American businesses are generally bullish on China's economic future, praising progress on WTO-related reforms but warning of stumbling blocks, particularly in the area of intellectual property rights violations.
That was the message of the latest White Paper on American Business in China – an annual survey of business trends published in September jointly by the Beijing-based American Chamber of Commerce in China and the American Chamber of Commerce in Shanghai.
Surveying 238 of their 2,400-plus members across China, the report painted a generally more optimistic picture than in 2003. For example, twice the number of companies as a year earlier reported plans to expand their China business, in particular looking to explore new markets in China's second- and third-tier cities.
A large part of that optimism is driven by a perception that China has significantly improved the implementation of its market opening commitments to membership of the WTO, a distinct turnaround from the situation a year earlier, AmCham Shanghai Vice Chairman Jeffrey Bernstein said at the media briefing.
"China has made substantial progress since 2003 in the implementation of its WTO commitments," he said, noting that from the Chamber's perspective, China's performance on WTO is a cornerstone of business success.
Despite that, however, Bernstein noted that 92% of the companies surveyed said that unclear regulations, cumbersome bureaucracy and a lack of transparency remained problem areas.
Piracy tops concerns list
Top of the list of concerns, though, is the old bugbear of intellectual property protection, with 75% of US companies saying their business has suffered in some way due to IPR violations. Many expressed reservations about bringing advanced development work to China because of the problems with the current IPR security environment.
More alarming still is the general feeling that China's IPR situation has actually worsened in the past year, the White Paper said, with China emerging as a global exporter of pirated goods such as DVDs, software, as well as designer clothes and accessories. It also noted disquiet among foreign companies over the recent decision to invalidate Pfizer's local use patent for Viagra, a move it described as representing "a step backwards." While improvements have been made in terms of actual IPR legislation, said Zhu Nongfan, Chairman of the IPR Subcommittee for AmCham Shanghai, China has a "lot of work to do" when it comes to law enforcement. Effective IPR policing is important for protecting both foreign and domestic brands and is clearly in China's interest, he said.
Although the legal framework is implemented at the national level, enforcement is the responsibility of lower levels where local protectionism often translates into an unwillingness to effectively prosecute offenders, Zhu said.
"We've really come to the point where China has to reassess what role the importance or value of IP will play now that it's developing into a 'knowledge-based economy,'" he said.
Although many of the most obvious IPR violations are in the DVD and media sector, Zhu said, how China responds to those will have important implications for the protection of high-value technological developments, especially as China's economy matures and the importance of that sector grows. "Look down the road 10 years, when lots of technologies will be created here – if this is something that China's not going to protect, it will be a huge loss to the Chinese economy."
Days after the White Paper was released came news that the Shanghai government had issued its own municipal-level strategy on IPR, the first local government in China to do so.
State media quoted city officials as saying the move was designed to speed up Shanghai's compliance with international standards and enforcement of IPR protection, although how effective that will be remains to be seen. The ubiquitous knock-off DVD stalls, for example, were still doing brisk business as China Economic Review went to press.
At the legislative level, the White Paper said another significant area of concern is a lack of regulatory transparency, with business leaders calling for the Chinese government to allow the foreign investment community to review and comment on proposed regulations. "We would like also to see a consistent review period on all regulations," AmCham Shanghai's Jeffrey Bernstein said.
In other sectors too, the imposition of non-tariff barriers for foreign firms was also a "troubling trend", the Chamber noted. For example, more than a quarter of those businesses surveyed said new standards and certification procedures introduced in 2004 acted as non-tariff barriers to trade, while that number increased to 50% among high-tech companies.
The White Paper wasn't all directed at China, though, with concerns also raised about the impact of new US visa regulations on the ability of US firms to do business with Chinese clients, particularly when it came to Chinese technicians and customers being barred from traveling to the US on training or buying missions.