Crackdown
Rio Tinto case raises fears of crackdown
The arrest last month of four Shanghai-based Rio Tinto executives has raised fears of a crackdown by Beijing on foreign companies that would have been unthinkable a few years ago.
Under former president Jiang Zemin's reign, visiting executives of multinationals could expect to be feted in lavish style, with a banquet in the Great Hall of The People in Beijing and photo opportunities with the nation's leaders.
But after President Hu Jintao took over in 2003 the business climate for foreign companies began to change.
"There were a lot of European executives who were hurt and puzzled over why they were suddenly not getting access or a warm reception," says Joerg Wuttke, president of the European Chamber of Commerce in China. "It took a while for head offices to realise that all big companies were being treated the same."
Since then, Mr Hu's administration has eliminated some policies intended to encourage foreign investment, including cancelling preferential taxes for international companies.
"The trend since 2007 is to closer scrutinise the quality and sustainability of inbound investments, yet the economic crisis has understandably stirred protectionist emotions that have heightened concerns that, going forward, foreign investors will be given a lukewarm reception," says James Zimmerman, a partner in the Beijing office of law firm Squire Sanders & Dempsey.
Mr Wuttke says European Union chamber members have reported a reversal in the market opening of previous years and greater discrimination against foreign companies in government and the bureaucracy.
The Rio Tinto arrests have sparked speculation Beijing is becoming openly hostile to international investment and companies just as the country is flush with cash and is more interested in exporting capital than in importing it.
Foreign direct investment in China in the first seven months of the year totalled $48.3bn, down 20.3 per cent from the same period a year earlier, following 10 straight months of year-on-year falls. While much of the dip is likely to be a result of the financial crisis, the decline has in fact accelerated in recent months, even as global confidence has started to return.
Senior Beijing-based executives at some multinational companies told the Financial Times that although they think the Rio case is unique, they are much more worried about the safety of staff who gather information and do market analysis in China.
Those fears have been heightened by the opacity and seemingly arbitrary nature of the Chinese justice and political system and the fact that Rio executives were initially detained on suspicion of stealing state secrets, a charge that carries the death penalty, before being formally charged with bribery and stealing commercial secrets.
Several foreign companies have also been implicated in bribery cases in China recently, according to media reports.
Although in some instances the revelations have initially come from ongoing legal proceedings in the US and elsewhere, officials have said they are looking into the cases and Chinese reports have concentrated on the guilt of foreign companies rather than the recipients of the bribes.
"The red carpet seems to have been rolled up and put away in several business segments," says Mr Wuttke. "Some of our members and American colleagues have expressed concern that China is alienating its natural allies -- big business in the US and Europe."
In the past, business lobbies in western democracies have argued strongly for greater engagement with China and quiet diplomacy over issues such as democracy and human rights.
But foreign executives say Beijing's rising hostility may, to take one pertinent example, make big business unwilling to put pressure on politicians in their home countries to stop meeting the Dalai Lama.
It may even prompt them to demand reciprocal treatment for Chinese businesses at a time when Beijing is telling its state companies to expand abroad.
In the automobile industry, for example, China limits foreign investors to 50-50 joint ventures with local partners even though Chinese automakers are now scouring the globe for acquisitions of their own.
(Published by Financial Times - September 2, 2009)