China: Some of China’s oldest friends have turned against its business practices. Top German industrialists are the latest to complain directly to premier Wen Jiabao about their treatment. Their grievances may be justified, and they may secure concessions. But foreign bosses need to accept that a richer China is likely to be a more demanding one.
Complaints from BASF and Siemens, and General Electric before them, are too big to ignore. Together they employ 62,500 people in China. All have traded with the Middle Kingdom for over a century, and invested there for decades. By contrast, search giant Google was a relative newcomer when it railed openly against Chinese censorship in January.
They also have more influence. High-tech firms control critical technologies that China covets for its industrial development, such as Maglev trains and aeroplane engines. Powerful multinationals can lobby at home, where they are big employers, for sanctions against China.
It is often assumed that Beijing hates being told what to do. But even in China, public pressure can force some change. Consider June’s conciliatory move to de-peg the currency from the dollar. Even Google managed to renew its licence to operate there, albeit with some changes to its model. So industrial critics too may win small concessions. BASF’s new plant close to the Three Gorges dam was delayed on environmental concerns. Intervention from above may speed that up. Beijing may also open up its government procurement policy, which has attracted complaints from other members of the World Trade Organisation.
In the long run, multinationals need to prepare for a new reality. When China was poorer, foreign investors happily transferred low-end technology, in return for cheap labour, tax perks and access to a growing market. But a richer China wants ultra-high intellectual property that multinationals won’t part with readily. Meanwhile, low-cost labour and tax perks are drying up.
Neither side can yet abandon the other. GE, Siemens and BASF have built their growth projections on the world’s most populous nation. And China still needs technological help. But the terms of engagement are changing - and that leaves lots of room for friction.
