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Why foreign companies are shutting shop in China?   [Copy link] 中文

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Post time 2017-2-3 17:12:24 |Display all floors
Why foreign companies are shutting shop in China?
Jane Li

A person walks past a Best Buy logo on February 22, 2011 in Shanghai, China. The U.S. consumer electronics retailer closed all of its stores in China in 2011.
U.S.-based Seagate, the world's biggest maker of hard disk drives, closed its factory in Suzhou near Shanghai last month with the loss of 2,000 jobs, in a move that has rekindled fears that China is becoming increasingly hostile towards foreign firms operating in the country.
A passionate speech presented by Chinese president Xi Jinping at the World Economic Forum meeting in Davos in early January had been hoped to address the issue, and reassure investors that China's remained open to foreign investment.
Xi defended globalization and promised improved market access for foreign companies, a positive sign seen by many that China is still sticking firmly to its opening up policies, first rolled out by late leader Deng Xiaoping in the 1980s.
Yet, Seagate joined a spate of foreign companies to shutter operations in China in recent years, for various reasons, but most have attributed the country's high tax regime, rising labor costs and fierce competition from domestic companies.
Panasonic, for instance, stopped all its manufacturing of televisions in the country in 2015 after 37 years of operating in China.

When it first opened in 1979, the Japanese home electronics corporation was the country's first foreign firm, tempted by generous benefits not offered to its Chinese competitors, including lower taxes and land prices and easier access to local governments.
But almost four decades down the road, this certainly isn't the case anymore.
In November last year, Japanese electronics conglomerate Sony sold all its shares in Sony Electronics Huanan, a Guangzhou factory that makes consumer electronics, and British high-street retailer Marks & Spencer announced it was closing all its China stores amid continuing China losses.
Add to that list Metro, Home Depot, Best Buy, Revlon, L'Oreal, Microsoft, and Sharp and we start to see more than a trend developing.
Once considered Beijing's most-welcomed guests, bringing with them the money, management skills, and technical knowledge that the country so badly needed, foreign companies now appear to have fallen out of favor.
"China doesn't need foreign companies so badly now in terms of acquiring advanced technology and capital as in previous years," said Professor Chong Tai-Leung from the Chinese University of Hong Kong, "so of course, the government is likely to gradually phase out more of these preferential policies for foreign firms."
Echoing Chong's comments, Shen Danyang, a spokesperson for China's Ministry of Commerce accused some foreign corporates last September of only wanting to make "quick money", had become too dependent on preferential government policies in China, and were starting to feel the pain of what he called a "deteriorating environment for business" in the country.
But for those who had "insight and courage", Shen insisted China is still a good place to invest.
While it's still open to discussion whether those who have now retreated from China lacked "insight and courage", there are certainly some common factors emerging on why.
Keith Pogson, a senior partner at Ernst & Young who oversees financial services in Asia, said the major one is quite simply fierce competition from Chinese rivals.
"We are seeing more Chinese companies becoming champions in other countries, and of course that adds a lot of pressure on foreign corporates." he said, agreeing that the gradual phasing out of preferential policies for foreign firms was certainly in China's self-interest.
Chinese TV brands, for example, for the first time overtook their South Korean rivals last year, ranking first in global sales, with the market share of TCL 鈥
With the rise of such home-grown firms, the Chinese authorities have been leaning towards their own "children", said Pogson, and this gradual phasing out of preferential policies for foreign companies is likely to continue.
Preferential treatment towards foreign firms goes back to 1994 when they were included under the country's general tax regulations.
Until 2007, firms that received foreign investment were subject to 15 per cent income tax while domestic companies paid 33 per cent tax.

But in recent years Beijing has stepped up its efforts to tighten such policies, with the new Enterprise Income Tax Law and Implementation Rules, effective since 2008 unifying the rate for domestic and foreign companies at 25 per cent.
Unclear laws and inconsistent interpretation of them have also been blamed for the flight of some foreign firms.
A survey last year by consulting firm Bain & Company and the American Chamber of Commerce in China (AmCham-China) highlighted those were the two top factors hindering foreign firms' ability to invest and grow in China.
High labor costs and a lack of qualified employees were also among the top five challenges, the study showed.
An example of the type of regulation that is now hindering foreign progress is the new cyber security law, approved by parliament last November.
It sparked fears that foreign technology firms would be shut out and subjected to contentious requirements for security reviews, and for data to be stored on Chinese servers.
Despite more than 40 international business groups signing a petition to amend some sections of the law, the final draft approved by the parliament remained unchanged 鈥
A quarter of the AmCham-China's 532 member firms taking part in the survey said they had either moved or were planning to move operations out of China by the end of last year, with almost half moving to parts of "developing Asia".
"If more overseas companies want to develop in China at this stage," Chong said, "I would suggest they consider second- and third-tier cities."

