Monday, March 22, 2010

Bloomberg: China Rules Hurt US Companies

As a follow up to last week's [Mar 17, 2010: WSJ - Business Sours on China] where I wrote:

There has been a reason every foreign investment in China is done by joint venture and since the time frame of foreign executives (especially of the American kind) is very different then the Chinese, what has been a 'win-win' in the near term (10-20 years) is going to potentially create some major stresses down the road.  For now, multinationals have been able to shed costs (Western labor) at a rapid clip, creating massive wins for the executive class while (to gain access to the China market) being forced to share know how, technology, and the like.  Eventually the Chinese are going to find these Western companies "inconvenient" to keep around....

Looks like foreign companies are becoming more "inconvenient" by the day.   I'm usually very early in my trend thinking, but I have to admit while early once more... these things are happening at a pace even I am underestimating.  One country is giving away the store as its corporations march to the "free market" system, while the other is lapping up all the deserts.  The consequences for their respective population is clear unless you live in a dogmatic textbook as most academics do.

Don't worry though... all the academics tell us Chindia's middle class will grow, get rich, and then need to buy things from the US.  Yep, it says right there in the books.  Kind of funny (sad) to watch Rome set fire to itself.

Via Bloomberg:
  • China’s new rules to encourage home-grown technology are eroding sales at U.S. companies and raising concern these losses may multiply, according to an American Chamber of Commerce survey released today in Beijing.   Twenty-eight percent of 203 members responding to the survey said they are losing business because of the policy. Among technology companies, 37 percent said they are already being hurt and 57 percent predicted they would be disadvantaged in the future.
  • Foreign companies with operations in China are concerned the rules are discriminatory and may extend beyond the 599 billion yuan ($87.8 billion) government-procurement market to orders from state-owned enterprises, which last year had combined revenue of 22.5 trillion yuan. 
  • Many foreign companies are starting to believe that the future China business opportunity is shrinking,” said James McGregor, a senior counselor in Beijing at APCO Worldwide, a public affairs company. “This indigenous innovation policy seems clearly aimed at forcing foreign technology here so that Chinese companies can tweak it and call it their own.”   China’s indigenous innovation policy stems from a government initiative inaugurated in 2006 to encourage the growth of domestic technology, patents and trademarks.
  • A separate report this year by the U.S.-China Business Council, a Washington-based trade group, said the government in December released a list of industries, including civilian aircraft, power-generation equipment, high-end printing equipment and power-transmission gear, where Chinese companies would be encouraged to develop their own technology. Local products would be favored even if they cost as much as 10 percent more, it said
  • While many countries, including the U.S., have policies that encourage or compel the government to buy locally made products, China’s new rules go a step further in requiring a Chinese company to fully own the intellectual property and for trademarks to be registered in China, according to the U.S. China Business Council. That’s caused foreign companies to fear they will be shut out of the government-procurement market. 
  • Procurement lists drawn up by some local governments have few foreign-sourced products, the U.S.-China Business Council said in its report.  In Shanghai, only two of 523 products in the city’s catalogue were from foreign-invested companies. In Beijing, of 42 accredited products, one came from a foreign company, the council found. 
  • The chamber’s survey found that the impact of the new rules extended beyond technology companies. Thirty percent of companies saying they were being hurt by the rules were manufacturers and 27 percent were in the services industry. The report said 52 percent of companies saying they were losing out or would suffer were concerned about their sales to state-owned companies. 

Much like Japan, where you can count the number of US manufactured cars sold in a month even if your math skills are poor, you can see a similar path being created.  Only US corporations have not moved mountains of jobs (first manufacturing, now R&D) into Japan.   This is like a reverse Trojan Horse policy... you can hear the Chinese saying "yes, yes - please bring us all your work and R&D - enjoy the promise of access to our markets in exchange". Somewhere Mao must be laughing ...

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