Investment Environment Threatens Businesses in China

May 15, 2011 Updated: October 1, 2015

Chinese economy has hidden pitfalls. The absence of a stable environment for businesses to thrive has driven Chinese business people and foreign investors away. (AFP/Getty Images)
Chinese economy has hidden pitfalls. The absence of a stable environment for businesses to thrive has driven Chinese business people and foreign investors away. (AFP/Getty Images)
With the appearance of gradual economic recovery in the West and tougher policies over control of the housing market in China, Chinese businessmen have begun to set their sights on Western countries for investment potential. But what are some of the intrinsic differences between the investment environment in China and the Western world?

“It is especially hard to do business in China,” Yue Ping told The Epoch Times. He is a Chinese business owner who came to Canada as an investment immigrant. “You have to bribe the government.”

Yue has worked hard in the cosmetics industry for over two decades and his company has created a brand name for itself. From production to sales, he said a product has to go through over 20 checkpoints in China.

“That was over 20 years ago. Now there are even more. By the time a product reaches consumers, 95 percent of the profit has already been taken by government officials while we only get 5 percent,” he said.

He added: “Starting from establishing the factory, dozens of government departments, including fire, health and epidemic prevention, quality inspection, industrial committees, and tax—they won’t give their go ahead, unless you bribe them.”

Yue said that he was forced to “cooperate” with these officials to keep his business going. “I was under such a tremendous pressure that I had to come to Canada, as an investment immigrant.”

While it is generally assumed businessmen are the ones who amass wealth, Yue’s experience has convinced him that it is the officials who have made the fortunes.

He cited as an example a customs declaration officer of a Chinese-foreign joint venture enterprise, responsible for dealing with the Commodity Inspection Bureau. “He borrowed 500 yuan (US$76.96) from me when he first came from Guangxi. In two years, he has accumulated a fortune of over 10 million yuan (US$1.54 million).

“He told me that for one container, the Commodity Inspection Bureau would ask for 60,000 yuan (US$9,235) while he only asked for 10,000 (US$1,539). So you can imagine how many bribes these petty clerks have received,” Yue said.

Safe Markets Abroad

Yue is now involved with a wholesale-retail business chain in Canada. While the scale of this business is not as large as the one he had in China, he indicated the trade-off is significant.

“The law is sound in Canada, so my job is easy here,” he said. “In over ten years, I have not dealt with any government official in person. Getting business registration and filing taxes are all done through the mails. It is also more efficient.”

Moreover, credibility is stressed and valued in Canada. Yue still had wholesale distributors across China when he left the country, and he gave each distributor 500,000 yuan (US$76,957) in deposit money. But over ten of the distributors went missing afterwards. He lost two million yuan (US$0.308 million) in Shanghai alone.

“Things like this won’t happen in Canada. I can just send a receipt of an order to a buyer, and a check will be sent back to me.

“The policies and market are very stable in Canada, unlike in China, where policies can be introduced and changed unexpectedly.”

Forced Out of Business

William Kao, the founder of Taiwan Victims of Investment in China Association, has tracked close to 100 cases of Taiwanese businesses that are being victimized in China.

“So far, no one has been able to get justice. One can say that China is a lawless society, both in the past and at present,” he said.

Kao said that the number of Taiwanese small and medium-sized companies in mainland China that had been forced to go out of business due to non-financial factors has already reached tens of thousands.

Kao has a business acquaintance who chose to move back to Taiwan, in spite of having built a successful business with over 10,000 employees in mainland China. He told Kao, “I feel an indescribable pressure when I am in mainland China. I can only get a good night’s sleep each time I go to Hong Kong. I’m completely relaxed when I’m back in Taiwan.”

The sense of uncertainty and state of high alert when in China has driven many Taiwanese businessmen back home, Kao says.

Wave of Emigration

China Merchants Bank and Bain & Company jointly issued China's Private Wealth Report 2011 on April 20 of this year, which reflected the trend of Chinese high net-worth individuals, those with more than 10 million yuan (US$1.54 million) in individual investable assets, trying to get out of the country.

They have a high rate of applying for investment emigration to other countries, with 27 percent of the billionaires having already completed the process and close to 33 percent considering it; half of these individuals said that they were gradually withdrawing investments in the domestic real estate market, and over 90 percent said that they would not increase their investiture.

Yue said that some of his friends and relatives who have invested in the mainland’s real estate have their money tied up in houses—once the price of housing drops, they’ll go bankrupt.

The people that have made money are the government and real estate developers who have bought off the media, he argued.

Risk and Stability

Willam F. Mei is a Chinese-American writer and economics commentator. He recounted the story of “Simon,” an American investor who used to be keen on China’s potential. Simon changed his mind after meeting with local officials in China.

The officials promised to reduce the price of land by 50 percent, and told him, “I have the final say. You do not have to pay tax. If the central government wants to check your account, it will be up to me to allow them check it or not. The director of the Tax Bureau will do as I say.”

Simon, however, became intimidated and opted out.

He told Mei: “The central government of China cannot enforce the law, and local preferential policies have not been recognized at higher levels. Governments at the local level deceive the central government to attract investment, which in reality forces [investing] companies to break the law along with them.

“I refuse to deceive my future buyers and I cannot predict China’s future policies. Nor can I guarantee that the local officials I’m acquainted with will stay in power forever,” he said.

“The biggest risk for investment lies in the environment for businesses to thrive and a stable law. A company will never succeed without fair play game rules. This is the most important principle of investment.”

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