By and  on August 31, 2010

BEIJING — A chorus of complaints is rising once again from international businesses that see a growing anti-foreign investment climate in China, directed from the top down. But so far, the biggest concerns have come mainly from the technology sector, while the textile manufacturing and retail industries seem relatively buffered.

“China is like any other major market — you need to know it, know the local rules and have qualified Chinese managers on the ground there. I don’t think there are any more important hurdles there than elsewhere,” said Luca Solca, a senior analyst at Bernstein in London.

“In the short term, doing business in China will be relatively easy for everybody — especially if you are a brand that is known in the West,” Solca said, citing the rapidly growing demand for luxury goods in China. “The initial costs of setting up a business are very low, whether you are a large or small company. The issue will eventually be with rental agreements. Landlords are [pushing] to fill the shopping malls now, but rentals are going to get very expensive — especially for the smaller companies — when those malls start to do well.”

Ken Grant, the London-based founder and owner of FDKG Ltd., a consultancy for Chinese and U.K.-based businesses, stressed the importance of acting fast in the market.

“In China, you cannot afford not to do something quickly,” he said, stressing the importance of forming solid business relationships. “Guangxi — the word for networks or connections — is very important to doing business at a senior level there, and a Western face certainly helps.”

China’s government denies that it is edging foreign companies out of its commerce and trade through stricter regulations favoring domestic firms, stating that in fact it is expanding opportunities for international investment and trade. But last week, the U.S. Chamber of Commerce released a detailed report warning that China’s policies surrounding its drive to become an innovation powerhouse by 2020 threaten its global trade relationships.

“Indigenous innovation is a massive and complicated plan to turn the Chinese economy into a technology powerhouse by 2020 and a global leader by 2050,” said the report. “What is worrisome for the business community is that these indigenous innovation industrial policies are headed towards triggering contentious trade disputes and inflamed political rhetoric on both sides,” it continued.

Textile industry analysts and trade associations said they are not overly concerned that foreign firms will flee the sector in China for fears of protectionism. The textile industry is very different than high tech, they noted, and not a field the government is pushing to develop.

Instead, the sector faces more basic and longstanding pressures. Zhang Wei, a textile industry analyst with Guotai Jun’an Securities, said the textile industry is not a hot commodity for foreign investment right now, and the sector is primarily trying to grapple with rising labor costs and other basic issues.

No new regulations have been imposed to protect domestic firms, which are largely private. In other words, foreign investment might be declining in the sector and global companies are cautious about China, but it’s due to a number of factors other than Chinese protectionism.

“Overseas investors have become more cautious mainly because of preexisting problems in the industry,” said Zhang, noting the government has let slide many of the preferential investment policies that helped build coastal China into a production powerhouse. “There have been no special regulations that limited foreign involvement in this sector.”

The textile sector is also partly immune to the pressures faced by high-tech companies because clothing and textile firms are not typically the kind of high-end industries that require top-level, proprietary technologies. One of the chief concerns among technology companies about doing business in China, and emerging government requirements, is the massive threat to intellectual property here. Tech companies are reluctant to turn over their innovation and trade secrets in China as they stand little chance of holding on to their intellectual property.

According to the U.S. Chamber of Commerce report, the Chinese government’s own long-term plan to drive toward innovation is “considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before.”

So while the innovation push is causing most discomfort among some of the world’s top technology companies, more basic concerns like cost are driving discomfort in the world of textiles and apparel production in China.

Luo Jun, head of the Asian Manufacturing Association, said foreign firms are facing new pressures from environmental regulations and workers’ rights. But, he cautioned, these things are only natural as the Chinese economy develops — not measures designed to protect homegrown companies and cut foreign firms out of the mix.

“Complaints are unavoidable, especially now as we adjust the industrial structure and eliminate companies with outdated industrial production,” said Luo. “But the entire global economy is moving toward sustainable development, and foreign companies in China should share this sense of responsibility.”

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