Cover Story March 25, 2010, 5:00PM EST

China: Closing for Business?

(page 5 of 5)

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Students hold a candlelight vigil outside Google headquarters in Beijing Str/AFP/Getty Images

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A Beijing billboard trumpeting one of the mainland's rare brand champions Doug Kanter/Bloomberg

Germany's Continental must grapple with rules mandating that all tires sold in the country be imprinted with Chinese characters and other mainland-specific information. Although there's a global standard for such specifications the Chinese insist on their own rules—so Continental and other tire makers must make scores of special molds that cost nearly $70,000 apiece. That's not a huge problem for mass-market tires, but it can devastate profits on specialty products such as tires for industrial vehicles.

Gas cooking stove makers faced similar problems. Buried in the 50 pages of regulations about gas-fired appliances is a clause that says burners must withstand temperatures above 700C. That's higher than standards elsewhere, and it means burners can't be made of aluminum—the material most commonly used by European manufacturers. The result: Several Italian manufacturers were shut out, says EC standards officer Ziegler. "China eliminated those Italian producers," he says.

Chinese software piracy is "intractable" and "deprives U.S. software companies of literally billions of dollars each year," Robert Holleyman, president of the Business Software Alliance told the House Foreign Affairs Committee on Mar. 10. In another side of the software issue, an executive familiar with German software maker SAP (SAP) says Beijing offers tax breaks and other incentives to companies that buy products from local rival Kingdee International. Kingdee didn't respond to requests for comment, and SAP declined to address the issue.

In services, China remains tough to crack. Insurance, for instance, was supposed to open up after Beijing joined the WTO. Yet Chubb (CB), Liberty Mutual, and Zurich can apply to open only one new branch at a time, and it typically takes more than 18 months to win approval. "There is this mentality that they want to help the local companies," says an executive with a foreign insurer. "And the easiest way to do that is to protect them from foreign competition."

Some Westerners believe all these troubles can be traced to China's negotiations to join the WTO. In the rush to gain access to the huge market, many corners were cut, and trade officials simply hoped Beijing would interpret the deal in a way outsiders would consider fair. "People were focused on the enormity of what was being accomplished just by bringing China into the WTO," says an executive with a Western bank in Shanghai, who says capital requirements and recalcitrant bureaucrats have restricted his company's expansion. "They thought they could take care of [the details] later."

With Cornelius Rahn, Steve LeVine, Aaron Ricadela, Connie Guglielmo, Susanna Ray, Brian Womack, and Helen Yuan

Roberts is BusinessWeek's Asia News Editor and China bureau chief.

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