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Post time 2017-2-3 18:34:23 |Display all floors
It is strange how foreign companies rationalize their presence in countries. They take advantage of low labor costs and generous incentives to set up shop and then expect such benefits to continue forever without asking how it would be if they had operated all along in their own countries instead.

After all, each unit of benefit given them is at the sacrifice of each unit of benefit not given to the locals. If their own domestic factors had enabled to rise when they had started in their own countries, why should they expect the same factors not to be applied at all for the benefit of local industries over time in the countries they are operating for profit?

If they want to maintain profits in such foreign outfits, they should continuous input more value-creating activities that will improve their products and attract better marketing values, or scale up production volume for global exports from the foreign countries their plants are located. That they are only disconcerted by local competitors which have emerged only show they want the cake all for themselves to eat it alone all the time.

The right mindset for them is to allow themselves some time to become re-oriented as a localized foreign company and start doing things as if they are local. Then they will not be so pained by taxes which are revenues to modernize the infrastructure and other facilities which they have been using as if by some natural right, what more fight against trade discentives for their products in importing countries.

Some of them have already incurably played on and benefited from accounting tricks such as transfer pricing of outputs and inflating the price tag of their capital equipment to earn more incentives when they move in. They should be better corporate citizens in the countries which have adopted them and do their best to ramp up their value-chains in those societies so that people will want to work for them as well-accepted brand career employers not fly-by-year piratical leechers of the multinational milieu. Their chiefs should go back to their boards of directors and coax them to invest more in more higher valued production so that the plants which are already established can develop further by simple extension of floor space;  after all the costs of relocation, retraining and reorientation for that matter lost sales should not be lost on any and all.

Before they consider moving out, they should cogitate what i have written and ask themselves what is the purpose of your life beyond the shiny brochure-ware of your corporate vision, mission and what not. Or are those only for show?

As for those foreign-owned outlets such as Marks and Spencer, it is not only in China that they have closed. Their outlets in many other countries have also closed down because you can walk into each and see for yourselves straightaway why they have don't have customer volume. Their outlets are too big, their products too bland and pricey. The only nice thing about them any walk-in customer will only remember is that the outlet smells well nice. It's the corporate fragrance they use to entice and calm potential customers. Until they see the price tags. If they want to win more customers, they should explain why their products are value-for-money. Fine wool specially bespoked for a discriminating client who wants durability and comfort, for instance. Their corporate office just left them to die instead, those lazy buggers. Can't even offer proper biscuits that don't taste like cardboard.

You know, the global consumer market is fragile. Yesterday, the electronic camera and strap-interchangeable watch are the vogue. Today, the smartphone displaces both in one stroke. If one wants continuous progress, one must supply continuous innovation. Have those foreign companies been doing so or are they just mindless corporate puppet slaves that in turn enslave local workers to conditions of backbreaking eye-ball ruining work and then expect endless handsome profit into the twenty-second century? If their neocon masters haven't fried the planet by then.

This post for the poor Apple workers in China; not a single one had a smile on the tired face; and that working for the richest company in the world at ten percent pay for ninety percent profit-earning work. You think the next batch of workers in some other developing country will be better off? Nah! It's the same old heads i win, tails you must lose.

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Post time 2017-2-3 21:31:01 |Display all floors
Because of the Trump .......

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Post time 2017-2-3 21:38:26 |Display all floors
zjjhpj Post time: 2017-2-3 21:31
Because of the Trump .......

Them companies moved to other Asian Countries because of cheaper labor.

Labor must be cheap otherwise 70% of American's can't afford to buy.

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Post time 2017-2-3 23:49:12 |Display all floors
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Post time 2017-2-3 23:51:18 |Display all floors
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Post time 2017-2-4 01:53:44 |Display all floors
raton Post time: 2017-2-3 23:51
"China doesn't need foreign companies so badly now in terms of acquiring advanced technology and cap ...

I blame you, the technology was stolen.

Newt Gingrich says "The Chinese last year probably stole $360 billion in intellectual property from the United States."

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