“You keep using that word. I do not think it means what you think it means.”

–Mandy Patinkin, The Princess Bride

Quick comment. You’ve probably seen a lot of recent articles written about how foreign companies are disillusioned with China and are pulling back on foreign investment. Most of those articles include discussions of what some of the current problems are and why foreign investors are unhappy with legal and business trends.

Unfortunately, a lot of folks seem to be grouping these things together as “market entry barriers.” Just to be clear: not everything that negatively effects a foreign company is a market barrier.

Just as one example, an article in Forbes, entitled “Foreign Companies Shy Away From China” is subtitled “Corporate executives are concerned by what they see as barriers preventing their entry into the market. (My emphasis.)

Examples of Market Barriers

• Foreign investment sector restrictions (e.g. foreign company cannot operate an online game in China)

• Registered capital requirements (i.e. setting high pay-in amounts for foreign enterprises)

• Indigenous innovation rules (mandating local IP creation for participation in certain government procurement programs)

The common denominator here: you can’t come in to the market at all/easily. That’s a market barrier.

Not Market Barriers

• Lax enforcement of IP

• Lack of tax incentives

• Employee-friendly labor law

• Higher wages

These are arguably reasons not to invest, but they are not things that prevent investors from coming in to the market by reducing competition.