Teething Troubles

China Wrestles with Foreign Rules

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China discovers the pains of globalization.
  • Why it matters

    Why it matters

    China is discovering how hard it is to enter foreign markets. These lessons in globalization are levelling the playing field between China and the West and having positive knock-on effects back home.

  • Facts

    Facts

    • Beijing’s export of high-speed trains to Mexico shows that Chinese companies are serious about becoming major players in foreign markets.
    • The China National Offshore Oil Corporation’s attempt to buy U.S. firm Unocal failed largely because the Chinese didn’t understand U.S. lobby politics.
    • At recent economic talks, Chinese executives complained about German friendliness and the country’s visa process, business culture and free press.
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  • Audio

    Audio

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Chinese company bosses are suffering from a symptom that is making them increasingly nervous these days: normality. At least that is what their competitors in the West would call it.

Companies in Europe and America have long faced challenges such as rising wages, patent constraints and lagging sales in domestic markets. For China’s industry, however, such things are a new experience. Now, its companies are confronted with another new phenomenon: the stumbling blocks of globalization.

The pressure to go out into the world is immense. Fierce competition exists in many sectors at home, like the automobile industry, for example. Businesses are discovering that competitiveness, especially abroad, can and must be learned.

Now China’s industries are experiencing globalization in what, for them, is the opposite direction. The most recent deal on the export of high-speed trains to Mexico shows Chinese companies are actually serious about it.

Chinese companies are finding out what it might have felt like for Western companies in the past decades. The step abroad is something other than just exporting goods. Bureaucracy, protectionism, foreign customs and different cultures confound Chinese executives, exactly as they had confounded the companies from the Swabia region in southwestern Germany during their first forays into China.

This new reality surfaced recently during German-Chinese economic talks. Chinese executives complained about not always feeling welcome in Germany. Its visa process was laborious for a start. In Germany, one needed permission and evidence for everything and the existence of a free press was particularly bad, as it allows everything to be called into question and unsettles the public.

After their first small steps on foreign soil, many Chinese executives say they struggle with the complexities abroad. The attempt by the China National Offshore Oil Corporation (CNOOC) to purchase the U.S. firm Unocal failed, if nothing else because the Chinese couldn’t find their way through the confusions of U.S. lobby politics. The takeover of the energy producer Nexen last year, is suffering today because of the promise CNOOC made to the Canadian government that the Chinese wouldn’t radically restructure Nexen immediately.

German trade unions and works councils gave the normally smart, decisive Chinese managers lessons on workers' participation.

Boston transportation officials just awarded China’s CNR a contract worth hundreds of millions of dollars to supply trains for the city’s subway system. As part of the deal, CNR must prove it can create jobs in Massachusetts. China has placed similar conditions on foreign investors. Meanwhile, Chinese firm Sany failed to secure a wind-farm deal in Oregon because of U.S. national security concerns.

Chinese companies also have the joys of dealing with what to them are Europe’s strange rules.

“It feels as if Putzmeister took us over, not the opposite,” said a top Sany executive after the Chinese acquired the Germany-based concrete pump maker. German trade unions and works councils gave the normally smart, decisive Chinese managers lessons on workers’ participation. The acquisition was a success – especially because Sany already had experience abroad and was prepared for quick pivots if required.

The new normality is a good thing for China, as well as for its trade partners. Before, the relationship was asymmetric. The foreign companies came to China as successful investors, but in a way, also as beggars. The Chinese government had no qualms about testing the readiness of foreign investors to endure everything in order to gain entry into Chinese markets.

Now, Chinese companies’ needs are bringing about the changes. As fledgling innovators, they are dependent on international patent protection – suddenly intellectual property plays a big role in China. And more and more bilateral agreements exist to simplify market entry. For Chinese companies, growth is no longer a foregone conclusion.

 

To contact the author: mayer@handelsblatt.com.

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