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Why Foreign Businesses in China Are Getting Mad

Foreign businesses in China are voicing growing frustration about the country's heavily regulated market — a bureaucratic maze many say is deliberately designed to hamstring non-Chinese players to the advantage of their local competitors. Last week, the European Union Chamber of Commerce in China joined the chorus: its annual position paper, an unwieldy 650-page tome, lists hundreds of market access problems for foreign companies across a range of industries. By

stymieing open competition between local and foreign business, China is hurting itself, too, says the organization's president, Jacques de Boisséson. "The proportion of European investments to China, compared to the overall outbound investment from the E.U., is only three percent," he says. "There is not enough European investment in China."

Direct foreign investment in China has been growing in step with the nation's booming economy, but not as quickly as many would like. Europe's exports to China totaled € 78.4 billion in 2008, a rise of 9% from 2007. But, says the European Chamber, which represents 1,400 international businesses, trade with the small nation of Switzerland is still three times higher. Despite the 30 years that have passed since the Beijing swung open the doors to foreign investment, "China still remains excessively regulated and less open to competition compared to other major economies," the paper reads.

Though international investors have complained for decades about the bureaucratic hoops they have to jump through to access the China market, their concerns have been sharpened in recent years by a series of regulatory changes that appear directly intended to shut out foreigners. It's made European companies wary of committing more capital to the China market, says De

Boisséson. "What we are telling [the Chinese government] is that our companies are willing to invest, and for that, they need to be sure that they will be treated equally. Today, they are concerned that this wouldn't be the case."

Their concerns are not unfounded. In early 2009, a set of policy proposals known as "Indigenous Innovation Accreditation" caused alarm among international businesses when early drafts

appeared to shut the door to foreign products across the high-tech industry through a complicated licensing system that required companies to register their IPR in China before registering elsewhere in order to qualify. In a report this June, the Washington-based U.S. Chamber of

Commerce said the policies were "considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before."

While subsequent drafts of the law have been more accommodating, foreigners have also

complained loudly that they are being shut out of much of the lucrative government procurement sector. The U.S. and most other western markets are signed up to the WTO's government

procurement agreement (GPA) legally forbidding them to keep foreigners out. China, however, is not signed up. Last year, the European Chamber stated that government tenders in the

fast-growing wind power sector were deliberately designed to keep foreign companies out of the running by inserting criteria that only Chinese companies could meet. The organization also noted