Doing business in China is getting harder and harder: US-China Business Forum
At the start of 2022, American companies with a presence in China were optimistic about the business outlook, according to surveys. Confidence had rebounded to pre-2017 levels, thanks in part to the country’s long-term growth trajectory.
Then the Covid lockdowns hit Shanghai hard in the second quarter. Some 93% of respondents to a survey by the American Chamber of Commerce in Shanghai reduced their income projections – more than a quarter lowered them by 20%. Covid dampened expectations for the year and drew heavy criticism of the government from some normally diplomatic foreign affairs groups.
While local governments in China have been helpful, the fallout from the pandemic has also highlighted a broader trend: It’s increasingly difficult for American companies to do business in the country, says Sean Stein, adviser Shanghai-based principal at global law firm Covington. Prior to joining Covington last year, Stein served as US consul general in Shanghai.
“Whether you go back 20 or 30 or five years ago, no one ever said it was easy to do business” in the country, Stein said at the U.S.-China Business Forum that took place held at Forbes on Fifth in New York on Tuesday. Stein, who is also president of the American Chamber of Commerce in Shanghai, spoke via Zoom from Shanghai.
“But what we are seeing is that at all levels there is consensus that it is getting harder and harder to do business. There are many things that make it harder for American companies to do business in China. »
Why now? Stein focused on three areas beyond Covid:
* Policy. “The number one issue that concerns our members is the US-China tension,” he said. “Both the United States and China are taking steps to reduce dependence on the other country in their supply chains and for critical technologies,” Stein said. “This is especially true at the central government level” in China, he said. Some U.S. companies “are worried about how long they’ll be welcome in China,” Stein said.
* Compliance. The cost and difficulty of compliance is a burden on American companies in China, as well as Chinese companies in America, Stein noted. “Compliance in China is increasingly complex, increasingly expensive, increasingly difficult and requires very specialized assistance. American companies want to be compliant, good citizens, but that can be difficult ‘amid greater scrutiny by competition authorities in ‘everything from pricing to advertising to supplier agreements. New data and privacy laws and regulations are also a challenge, along with increasingly stringent environmental standards.
Moreover, standards are sometimes seen as a way to tip the scales against international companies. “Standards and certifications create barriers to market entry – creating areas where foreign companies are not allowed to participate in the standardization process,” Stein said. In some cases, “there is no transparency”.
*Competition: “Companies are increasingly concerned about competition from Chinese companies,” Stein said. “We see it in our formal surveys, but we also see it when we talk to China-based CEOs when you ask them what keeps them up at night.”
“In some cases, it’s an enterprising Chinese start-up trying to intrude on its business model, or being more nimble with technology or marketing and succeeding. In other cases, it is part of an effort to develop self-sufficiency, and China supports national champions who are increasingly better funded,” he said.
One result and a new twist in US-China trade relations, however, is that US companies looking for a technological advantage are increasingly able to find partners in China.
“If we look back 20 or 30 years when American companies entered the market, they took on partners because they had no choice. It was necessary. Now, more and more, we are seeing American companies entering the market, looking for joint venture partners to help them complement their capabilities, such as their technology and their marketing capability,” Stein said. “While technology licensing was almost exclusively one-way just a few years ago, we are seeing it increasingly go both ways.”
“When I talk to our members, I see how China’s revenue funds R&D that helps American companies stay ahead and compete. I see American companies competing in the fastest growing markets in the world. world and the strong competition they face helps them achieve economies of scale and compete globally,” Stein said. “And it’s hard to imagine how any company can succeed in the global scale if it is not active in this market.”
The 4e The US-China Business Forum was organized by Forbes China, the Chinese-language edition of Forbes. The rally was held in person for the first time since 2019; it was held online in 2020 and 2021 at the height of the Covid 19 pandemic.
Other speakers included the Chinese ambassador to the American Qin gang; Wei Hu, President, China General Chamber of Commerce – United States; James Shih, Vice President, SEMCORP; Abby Li, Director of Corporate Communications and Research, China General Chamber of Commerce; Audrey Li, Managing Director, BYD America; Lu Cao, Managing Director, Global Corporate Bank, Corporate & Investment Bank, JP Morgan.
Also speaking were Stephen A. Orlins, Chairman of the National Committee on U.S.-China Relations; Ken Jarrett, Senior Advisor, Albright Stonebridge Group; Dr. Bob Li, Physician Ambassador to China and Asia-Pacific, Memorial Sloan Kettering Cancer Center; and Yue-Sai Kan, Co-Chair, China Institute.
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