THURSDAY, JULY 22, 2010


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Foreign firms sound off on China’s business rules


by Keith B. Richburg


beijing — The heads of some leading U.S. and European multi- nationals have publicly ques- tioned recently whether new Chi- nese policies and regulations are making China a more difficult place for foreign firms to do busi- ness.


Over the weekend, the leaders


of two large German companies with major investments in China — the Siemens conglomerate and the chemical firm BASF — chal- lenged Premier Wen Jiabao about the country’s deteriorating busi- ness climate during a meeting in Beijing attended by German Chancellor Angela Merkel. Their criticisms come after similar remarks from the chief executive of Microsoft, who com- plained recently about China’s treatment of intellectual proper- ty, and from the head of General Electric, who voiced concern about the country’s business cli- mate. Earlier this year, the Inter- net giant Google threatened to shut down its Chinese search en- gine, saying that a server had been hacked and that it could no longer abide by Chinese censor- ship rules. In a survey of 183 world econo- mies this month, the Interna- tional Finance Corp., part of the World Bank, ranked China’s busi- ness climate 89th — a drop of three places since last year. The American Chamber of


Commerce in the People’s Repub- lic of China reported in its 2010 business-climate survey in April that most U.S. firms remain opti- mistic about China for the medi- um term. But that outlook is tem- pered by “worry that China’s reg- ulatory environment is becoming increasingly difficult,” the survey found. What is new, analysts say, is


that some top executives doing business here are voicing their discontent openly, a significant shift from the traditional pattern of keeping a low public profile to avoid angering Chinese officials — and risking retaliation. “For them to come out and publicly deliver a tongue-lashing to Chinese officials is extremely significant,” said Arthur Kroeber, managing director of GaveKal Dragonomics, an economics re- search firm in Beijing. The foreign companies’ biggest concern, observers said, is a set of policies known as “indigenous in- novation,” which essentially re- quires firms operating here to transfer their latest technology to China; it also favors homegrown Chinese companies for govern- ment business and contracts. A foreign company here “has to register its technology in China, innovate in China and, in some cases, make it in China,” said Murray King, managing director for greater China at Apco World- wide, a corporate advisory and public affairs firm. Without what U.S. and Euro-


pean firms consider adequate safeguards of intellectual proper- ty, some foreign business leaders are worried that Chinese compa- nies will copy their technology and use it to compete against the foreign firms in the global mar- ketplace.


Business analysts said that, for the most part, concern about a deteriorating business climate has been largely confined to those companies hit hardest by being forced to transfer their technol- ogy. Foreign firms in the retail sector are finding China to be a booming market at a time when the United States and Europe are still shaking off the global reces- sion. The Gap clothing store is planning to open its first Chinese branches this year, in Beijing and Shanghai. Apple opened a new, cylindrical, 16,000-square-foot store in Shanghai this month. China has given General Motors a badly needed boost in car sales. And fast-food chains and compa- nies selling luxury goods and con- sumer gadgets here are thriving. In contrast, the more technol-


ogy-based multinational firms — particularly those involved in telecommunications, aerospace, semiconductors, pharmaceuti- cals and alternative energy — are finding China increasingly asser- tive and more interested than ever in acquiring their know- how. “Companies operating in those sectors are finding some significant head winds,” King said.


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ALY SONG/REUTERS


Apple opened a large cylindrical store in Shanghai — one of many U.S. companies expanding in China. U.S. and European banking


and financial services companies have also voiced complaints about strict government controls of that sector, even as they open new branches in China. Analysts said both develop- ments — China’s new assertive- ness toward multinationals and the firms’ new willingness to pro- test publicly — reflect the chang- ing power dynamics as the coun- try becomes more prosperous and self-assured. “For a long time, multination- als had a significant degree of market power — cash and tech- nology,” said Dragonomics’ Kroeber. “Now China is bigger and more powerful. . . . They


don’t need cash anymore. They can drive a harder bargain.” Song Hong, a researcher with


the Institute of World Economics and Politics, agreed. “The era when the foreign investor was treated as God in China passed,” he said, adding that as a result, many foreign enterprises “now feel that they are not welcome.” In the weekend session with


the German delegation, Wen, the premier, pushed back against that perception, calling it “un- true,” according to the official Xinhua News Agency. Xinhua, in an editorial, said


Wen’s reply may have been undip- lomatic but was “the right and no-nonsense answer” to the


Russia accuses U.S. of kidnapping pilot in Liberia by Mansur Mirovalev


moscow — The Russian For- eign Ministry accused the United States on Wednesday of “kid- napping” a Russian pilot in the West African country of Liberia for alleged drug smuggling. Konstantin Yaroshenko, 41, was arrested in Monrovia, Li- beria’s capital, in late May — by U.S. agents, Russian officials said


— and extradited to New York. Yaroshenko was charged with


smuggling “thousand-kilogram quantities of cocaine” throughout South America, Africa and Eu- rope, the U.S. Drug Enforcement Administration said in a state- ment Wednesday. DEA spokeswoman Dawn Dearden said Yaroshenko was ap- prehended May 28 by Liberian authorities, who turned him over to the DEA two days later under


an arrest warrant issued by the U.S. District Court for the South- ern District of New York. “While he was in DEA custody, the DEA followed the rules of law and the Geneva Convention reg- ulations regarding treatment of a defendant,” the statement said. Russia’s Foreign Ministry sharply condemned Yaroshenko’s arrest and extradition. “We’re talking about a kidnap- ping of a Russian national from a


third country,” the ministry said Wednesday in a statement on its Web site. “The actions of U.S. spe- cial services in the forcible and secret relocation of our national from Monrovia to New York could only [be] seen as open law- lessness.” Asked about the case at a news


briefing, State Department spokesman P.J. Crowley said that he would defer to the Justice De- partment or the DEA on specifics.


Upon his arrival in New York,


Yaroshenko was given access to a Russian Consulate official, Crow- ley said. Yaroshenko’s attorney, Alexan- der Bozhenko, was quoted by RIA news agency as saying that the way Yaroshenko was arrested was illegal and that he was kept tied up in a hotel room, naked and without water, for two days. A U.S. attorney for Yaroshenko, Sam Schmidt, said Wednesday


growing chorus of doubt about China’s business climate. Despite the complaints, Xinhua said, cit- ing Commerce Ministry figures, foreign investment in China rose 19.6 percent for the first half of 2010 compared with last year. richburgk@washpost.com


Researcher Zhang Jie contributed to this report.


on washingtonpost.com Tweet tracker


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that his “understanding was [his client] was not treated well” in Li- beria but that he is “doing OK” in the U.S. prison system. He said Yaroshenko was not ex-


tradited but instead was expelled by the Liberian government just before he was taken into custody by Liberian authorities and the U.S. Drug Enforcement Adminis- tration and brought to New York. “Somehow from this existing


expulsion order, the DEA took custody of him without notifying the Russian Embassy or Consul- ate or anyone else,” Schmidt said. — Associated Press


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