Bloomberg News

China’s License System Works Against Foreign Firms, Survey Finds

March 25, 2012

China’s system of awarding business licenses increasingly favors domestic companies, belying government promises of a level playing field, a survey of American Chamber of Commerce in China members shows.

The annual business climate survey, released today, found that 34 percent of 175 members surveyed said foreign businesses cannot be awarded the same licenses as Chinese companies, an increase from 29 percent responding that way in a 2011 survey. The percentage of members saying Chinese and foreign companies were treated equally fell to 22 percent from 29 percent a year ago, according to the survey by the Beijing-based group.

For foreign banks and insurance companies aiming to expand in the world’s second-biggest economy, longer waiting periods for licenses or restrictions on how many they can receive mean that domestic companies often have time to develop similar skills and products, while international rivals are tangled up in red tape, said Lester Ross, an Amcham governor and managing partner of WilmerHale LLP (1221L) in Beijing.

“Banks in particular have been concerned about delays in approval of products,” Ross said in a March 23 interview. “There is a lengthy approval process during which they feel that their first-comer advantage is wiped out.”

The licensing system slows expansion for 68 percent of Amcham members responding to the survey, and 51 percent said the rules put them at a disadvantage to domestic competitors.

New Branches, Products

Forty percent of respondents said obtaining licenses to open new branches, retail outlets or product lines was critically important to their business in China, with another 47 percent saying it was important.

The survey found 76 percent of 305 members responding expected sales to rise this year, compared with 85 percent last year. Companies said management-level personnel shortages were a top concern, with 43 percent of respondents listing this compared to 30 percent last year. The biggest risk facing members was a slowing Chinese economy, with 46 percent of respondents citing this reason, up from 31 percent in 2011.

China, which became a member of the World Trade Organization in 2001, says it strives to treat foreign and domestic companies equally.

“Most companies from foreign countries have made profits in China,” Foreign Ministry spokesman Hong Lei told reporters March 23. “And in the future China will continue to improve its laws and regulations on foreign trade, enhance intellectual property rights protection and treat all companies as equals in terms of government procurement and products of independent innovation and provide a good business environment for companies both foreign and domestic.”

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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