China has never been an easy game for foreign businesses to play. Companies have complained about a tightly controlled market and what they regard as protectionist regulations. There have also been complaints about inadequate protection of intellectual property, or I Pas well as forced transfers of know-how.- China, which is a first-world country now, has to play by the rules. We can’t allow them to steal our technology.-Though Beijing denies it forces companies to divulge secrets, this has been one of the sticking points during trade negotiations. But recently-With hopes for a partial deal on the horizon,
Beijing has been playing nice, emphasizing its message that it’s working hard to improve its business environment. This is something foreign companies operating in China have been eager to see, but is this really going to change the game? Starting next year, China pledges to put overseas companies on more equal footing with the local players with a new set of regulations. In January, a new law governing foreign investment kicks in. It promises to do more to protect overseas companies technology and know-how.- Foreign investment, well, it does have a positive impact on US companies.
Jake Parker is a Senior Vice President of the US-China Business Council, a lobby group of some 200 American companies that do business in China. In October, the Council received a draft of the guidelines on how the law will actually work. In general, they liked what they saw. Chinese officials will be banned from forcing technology transfers. The guidelines will also limit the disclosure of trade secrets from going through Chinas administrative review process.- However, at least on IP, the draft does fall short on specifying the types of disclosures of trade secrets that will be prohibited and clarifying the types of administrative groups within Chinas government to which provisions of technology transfer apply.-
At the same time, China is also rolling out regulations that will open up its financial sector.- The banks and all of the financial services companies will be very, very happy with what we’ve been able to get. Starting next year, foreigners should be able to freely invest in future securities and life insurance.- The trick is to wait and see if these implementations and liberalizations lead to specific licenses for member companies and there’s always a disconnect between an opening of a sector and a company being able to operate there.
These steps won’t only level the playing field for foreign and domestic companies but could also end up helping China achieve its own development goals. Beijing wants to hit a target of doubling its GDP between 2010 and 2020. That will not be an easy task with economic growth cooling and a trade war stretching deep into a second year.- Foreign investment remains an important mixin Chinas economic system and they would like to ensure that foreign companies continue to invest there.- [Ksenia] While the new investment law is welcome,
analysts say these new business regulations don’t mean a shift away from Chinas direct investment in its domestic companies or looser control of its planned economic goals. In late October, China set up a state-backed fund for its semiconductor industry. The war chest is around $29 billion. That’s about $9 billion bigger than a similar fund that was raised in 2014. That’s part of an attempt by Beijing to make its key industries more self-sufficient and competitive in the long run.
Chinas new regulations promise a sweeping overhaul of its older practices, and this could affect corporate titans as well as smaller businesses.- China is going to focus on the economic reform priorities that make sense for their own domestic economy and in many ways, those align with some of the priorities of the foreign business community. However, some companies are waiting to see just how sincere Beijing is about opening up. At least for now, the opening up is a win-win for Beijing. It extends a political olive branch to the US during contentious trade talks, while potentially bringing foreign money and expertise into its economy.