In a move that has rekindled fears that China is becoming increasingly hostile towards foreign firms operating in the country, 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 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, Chinese president Xi Jinping defended globalization and promised improved market access for foreign companies.

Most have attributed the country’s high tax regime, rising labor costs and fierce competition from domestic companies as Seagate joined a spate of foreign companies to shutter operations in China in recent years, for various reasons.

In 2015 after 37 years of operating in China, Panasonic, for instance, stopped all its manufacturing of televisions in the country.

Tempted by generous benefits not offered to its Chinese competitors, including lower taxes and land prices and easier access to local governments, the Japanese home electronics corporation was the country’s first foreign firm when it first opened in 1979.

But this certainly isn’t the case anymore, almost four decades down the road.

In November last year, British high-street retailer Marks & Spencer announced it was closing all its China stores amid continuing China losses and, Japanese electronics conglomerate Sony sold all its shares in Sony Electronics Huanan, a Guangzhou factory that makes consumer electronics.

And a trend is starting to develop as Metro, Home Depot, Best Buy, Revlon, L’Oreal, Microsoft and Sharp  could be added to that list.

Foreign companies now appear to have fallen out of favor even as they brought with them the money, management skills, and technical knowledge that the country so badly needed and were once considered Beijing’s most-welcomed guests.

“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.”

The major one is quite simply fierce competition from Chinese rivals said Keith Pogson, a senior partner at Ernst & Young who oversees financial services in Asia.

“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.

This gradual phasing out of preferential policies for foreign companies is likely to continue while the rise of such home-grown firms, the Chinese authorities have been leaning towards their own “children”, said Pogson.

Effective since 2008 unifying the rate for domestic and foreign companies at 25 per cent, with the new Enterprise Income Tax Law and Implementation Rules, in recent years Beijing has stepped up its efforts to tighten old policies favoring foreign companies.

Thos were the two top factors hindering foreign firms’ ability to invest and grow in China according to a survey last year by consulting firm Bain & Company and the American Chamber of Commerce in China (AmCham-China).

The study showed that also among the top five challenges were high labor costs and a lack of qualified employees.

(Adapted from CNBC)

Categories: Economy & Finance