 70 per cent of the more than 100 US firms polled said profit margin would be flat or narrow this year. Only 39 per cent are optimistic about the next five years in China; 58 per cent felt that way in 2011.
Since opening its economy to foreign investment in the late 1970s, China has been a growth engine that has generated billions of dollars in revenue for multinationals. While foreign firms struggled in the early years, the business environment improved after the nation joined the World Trade Organisation in 2001. More recently, rising labour costs have prompted some firms to put their factories elsewhere. Now, with economic growth slowing, policymakers are struggling to pull off a long-awaited transition from export-fuelled growth to an economy driven by domestic consumption.