American Firms Find China Hard Work

October 24, 2013, 4:35 PM

American Firms Find China Hard Work

It’s hard to know whether things are getting better or worse for American businesses operating in China. One day they’re slammed for charging too much for coffee and just a couple days later, the president is praising them for providing insight into global economics. But if you ask American businesses how things are going, you’ll find that they have a long list of complaints about barriers to working in China.The proportion of American firms who think business conditions are improving in the country fell to 28% this year compared with 43% in 2012, according to a report published by the American Chamber of Commerce in China on Thursday.

Although only 19% said things were getting worse, there is a perception that progress on market opening has ground to a halt. Progress in some areas, such as moves to make life easier for private hospitals, has been offset by backsliding in others. The chamber is exasperated that foreign firms were barred from a range of industries, from parcel delivery to biotech research, under new rules introduced in 2011.

“Though foreign companies remain eager to invest in the Chinese market, challenges such as discriminatory industrial policies, opaque investment approval procedures and a lack of effective administrative and legal recourse when investments are denied pose huge barriers,” said Greg Gilligan, the chamber’s chairman.

Investment approvals are particularly vexatious, with complaints ranging from apparently arbitrary decisions to excessive paperwork. The proportion of U.S. firms who think foreign and local companies compete on a level playing field with regard to approvals has fallen to 14% from 29% in 2011, according to the chamber’s survey.

That is part of the reason foreign direct investment is losing momentum, Mr. Gilligan said, though rising labor costs and a slowing Chinese domestic economy have also played a part.

FDI in China fell to $111.7 billion last year, from $116.0 billion in 2011. This year looks a little better so far, with $88.6 billion in the first nine months, more than during the same period last year but still marginally below 2011’s figure.

Foreign firms are still mostly shut out of some important sectors of the Chinese economy, including energy and finance. Meanwhile, Chinese firms want more access to American technology and guarantees that they won’t face discrimination when investing in the U.S.

Chinese and American negotiators in Washington D.C. are laying the groundwork for a long-stalled Bilateral Investment Treaty. If it is to be successful, China’s measures to improve market access will have to be met by concessions on the American side.

On Wednesday China’s president, Xi Jinping, told an audience of nearly two dozen foreign executives gathered in Beijing, including the bosses of Wal-Mart Stores Inc.WMT -0.55% and Coca-Cola Co.KO 0.00%, that he considered their suggestions “a very important source of inspiration for the Chinese government.”

That seems hard to square with publicity campaigns in the state-owned media that have attacked firms like Apple Inc.AAPL +0.97% and Starbucks Corp.SBUX -1.06%for poor service or overcharging Chinese consumers.

But there are signs of a more business-friendly approach from the new leadership, which formally took office in March. Mr. Xi’s number two, Li Keqiang, has promised to cut the number of investment categories that require central government approval by a third during his first five-year term—either by scrapping them completely or by delegating them to regional governments that are generally seen as more business-friendly.

The opening of a “free-trade zone” in Shanghai is another sign that the government hasn’t lost interest in wooing foreign investors. The experiment may try to attract currency trading and futures business from Hong Kong by relaxing rules governing the financial sector—although details have yet to be released.

Mr. Gilligan said it was too early to say what the real impact of these measures would be. But at the very least, the government seems interested in talking.

“We’ve had very good access of late,” he said. “In recent months we’ve had significant high-level meetings, and the frequency, the ease of securing those meetings is above and beyond what we were accustomed to in the past.”