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China’s Anti-Monopoly Campaign Scaring off Foreign Companies

FILE - In this April 20, 2014 file photo, visitors look at the latest model from Mercedes at an auto show in Beijing. Nearly half of foreign companies in China feel singled out in a wave of anti-monopoly and other investigations, and a growing number are deciding not to expand their investments, the American Chamber of Commerce in China said, Feb. 11, 2015.

Doing business in China, with its hundreds of millions of consumers, has long been seen by many companies as an enormous opportunity, but it has never been easy for foreign firms.

And it is not getting easier, even as Chinese grow wealthier.

The heads of two of China’s biggest foreign business organizations say that in addition to restrictions that bar international companies from a wide range of sectors, there is also concern that foreign firms are being targeted as the government carries out an aggressive anti-monopoly campaign.

China’s anti-monopoly regime has already handed out some big fines against foreign companies. Luxury car maker Mercedes Benz received a $55 million fine for alleged price fixing. San Diego-based mobile computer chip maker Qualcomm has agreed to pay a massive $975 million penalty after it was accused of unfair pricing of technology licenses.

China's anti-monopoly law was passed in 2007, but it was only until a year after Xi Jinping rose to power in 2012 that the country began stepping up efforts to implement the legislation. For many government agencies the regulations were completely new, said James Zimmerman, chairman of the American Chamber of Commerce in China or AmCham China.

“There is a learning curve that the Chinese government is going through,” he said. And AmCham members feel like they are getting caught up in that process.

Zimmerman and Joerg Wuttke, president of the European Chamber of Commerce in China, spoke with reporters about the challenges at a recent briefing organized by the Foreign Correspondents Club in China.

“We have told the government that you have to be more transparent about who you are targeting. Sometimes it looks like we are being targeted. Most European companies think along these lines,” Wuttke said. “You see a lot of monopolies on the Chinese side, and there is no crackdown.”

Chine denies that foreign businesses are being unfairly targeted. Its National Development and Reform Commission has said that 10 percent of the companies targeted are foreign firms.

According to the NDRC, China has investigated 335 enterprises and industry associations since last year, and identified 33 of them as foreign

Chinese companies that came under anti-trust probes include state-owned giants China Telecom and China Unicom. Two distillers Kweichow Moutai and Wuliangye were each fined more than $33 million last year for monopolistic practices.

'New Normal'

In a recently released survey on China’s business climate, AmCham China found that nearly half of its members who responded felt less welcome and the pressure that members are under from oversight is a big source of concern, Zimmerman said.

“Doing business in China is always a challenge,” he said. “But the ‘New Normal’ has brought a lot of changes. We have questions about what it means for our companies.”

China’s leaders have described the “New Normal” economic concept as one that focuses on higher quality economic growth, but lower rates of expansion. That follows years of double digit growth, fueled in part by massive government spending, in particular on infrastructure.

As part of the “New Normal” plan, officials have said they are targeting inefficient monopolies and corrupt business practices.

Zimmerman noted, however, that while the United States has 125 years of experience with its own anti-trust law, China only has eight years. That has led to uncertainty over the rules and enforcement.

The heads of the two business associations say their members are also very concerned about China’s continuing denial of market access to foreign companies in a wide range of sectors.

Free trade zones

Currently, all foreign businesses must receive government approval to operate in China. But in special free trade zones, which are cropping up around the country, a different approach is used. In Shanghai’s Free Trade Zone (FTZ) for example, investment is allowed in any sector except for those included on what is called a negative list.

But American and European business groups say those zones have done little to attract businesses, because a wide range of competitive business sectors are still excluded from the country.

The legal services market is shut and companies in the service industry are not allowed to open new branches in China. Companies in the health and education sectors also have been disallowed from entry.

European Chamber of Commerce President Wuttke pointed out that although the Industrial Commercial Bank of China opened three new branches in Europe in recent weeks, China is still reluctant to allow European banks in the country.