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Beijing implementing curbs on foreign firms

Aim is to boost domestic rivals

- The Washington Times - Thursday, May 27, 2010

Business leaders are debating what the future holds for China's economy as foreign companies there face increasing frustrations owing to new restrictions imposed by the communist government in Beijing.

However, several businesses that favor trade with China say the newly implemented controls aimed at benefiting Chinese companies might additionally aid Chinese workers and some foreign businesses there.

Gordon Chang, author and business consultant in China, said recent Beijing policies aimed at foreign companies "reserve a lot of resources" for the best Chinese companies in order to improve their place in world markets.

Mr. Chang, who works in Shanghai for the U.S. law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, said the restrictions are prompting many businesses he works with in China to consider moving their operations to Vietnam or India to cut costs and avoid frustration with the policies.

However, Richard Hoffmann, senior associate at the Beijing-based Dezan Shira & Associates Ltd., a company that seeks to integrate foreign businesses into the $8.8 trillion Chinese economy, said the policies' impact will vary depending on the company.

Chinese policies on foreign businesses have been on the books for several years, but are only recently being implemented. They include new laws that increase taxes on companies in raw manufacturing and reduce taxes on high-tech and service companies; the China Labor Law, which sets basic working conditions; and a policy, currently being modified, that would make locally made goods easier to purchase. Taxes also will be levied on factories that produce large amounts of pollution.

"If China feels that it can do what the foreign businesses are doing on its own, then [those businesses] will face more restrictions," Mr. Hoffmann said, noting that some companies were forced to restructure because of the new policies.

The U.S.-China Business Council (USCBC), a nonprofit group that seeks to expand trade with China, reported that the new restrictions are the result of Chinese complaints that China's rapid economic growth is based too much on foreign investment, and of Beijing's efforts to modernize China's economy.

"Our goal is to further elevate the competitiveness of Chinese enterprises, which we believe contributes to the stability of the world economy," said Wang Baodong, press secretary for the Chinese Embassy in Washington. He said China still aims to attract foreign investment, but also seeks to change "the mode of its economic development."

The United States and European nations have sent lobbyists to China to discourage some of the changes. Robert Poole, vice president of USCBC's China Operations, said the preference policy for Chinese goods is "not an approach that we believe would be effective for China or nondiscriminatory."

Mr. Chang said many companies he works with also dislike the leverage some of the policies give the Chinese government in their business dealings.

The Economist magazine reported this month that China's communist-controlled All-China Federation of Trade Unions conducted an investigation of foreign companies in China, as part of a plan to unionize multinational corporations in China.

Unionization would bring a payroll tax of 2 percent and require Chinese government union representatives to take part in corporate strategy sessions, potentially providing Beijing agents with strategic insider data for the Chinese firms.

Still, some foreign businesses see some benefits in the new policies.

Siva Yam, president of the U.S.-China Chamber of Commerce, said enforcing China's labor laws (such as through unionization) will help protect Chinese workers by requiring safe working conditions. Many workers are easily exploited because they have little to no education or rights, and can only survive by hard labor, he said.

"I think the government is doing the right thing," Mr. Yam said, adding that he wonders whether the government can enforce the law. He noted the last time Beijing tried to implement it, during the start of the worldwide economic downturn, the government reversed it overnight.

Commerce Secretary Gary Locke, who recently has traveled to China to promote U.S.-China trade, said some American firms found "promising opportunities" for sales of goods related to clean energy, energy efficiency and electric energy storage in China, because of the need to reduce China's pollution levels.

Regardless of the policy changes, the USCBC's Mr. Poole said many American businesses "remain committed to and confident in the China market" and prefer to resolve their differences through dialogue, especially considering China's 1.4 billion potential consumers and extensive cultural and monetary influence in Southeast Asia.

"The Chinese market is one America can't ignore, no matter what the policies are," Mr. Yam said.

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