Many foreign firms grow frustrated in China

07 September 2010

BEIJING: Many foreign companies are exhibiting a "growing frustration" about the trading climate in China, with concerns covering everything from manufacturing to marketing.

In a report, the European Union Chamber of Commerce in China argued governmental bodies had made "significant improvements" regarding transparency, mostly by holding consultations on new regulations.

However, as legislation like the National Indigenous Innovation Product Accreditation, which prioritised goods containing local intellectual property, was released without warning, uncertainty is widespread.

The "discretionary enforcement" of laws poses another challenge, not least due to imprecise definitions of terms such as "commercial secrets" and "state secrets".

Some 36% of the 450 firms surveyed said the overall environment is becoming "less fair" to multinationals.

Furthermore, 39% expected this shift to continue during the next two years, and 22% anticipated there would be no change.

Discrimination in governmental procurement is similarly problematic, and strict rules relating to certification and licensing has limited foreign investment in the telecoms, insurance, construction and auto sectors.

While enterprises making cosmetics can claim advertising and promotional expenditure as tax deductible if it is within 30% of sales, this cap is set at 15% for those just selling these offerings.

"At the moment the majority of cosmetics companies adopt a business model which separates manufacturing from sales," the EU Chamber of Commerce added.

As some alcoholic drinks made in China are also not subject to tight quality control, as in the EU, "consumer deception" is possible if shoppers buy sub-standard Western brands produced locally.

"More than anything else, European companies wish to have equal access to China's markets," the position paper asserted.

"Despite China's 30 years of reform, it still remains excessively regulated and less open to competition compared to other major economies."

Turning to marketing and communication, the study stated the media industry was worth 491bn yuan last year, and would see revenues rise by 14.5% in 2010, reaching 562bn yuan in all.

The fact overseas businesses cannot take a share in mass media organisations based in China, or set up their own rival operations, remain an insurmountable obstacle to tapping in to such a trend at present.

Elsewhere, the absence of official rules on ethical reporting means inaccurate articles are regularly published, while there is also typically no "clear separate between advertising funds and editorial content."

"Foreign companies in China invest a considerable amount in marketing and communications campaigns," the Chamber of Commerce's paper suggested.

"Poorly functioning communication channels where media plays a vital role seriously effect on the trustworthiness of the information being communicated and received."

Looking to corporate social responsibility, the media, government, major companies and NGOs have all raised awareness about this issue, leading to better protection of intellectual property and the environment.

Alongside adopting international guidelines, small and medium-sized firms must be educated, and the on-going eradication of bribery and corruption will have to become particularly stringent.

"Continuous development of CSR is key in building consumer trust, increasing employment opportunities, solving income disparity and maintaining social stability," the study said.

Data sourced from European Union Chamber of Commerce in China; additional content by Warc staff