China's Raising the Drawbridge -- Softly Go back »

2009-06-11 | All chapters

China's Raising the Drawbridge -- Softly
Andrew Peaple, Wall Street Journal, 11th June 2009

A feeling in China that its companies are routinely blocked from sizable overseas deals has been further fueled by the demise of Chinalco's bid for a stake in Rio Tinto.

But foreign businesses seem keen to lay blame on China when it comes to upping the degree of protection the country offers its own.

In recent months, they've been grumbling about the way the country's $585 billion fiscal stimulus package is being spent.

China hasn't signed up to the Government Procurement Agreement -- a WTO protocol to stop states discriminating against foreign companies when doling out contracts. Meanwhile, there's a strong feeling that domestic companies are getting the best of the government's spending binge.

A specific complaint relates to the wind power sector: The European Chamber of Commerce in China says foreign bidders are effectively being shut out of $7 billion worth of contracts. Similar mutterings are heard about the $2 billion allocated to China's state-owned rail sector.

A further example of China's soft protectionism is the use of tax rebates to help some of the country's export industries: These were raised again this week for some sectors, the seventh such rise in the past 12 months.

And China doesn't hesitate to block large inward investment deals -- witness the turning down of Coca-Cola's proposal to take over juice maker China Huiyuan in March.

There's clearly a tension between the actions and words of the Chinese authorities. Vice Premier Wang Qishan has regularly used Western media this year to argue for open markets and cross-border investment even during the global economic crisis.

And the picture in China isn't uniform. Alongside signs of hardening attitudes, some market-based reforms have continued, such as moves to increase the convertibility of the Chinese currency.

Nor is China alone in using a fiscal stimulus to boost domestic companies over foreign interests. The bigger picture is still of a country that has become ever more open to international trade in the past 30 years.

But, on balance, the trends this year haven't been encouraging.

Discontent is simmering: While China is unhappy about resistance to its overseas expansion plans, others question its own openness to foreign interests. Such sentiments shouldn't be allowed to fester.

Source: http://online.wsj.com/article/SB124463023799401747.html#articleTabs%3Darticle