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China economy

Is Shenyang in China’s industrial heartland the worst place in the world to start a business?

European Union Chamber of Commerce says onerous governance is turning off foreign investment in struggling industrial hub

PUBLISHED : Tuesday, 05 December, 2017, 10:34am
UPDATED : Tuesday, 05 December, 2017, 8:52pm

An influential business lobby group says a lack of clarity in policy as just one of several obstacles that can deter foreign companies from operating in Shenyang, a major industrial hub in China’s northeast struggling to reverse economic stagnation and attract investment.

In its first position paper for Shenyang, the capital of Liaoning province, the European Union Chamber of Commerce also said heavy governance, a loss of skilled workers, an uncompetitive work visa and permit system, limited options for international education and poor air quality had reduced the city’s ability to attract foreign investment.

If no improvement was made, Shenyang might “risk losing out on potential foreign investment to other Chinese cities”, the report said.

“Instead of continuing to engage in high-level discussions and developing more broad policy goals that merely scratch the surface, the city needs to dig deep and plant the seeds of reform.”

The assessment comes amid a debate over how to cure the economic plague in this heavy manufacturing region deeply influenced by the state economy.

The chamber’s report detailed the “day-to-day challenges and opportunities” foreign businesses in the city faced as well as gave a broader picture of the difficulties of doing business in China’s rust belt.

The chamber, which opened its Shenyang office in 2007 and has 49 local members, said the lack of clarity, transparency and trust in policymaking and enforcement in Shenyang had created uncertainty for foreign companies.

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Owing to the market’s size and growth potential, European companies “have accepted the uncertain nature of governance in Shenyang for several decades”, according to the chamber’s report. Companies, however, are “increasingly intolerant of poor governance, the lack of transparency in policymaking and inconsistent enforcement of regulations”, it said.

“When reviewing [local government websites], potential investors will find broken links and inadequate information, along with outdated ‘recent updates’ from 2014,” the report said. On top of that, most of the important investment guides and announcements that were on the website were only available in Chinese, it said.

Companies also reported a lack of clarity regarding which government departments had authority over a given issue.

“The fire, environmental and construction bureaus are the departments most commonly cited as sources of conflicting enforcement,” the report said.

In particular, the report urged the local government to streamline the “long, complex and burdensome” approval process for construction projects that daunts foreign companies either making a first investment or expanding an existing investment.

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Some members of the chamber in Shenyang said “nearly 60 separate steps” needed to be completed before approval could be granted and a property ownership right certificate obtained, according to the report.

“This has been a source of frustration for many members, with some suggesting that without support from relevant officials the whole process could take as long as two years,” it said.

“In short, Shenyang ranks as the worst city in one of the worst countries for starting a business and obtaining a construction permit,” it said, citing surveys by the World Bank and PricewaterhouseCoopers.

It suggested Shenyang learn from Shenzhen, Hong Kong and Suzhou about how to offer up-to-date information, provide clear guidance on regulations and hold regular meetings between government departments and business to make it easier for foreign firms to operate in the city.

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It also said the growth of falsified economic data in Liaoning from 2011 to 2014 tarnished the province’s reputation and trust in the government, possibly affecting the area’s ability to attract investment from both foreign and Chinese companies.

The report cited official media statistics in 2016 showing that just 10 of China’s top 500 private companies were based in northeast China.

The chamber found Shenyang had the highest rate of forced technology transfers among all the organisation’s offices. It recommended the city set up an intellectual property rights court to help offer equal opportunities to small and medium-sized firms.

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It said the municipal government should create strong incentives to staunch the flow of skilled workers out of the province and entice locals working elsewhere to return to the city.

It suggested developing a flexible visa pilot programme to cut the time needed to obtainthe documentation. It also recommended that Shenyang drop the visa prerequisite of two years of prior working experience, resolve its internship visa issue and open short-term visas for foreign visitors with specific skills.