The myth of the Chinese red carpet

It’s been a sweltering summer around the world, with cities registering record temperatures. Yet, for one constituency of global hot shots, who until now had the luxury of hoofing it to salubrious climes whenever the mercury edged up, the heat is well and truly on. And they’re increasingly beginning to lose their cool and have an indecorous meltdown in full public glare.
In recent weeks and months, the cosy authoritarian-capitalism relationship of the past two decades between China and foreign businesses operating in it has become frayed at the edges. It’s almost as if multinational corporations, who had been gambolling with what they thought was a cuddly panda, have been bitten on their backsides and realised too late that the genial beast of old has over time morphed into a kick-ass Kung Fu Panda. 

Where once they had a red carpet rolled out for them when they came wide-eyed to China in the hope of milking the “1.3 billion” market, they now find the rug being pulled from under their feet. 
But in fact, the widely held perception, borne out by anecdotal evidence, that China is an easy place to do business is something of a fairy tale. A recent report from the World Bank that assesses the ease of doing business in 87 economies has dispelled the myth of the Chinese red carpet for foreign businesses. 

When it comes to ease of establishing a foreign business, for instance, China scores 63.7 on a 100-point scale, below the global average of 64.5; in contrast, India, which in the popular perception is bound together by bureaucratic red tape, scores 76.3, well above the global average. Indicatively, it takes 99 days and 18 procedural requirements for foreign businesses to set up shop in China, against just 46 days and 16 procedures in India. 

And although restrictions on foreign equity ownership in India admittedly make it a less-than-fully-open economy, the projection of China as a land of milk and honey for foreign companies is more than a little exaggerated. In fact, on many sub-indices, China fares worse than India. 

Multinational corporations are now at risk of seeing their years-long dreams of tapping into the Chinese market turn sour. In an earlier time, they might have lain low in the hope that things will get better, but today, they are increasingly giving loud and sonorous voice to their frustrations. 

Earlier this month, GE’s chief Jeff Immelt griped at a private dinner in Rome that it was getting increasingly harder for foreign companies to do business in China, and that he wasn’t sure if “they” wanted any of “us” to win. And last week, the chief executives of Siemens and BASF went public with the ‘difficulties’ they face in doing business in China, with the Chinese insisting on transfer of prized technology as the price for market access. Having hooked foreign companies with the bait of its “billion-plus market”, China is now reeling them in. 

In contemplating their no-win situation in dealing with China, foreign businesses could well learn a lesson from history. In the late 18th century, British monarch George III dispatched a mission to China to seek Emperor Qian Long’s permission for British trade representatives to reside in China. As a goodwill gesture, he also sent musicians and painters and telescopes and chronometers as gifts for the Emperor. Qian Long wasn’t easily moved, and in an edict he sent back for the king, proclaimed that the Chinese “have not the slightest need of your country’s manufactures”.  He signed off in traditional imperial style with an exhortation to “tremble and obey”. 

Foreign businesses in China today, who are in too deep to withdraw, may have no option but to “tremble and obey” even though the red carpet has been pulled from under their feet.