China Shuts Out GE as Homegrown Rivals Promoted Over Westerners
Comment of the Day

March 26 2010

Commentary by David Fuller

China Shuts Out GE as Homegrown Rivals Promoted Over Westerners

This is an informative, albeit sobering, article from Bloomberg. Here is the opening
Not so long ago in China, Western business executives traveling to the provinces could expect a hearty welcome and a banquet with endless toasts of maotai liquor. In February, representatives of General Electric Co. and a dozen more U.S. companies got a taste of the way commercial relations have been changing.

They were in Wuhan, a city of 9 million on the Yangtze River, for a seminar on water-treatment technology organized by the U.S. embassy. At a dinner after the meeting they were supposed to have a chance to mingle with top local officials. At the last minute, Wuhan's mayor canceled his keynote speech and backed out of the gathering.

That same day the provincial party secretary and governor begged off a separate event for American Ambassador Jon M. Huntsman Jr., Bloomberg BusinessWeek reported in its April 5 issue. One attendee who declined to be identified speculates that the Wuhan officials were responding to direct orders from the central government in Beijing not to meet the Americans. The provincial government acknowledges that the original lineup was changed and notes other officials attended the events.

Nearly a decade after China's entry into the World Trade Organization, many foreign companies say the warm reception they once received has turned frosty. While China can still be highly profitable, some question how long that will last as Beijing changes the rules to give a lift to its domestic companies, especially state-owned enterprises.

Unlevel Playing Field

A new government procurement program known as "indigenous innovation" features rules favoring local firms: It could block sales worth billions of dollars a year, says Joerg Wuttke, director of the European Union Chamber of Commerce in China.

Beijing has written strict standards for everything from cell phones to cars, often couching them in a way that gives an advantage to domestic producers. A recently revised patent law could force foreign companies to hand over key technologies to Chinese bureaucrats. And anti-monopoly regulations have been used to limit foreign access to sectors such as construction machinery and energy.

"They have moved away from a level playing field to benefit their own companies," says Wuttke.

Trade associations can speak more openly. A Jan. 26 letter to the White House from the U.S. Chamber of Commerce, the Business Software Alliance, and more than a dozen other groups representing hundreds of multinationals such as Microsoft Corp., Boeing Co., Motorola Inc., Caterpillar Inc., and United Technologies Corp. warned of "systematic efforts by China to develop policies that build their domestic enterprises at the expense of U.S. firms."

David Fuller's view Realpolitik: In little over a decade, the big new kid on the block has become considerably richer, grown much stronger, and is now changing some of the rules, not least in his own territory. The world has seen it before, with practically every emerging superpower.

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