Issue of the week: China’s business climate turns chilly

last updated 11 January 2015

So much for the myth of Chinese hospitality toward foreign companies, said Kevin Voigt in CNN.com. Two cases involving Western companies have exposed how Beijing is using “protectionist measures” to favor homegrown industries. This week, after months of futile negotiations with the Chinese government, Google stopped supplying Chinese users with search results filtered to comply with China’s information-control policies; queries were rerouted to Google’s unfiltered Hong Kong–based servers. Beijing retaliated by blocking some searches on the Hong Kong server, which effectively hands China’s massive search market to Baidu, a Chinese firm tied to the government. In the other case, four executives of the Anglo-Australian mining company Rio Tinto were arrested last year on espionage charges while the company was involved in delicate negotiations with Beijing over iron-ore prices. This week, one of the four confessed to the lesser crime of bribery, and Western analysts voiced suspicions that China had made the explosive charge of espionage to derail those negotiations.

By all appearances, said Andrew Browne and Jason Dean in The Wall Street Journal, Beijing is “reassessing China’s longstanding emphasis on opening its economy to foreign businesses.” Technology executives complain of new government procurement rules that favor Chinese firms, and pharmaceutical executives are alarmed by new patent rules that effectively force Western drug makers “to license production to local companies at state-set prices.” Such concerns are reflected in a new report from the U.S. Chamber of Commerce, which found a sharp deterioration in China’s business climate. Maybe now U.S. companies will wake up, said the San Francisco Chronicle in an editorial. Eager to tap the vast Chinese market, “nearly all have accepted a tilted playing field” that puts American companies at a distinct disadvantage. Google’s exit makes it harder to shrug off Chinese authoritarianism as “an unfortunate cost of doing business.”

The Google saga, said Michael Schuman in Time, raises “a fundamental question about China’s future: Is there a connection between human rights and economic progress?” Beijing, of course, believes in “economic success without political openness,” an attitude demonstrated whenever a Chinese computer user searches the term “Tiananmen Square” and comes up empty. To be sure, “China’s economy has been the world’s fastest-growing for the past forever,” and it will soon pass Japan as the world’s second-largest economy, after only the U.S. But “the real test of China’s political and social policies will come as it attempts to shift from an economy that makes cheap stuff to one that innovates and invents advanced products and technologies.” Soon enough, China may come to regret shutting out Google, and with it, a world of unfettered information.