China is a difficult country to figure out. With foreign investment sliding and the country keen to gain entry to the WTO, one would think the leaders in Beijing would be doing their utmost to convince the world that the country is continuing to open its doors wider to foreign investment. Over the past year, however, it has been far more successful in discouraging already frustrated foreign investors.
Take, for example, the decision earlier this year to ban the so-called China-China-Foreign (CCF) investment scheme. To get around a ban on foreign ownership in domestic telecoms operators, many foreign companies set up ventures with Chinese companies, which in turn invested in China Unicom.
Last year, however, Beijing decided that the CCF formula was "irregular," and so ordered China Unicom to terminate the contracts. The problem was that the decision froze some US$1.4 billion in investment from dozens of foreign companies which had thrown money into Unicom's mobile phone, paging and fixed wire networks. Some of the companies left hanging were Sprint, NTT, Bell Canada and France Telecom.
According to the official China Business Times, Unicom has halted payment of cash flows generated after Sept. 30 from the projects to foreign telecom partners, but has said it will repay the principal plus interest equal to China's bank interest with corresponding maturities.
Granted, the foreign companies that were using the CCF method were aware that what they were doing was technically illegal, but the central government was also aware of what was going on, and said nothing as billions of dollars flowed into these ventures, implying at least tacit approval.
More recently, there has been talk that foreign manufacturers of cell phones in China will face quotas in the China market, with the central government announcing that it will help local companies to grab at least a 50 percent control of the domestic market within three years. Local manufacturers currently have less than 5 percent of the market, which is dominated by Nokia, Ericsson and Motorola.
The government plans to bring about this radical change in market share by pumping Rmb 1.4 billion (US$169 million) into the domestic sector. The second policy is more direct: production quotas will be placed on foreign manufacturers. This despite the fact that foreign companies have made major investments in setting up production facilities, with no idea that the government would announce limits on their production.
Minister of Information Industry Wu Jichuan sent shock waves through the Internet sector earlier this year when he announced that foreign investment was not allowed in the domestic Internet industry, again after many companies had made significant investments in an industry that no one had previously said was restricted, and with the approval of local government agencies. Wu said restrictions applied to both Internet Service Providers and Internet portals.
Foreign companies, blinded by the supposed market of 1.3 billion consumers, continue to pump money into new Internet ventures, despite Wu's comments, with new Sino-foreign ventures being announced on an almost daily basis. If the expected new regulations include an outright ban on foreign investment, a strong possibility, the newcomers will only have themselves to blame.
RSS