Doing business in China can be a difficult and contentious proposition for companies in many countries. Yet even with charges of intellectual property theft, forced partnerships and tight restrictions on doing business, China continues to attract foreign capital.
Why do businesses want to invest in China when there are so many other “business-friendly” countries and financial markets that support foreign investment?
The United States has accused China of stealing the intellectual property of American firms, theft that is estimated at US0 billion annually.
As a precondition for doing business in China, American and other firms may be subjected to the forced transfer of their technology.
In addition, regulations can require foreign investors to partner and set up a joint venture with a Chinese firm before they can do business in China.
In 2001, after becoming a member of the World Trade Organization, China promised to open up its banking, telecommunications and electronic payment processing sectors. But action in these areas has been nonexistent or, at best, half-hearted.
The Chinese telecommunications industry, for example, remains under government control, and the government has barred Facebook and Google from offering their services in China.
What’s in it for investors
Doing Business 2020, a publication of the World Bank, ranks China – in terms of the availability of credit and the ease and magnitude of tax payments – 80th and 105th, respectively, out of 190 nations in the world.
Using 10 other indicators, such as protection offered to minority investors, registering property and enforcing contracts, China ranks 31st out of 190 nations in the world for the overall ease of doing business. By contrast, the U.S. ranks 6th out of 190, according to the same report.
In addition, doing business in China can be politically risky. Negotiations with the Communist-led government can be difficult; it has a political system with a reputation for a lack of transparency and intolerance for dissent.
The nation has significant rules about the inflows and outflows of capital that can change without public notice. Corruption is pervasive in China, which hurts foreign investors like the United States.
Despite these negative business conditions, according to the 2020 World Investment Report, in 2018 and 2019 China attracted a staggering 8 billion and 1 billion in foreign investment, respectively. Focusing on just 2019, this massive foreign investment into China exceeds the GDPs of entire nations such as Kuwait – 7 billion; Kenya – billion; and Venezuela – billion. In 2019, China was the world’s second-largest recipient of foreign investment, second only to the United States.
Countries that play by the rules
Despite being relatively business-unfriendly, if the world’s 31st ranked nation can attract such large amounts of foreign investment, surely the world’s first-ranked nation must be doing as well as China, if not better. But New Zealand ranked first in the world for its business-friendly climate, doesn’t come close to China in terms of foreign investment.