We don’t need you, China tells foreign businesses

(This report was published in DNA edition dated January 18, 2010.)

Venky Vembu

As an international lawyer working in China since 1981, Steven M. Dickinson has helped numerous foreign businesses navigate the legal maze in, and profit from, what has since then been the world’s fastest growing economy.

“I’ve seen ups and downs, and lefts and rights,” Dickinson, now with boutique international law firm Harris & Moure, told DNA Money from Qingdao in eastern China. But what he sees today is only a disquieting U-turn – in China’s policy in respect of foreign businesses.

For years, Chinese officials used to roll out a red carpet that made foreign businesses feel welcome; today, the same officials are busy pulling the rug from under their feet.

“My business is to help foreign companies come and invest in China,” Dickinson says. “But the current attitude of the government towards foreign businesses is ‘We don’t need you.’ This wasn’t the attitude years ago, but right now it goes down clear to the lowest, local level.”

This manifests itself in several ways, he adds. Businesses might fully comply with the letter of a national law, but when they appear before local-level government officials for some approval, they might be sent on a paperwork runaround. “The officials might say they want a particular document, and if you point out that the additional requirement is inconsistent with the national law, they’ll say, ‘Well, we don’t care! And we don’t care whether your company comes or not. We don’t really need you!”

The Chinese, says Dickinson, “now believe that they don’t need foreign investment or foreign participation in the Chinese market. Therefore, they will accommodate it only to the extent they have to or there’s a clear, transparent benefit to them.”

In Dickinson’s estimation, several factors account for this attitudinal change. “In my view, as the world media says this is China’s century and that China is now the world’s dominant economic power, China is beginning to believe it – and thinks of itself not as an impoverished Third World country but as the new economic superpower.”  And that, he says, has an effect on how China sees foreign businesses on its territory – and how it operates on the world stage.

Additionally, the continuing flood of foreign investments and of people into China “only reinforces China’s notion that it doesn’t need to care,” says Dickinson. China continues to “do things that are contrary to the standard norms of conduct – and all that happens is that more people and more investments come to China.” Indicatively, inbound foreign direct investment in December 2009 rose for the fifth straight month to $12 billion.

Similarly, on matters relating to world trade law, China has an a la carte attitude towards established rules, says Dickinson. “China’s approach is: ‘If world trade law adds advantage to us, we’ll abide by it. But if world trade law restricts us, we’ll simply ignore it’.”

Dickinson cites a recent case before the World Trade Organisation that, to his mind, reflects this approach. After the WTO ruled against China’s restrictions on media imports from the US and Europe, China’s response was to wilfully ignore it. The attitude, he says, was: “Sure, we lost, but we aren’t going to change anything.”

Additionally, he points out, “a lot of the laws that were passed in China at the time of its entry into the WTO, which were intended to allow market access to foreign companies, are now being undermined or pulled back.” And China is enacting new laws that are “in conflict with its obligations under WTO laws and are designed to increase either the control of the Chinese government or the advantages of domestic Chinese industries.”

Dickinson concedes that China’s domestic policies “are completely normal – and there’s no reason to think they won’t work over time.” Foreign companies need to understand that China is “no longer desperate for foreign participation in the Chinese market,” and so if they   “don’t want to play it the Chinese way, they shouldn’t come.”

“If businesses say they don’t want to follow Chinese rules, China is going to say, ‘Here’s the airplane, bye-bye.’ And it’s probably right to say that.”

However, China’s unwillingness to abide by international obligations is, says Dickinson, “a disastrous policy.”  The risk to China, he points out, is that other countries around the world could well impose punitive tariffs on China-made goods since it had “not been playing by the rules.” And if China wants to acquire companies or assets overseas, it could run into similar resistance.

China’s belief – “and I think they’re completely justified in it” – is that the US will “posture, puff itself up, complain and threaten” China, but won’t don’t do anything significant because the US “desperately” needs China.

But China, he adds, is making the same strategic missteps that the US did in the 1970s and Japan did in the 1980s: to succumb to the high-on-hubris belief that “we can call the shots because we’re the most powerful, and we don’t need to compromise or play soft ball.” That belief never comes true, says Dickinson, “because no one has that much power.”

In the 1960s, recalls Dickinson, the US reckoned that as the world’s biggest oil purchaser, “it could force Mid East countries to sell oil at whatever price it wanted.” When the oil states threatened to form a cartel, the US didn’t believe it would happen, and in the 1970s came the oil shock.

The same, he says, is the case with China, which today believes that as the largest purchaser of commodities, it can dictate the terms of the transactions. He points to the ongoing tension over iron ore price negotiations as illustrative of this. After last year’s tussle – which led to the arrest of four Rio Tinto executives in China – mining companies have refused to negotiate with China, and have instead told China that it could either abide by the terms they negotiate with Japan or buy from the spot market at higher prices.

To be fair, says Dickinson, not everyone in the Chinese government believes China should wilfully violate its WTO obligations. “There’s a faction that says China should become a responsible WTO player as otherwise it will face pushback from others – and be pushed out of the world trade order to China’s detriment.” But the dominant faction today “doesn’t seem to believe that a bit. They believe that economic power calls the shot completely and that they can go their own way.”

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About Venky

Journalist, blogger, amused observer of worldly goings-on... More about me here.
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One Response to We don’t need you, China tells foreign businesses

  1. Pingback: That Chinese red-carpet could trip up Indian CEOs | Firstpost

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