Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Unfair Chinese Business Practices Threaten Profits of U.S. Businesses

Companies / Protectionism Oct 25, 2011 - 07:51 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDavid Zeiler writes: U.S. companies have become increasingly worried that unfair Chinese business practices are hurting their ability to compete and will start eating into the juicy profits they've been extracting from the Asian giant.

Problems with how China treats foreign businesses have been simmering for several years, but a recent incident with Wal-Mart Stores Inc. (NYSE: WMT) has pulled those issues back into the spotlight.


Earlier this month the Chinese city of Chongqing forced Wal-Mart to close 13 of its stores for two weeks because officials said the retailer had mislabeled less expensive pork as a better organic type. The officials also fined Wal-Mart $423,000 and even arrested two employees.

This unusually severe response isn't the first. Chinese authorities in May fined Unilever PLC (NYSE ADR: UL) more than $300,000 for announcing that it planned to raise prices - a move officials said undermined the government's attempts to control inflation. French-based Carrefour (PINK: CRRFY) was fined for posting erroneous prices.

Google Inc. (Nasdaq: GOOG) had a protracted battle with Chinese authorities last year over censorship of its search service. Google moved its search engine overseas in protest. Many analysts saw the incident as a way for the government to shepherd users toward domestic search giant Baidu Inc. (NYSE ADR: BIDU).

These penalties top years of unfair Chinese business practices that give advantages to state-owned businesses, including regulations that compel foreign companies to transfer their technology to Chinese firms and laws that weigh more heavily on foreign companies than domestic ones.

"If I were a foreign company, I'd be pretty scared right now," Corbett Wall, a retail expert who heads Shanghai consulting firm +CW Associates, told USA Today. "I absolutely think that [what happened to Wal-Mart] has to do with tensions building up between China and foreign companies."

Hurting Profits
Big U.S. companies have relied on expansion into China's growing economy to prop up earnings during a period in which Western economies have sagged. They're concerned that if the trend of unfair Chinese business practices worsens, it'll threaten their profits.

According to the 2011 annual survey of U.S. companies conducted by the American Chamber of Commerce in China (Amcham), a majority of U.S. businesses - 71% - said China's licensing process discriminates against foreign companies.

And 40% said they thought the "indigenous innovation" policy - in which the Chinese government favors domestic companies over foreign ones in matters of official procurement - would hurt their business. More than one in four - 26% - said that policy already had hurt them.

A similar number, 24%, said that economic reforms in China had not improved the business climate for U.S. companies, a steep increase from the 9% who said so a year earlier.

At the same time, 78% of U.S. companies said that their operations in China were "profitable" or "very profitable."

"There are two themes to the data," Amcham China Chairman Ted Dean told Bloomberg News. "American companies are doing well and American companies are concerned about in some cases the current regulatory environment and in others the trend line for the regulatory environment."

Brewing for Years
U.S. companies have been complaining about unfair Chinese business practices for years.

Last year, at a conference in Rome, General Electric Co. (NYSE: GE) chief executive Jeffrey Immelt had some particularly harsh words about China.

"I really worry about China," Immelt said, noting that his company was facing the most difficult conditions there in 25 years. "I am not sure that in the end they want any of us to win, or any of us to be successful."

China's unabashed promotion of its huge state-owned entities - three of which now sit in Fortune's Top 10 - even drew a rebuke from the U.S. government in August.

"It is not up to the U.S. to question the wisdom of other nations in establishing state enterprises. But it is very much a U.S. concern if the playing field is not level between them and their American competitors," said U.S. Under Secretary of State Robert Hormats.

Those top three state-owned companies - China Petroleum & Chemical Corp. (NYSE ADR: SNP), China National Petroleum Corp. and energy provider State Grid Corp. - will make it harder for U.S. oil and energy companies such as ExxonMobil Corp. (NYSE: XOM), ConocoPhillips (NYSE: COP) and Chesapeake Energy Corp. (NYSE: CHK) to compete.

But unfair business practices affect a wide swath of industries, with banking, insurance, auto manufacturing, telecom and information technology among the most affected.

Technology companies such as Microsoft Corp. (Nasdaq: MSFT) and Apple Inc. (Nasdaq: AAPL) have long struggled with China's indifference toward protecting intellectual property, with piracy and knock-offs commonplace.

Worse still, the Chinese government often requires certain foreign businesses to yield technology to their domestic Chinese counterparts as a condition of being granted access to the country.

Once China has obtained technology from Western firms, it often transfers it to the state-owned companies, which then compete against the foreign companies for future contracts - a policy that threatens the profits not just of Apple and Microsoft, but of industrial giants like The Boeing Co. (NYSE: BA), Honeywell International (NYSE: HON), and GE, as well.

And yet the Chinese market is so massive, and its potential so great, that most U.S. companies will continue to invest there - even if unfair Chinese business practices cause it to be less profitable than it should be.

"For the high-tech sector, the ITC industry and industries that are heavily dependent on intellectual property, there is a great concern about the operating environment in the future," Amcham President Christian Murck, told Time Magazine. "Companies say that China remains their top priority for future investment, but of course that future investment will depend on the degree to which there is scope in the market for foreign companies to operate."

Source : http://moneymorning.com/2011/10/25/unfair-chinese-business-practices-threaten-profits-of-us-businesses//

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Thorbjorn
26 Oct 11, 04:45
US companies

Walmart getting punished severely for cheating with their food products. GE and others complaining about regulations hurting their profits. OMG hurting profit! Those pesky chinese!

Selling hormone filled, probably GMO, pork as eco pork IS a severe crime! Serves Wallmart right to get a proper slap on the wrist.

And for the rest: the chinese authorities and other countries authorities regulate and check up on businesses for a reason (as the Walmart example shows) and the frequency and the punishment for failing to comply is not too much, it's too little!

As for the chinese to favour their local business...well, get over it, hopefully most countries do that.


Seeker
26 Oct 11, 04:54
USA companies

Boo hoo, if they never went over seas for greedy profits, maybe the USA wouldn't be up the proverbial with out a paddle.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in