Foreign firms ‘must follow Chinese law’ – Who Knew?

September 11, 2014

The government’s recent intensive antitrust investigations were conducted following Chinese laws and never purposefully targeted any enterprises, Lu Wei, minister of the Office of the CPC Central Leading Group for Cyberspace Affairs, told a panel during the World Economic Forum in Tianjin.

“China’s governance of the Internet follows the ‘bottom line’ approach, and all foreign Internet enterprises in China must follow the ‘bottom line’ of abiding by Chinese laws. There are two points. The first point is safeguarding the interests of China, which is very clear. The second point is safeguarding the interests of Chinese consumers, which is also very clear. Foreign investors, if they follow the two points, will be OK and welcome,” Lu said.

via Foreign firms ‘must follow Chinese law’ – China Daily

Hey, you learn something new every day. Imagine that, 15 years practicing law in China, and only now they’re telling me that foreign firms have to follow the law. If I knew that back in the day, I could have done a much better job for my clients. Explains so much . . .

There is an important point to be made here. If you’ll notice that bit in the quote about “safeguarding the interests of China,” don’t make the mistake of passing that over as empty fluff. It isn’t.

In many Western countries, and particularly in Common Law nations, companies have very few restrictions, and for the most part can do whatever they want as long as they don’t break the law, and they certainly do not have to align their interests with those of the country they are in.

Not so here. Although it’s not always stated up front, and not in every law that pertains to company behavior, most folks know that if corporate interests are in sync with government priorities, that’s a huge benefit.

Example: Company A sells a clean coal technology to power plants. China is trying to fight pollution. Result – Company A, all else being equal, will do pretty well in China, at least in the short term. In contrast, Company B sells luxury watches that most people can’t afford, but the watch has been a preferred way of gifting government officials. But China is fighting corruption. Result – the watch company’s sales are going to tank, at least in the short term.

Now, the context of the above quote is all the whining about antitrust investigations and enforcement. Foreign firms feel like they are being singled out, while Beijing is saying: 1) most of our targets are domestic firms; and 2) but you broke the law. I’m no competition law expert, so I won’t weigh in on any specifics, but I will say that domestic firms have been hit in a variety of sectors. This is not just a foreign company thing, although it wouldn’t surprise me if there was some selective enforcement going on in certain sectors.

Bottom line here is that in the minds of regulators, these foreign firms have run afoul of local law and must face the consequences. As they are going to avoid commenting on specific cases, their only response is to say “Hey, follow the law and do what’s good for the country, and everything will be fine.” And if you don’t . . . well, bad things can happen.

So when a government official here says that foreign companies must safeguard the interests of China, you best pay attention. That is not the usual blah blah blah, but a very clear statement of reality.

Spyplane vs. Spyplane: Update

September 9, 2014


If you liked my critique of Chen Dingding’s Op/Ed about the U.S. spy plane incident but thought that I did a lazy, crappy job of it, I have two comments. First, yeah, it was written just as poorly as everything else on this blog, churned out at night or during my lunch hour in a panicky, gotta-get-back-to-work/bed fashion. So it goes.

Second, and much more important, someone else also decided that Chen’s Op/Ed was ridiculous, but this time thought a measured response, backed up with some thought and a bit o’ research, was a better way to go. That’s a good thing. Go read it at The Diplomat. In the meantime, I’ll entice you with two quotes.

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China Bank Woes. Been There, Agreed To That.

September 8, 2014

Some things in China never change.  At the end of the 1990s, the People’s Bank of China, then the country’s bank regulator, claimed NPLs were only 1% of bank assets when the actual figure was at least 40% and perhaps closer to 60%.  Today, nobody knows what the real ratio is, but the biggest banks all trade below book, an indication the markets are skeptical of official numbers.

via China Unloading Bank Shares, Transferring Debt Risk To Foreigners.

Yes, Mr. Chang. Some things never change. Even after 15 years.

China’s Education Gap

September 6, 2014

Every September, the campuses of Peking and Tsinghua Universities, often called the Harvard and M.I.T. of China, brim with eager new students, the winners of China’s cutthroat education system. These young men and women possess the outlook of cosmopolitan youth worldwide: sporting designer clothes and wielding high-end smartphones, they share experiences of foreign travel and bond over common fondness for Western television shows like “The Big Bang Theory” and “Sherlock.”

They are destined for bright futures: In a few decades, they will fill high-powered positions in government and become executives in state banks and multinational companies. But their ever-expanding career possibilities belie the increasingly narrow slice of society they represent.

Sadly, not a new issue, but a problem that keeps getting worse. Deng’s vision saw perhaps one generation with a significant wealth disparity, a temporary downside accepted only for necessary growth. But now the PRC is faced with an institutionalization of that wealth gap, as it is reinforced from pre-K schooling to the influence of money on policy.

The longer this sort of thing goes on, the more difficult it is for society to break the cycle. In the U.S., the problem is now so intractable, we probably need a Constitutional Amendment to get money out of politics. Will China face an analogous situation a few years from now?

via China’s Education Gap – the New York Times