China’s antitrust crackdown signals a new era of regulatory scrutiny in the country and threatens to end the days when products from Audi sedans to Starbucks lattes generate fatter profits in Beijing than in London or New York.
In the past month, Chinese antitrust authorities pressured at least seven carmakers to cut prices and raided the offices of software maker Microsoft Corp. (MSFT) The companies join Qualcomm Inc. (QCOM), Caterpillar Inc., Mead Johnson Nutrition Co. (MJN) and Danone among foreign businesses that have fallen under anti-monopoly scrutiny in China since last year.
The probes, combined with signs the government is shunning some U.S. technology companies for security reasons, have left foreign businesses struggling to figure out the evolving laws and regulations in the world’s most populous country. Those seeking to adapt face the challenge of interpreting vague rules in an economy that’s no longer as reliant on foreign investment as in past decades.
“We may be seeing a paradigm shift where the rules of the game are changing,” said David Loevinger, former U.S. Treasury Department senior coordinator for China affairs and now an analyst at TCW Group Inc. in Los Angeles. “Until people figure out the new rules it will create a much more uncertain business climate.”
No Xenophobia
Foreign companies will continue to be treated equally as local companies and welcomed by China to develop various forms of cooperation, Ministry of Commerce spokesman Shen Danyang said in a statement this month. However, foreign investors must strictly abide by Chinese laws and discharge their social responsibilities, especially concerning food safety.
Some global companies are retreating: Revlon Inc. (REV), the cosmetics maker, said in late December it will cease operations and eliminate about 1,100 positions in China. Japanese dairy company Meiji Holdings Inc. in October announced it would pull out of China after 20 years in the country.
“In the past China tended to give a little favor to foreign companies,” said Bo Zhiyue, senior research fellow at the National University of Singapore’s East Asia Institute and author of several books on China’s elite politics. “Foreign companies have to unlearn what they have learned and they have to relearn how to make it work in China.”
