Beware the wrath of a corporate titan scorned. A year ago, the bosses of the world’s largest companies oozed with praise for China’s handling of the global crisis. “Man, these guys are good,” Jeff Immelt, head of GE, told an audience at West Point.
Maybe it is the summer weather, but when the subject of Beijing comes up these days, multinationals seem to get hot under the collar. Mr Immelt confessed at a dinner in Rome earlier this month: “I am not sure that in the end they want any of us to win, or any of us to be successful.”
At the weekend, Jürgen Hambrecht, chief executive of German chemicals group BASF, and another corporate leader who has assiduously courted China, told Wen Jiabao, premier, that Beijing’s current approach to foreign companies “does not exactly correspond to our views of a partnership”.
According to reporters present, the exchange was so sharp that Mr Wen asked his German visitor to “calm down”.
Clearly, something has changed for many multinationals in China, even if there are few obvious new policies to explain the shift. In the technology sector, Beijing wants to use new “encryption” rules to get companies to hand over core software, while foreign companies are also hit by its public procurement policies and weak protection of intellectual property.
Some multinationals say they are getting a rougher ride from Chinese bureaucrats, despite all the hours spent courting them at banquets or making painfully polite speeches. Others complain that while their business is expanding, it is well short of expectations or the growth in their market.
Chinese companies are also getting better, fast. Although few are close to building international consumer brands, many Chinese groups are winning global success in markets for, say, power equipment, or machine tools or locomotives. It is no surprise complaints are coming from industrial groups such as GE and Siemens.
And in truth, China has always been a difficult place for foreign companies – and for local private businesses. The difference is that China is no longer a project for the future: it is so central to the prospects of many multinationals that routine difficulties and frustrations are top of the in-tray of the companies’ senior executives.
For all the obstacles, however, it is hard for multinationals to act too surprised. As Mr Immelt told his audience at West Point last year, China’s leaders “do exactly what they say they will do”. And one of the clearest objectives for the past three decades has been to leverage access to its vast market into technology transfers by foreign companies.
Nor is this some dastardly Chinese plan. Plenty of other nations have used a mixture of subsidies, tariffs and technology policies to try to kick-start their industrialisation including Japan, South Korea and – whisper this softly! – Germany and the US.
Ultimately, multinationals have only one real source of leverage – their investments. Foreign factories have played a key role in boosting Chinese productivity, bringing not only technology, but also skills, management techniques and international best practices. All the things, indeed, that China still needs to keep modernising its economy.
Beijing hopes it can have it both ways, using policy to boost its own companies while receiving new foreign factories. At a now infamous meeting last year in Brussels, Wang Qishan, vice-premier, dismissed complaints from a group of European executives. “You are going to invest there anyway,” he said. And he was right. Even with the crisis, foreign direct investment to China jumped 19.6 per cent in the first half of this year. China is essential to many industries, either because of the depth of its supplier networks or the size of its market.
However, there are also plenty of companies that have realistic alternatives for new facilities. And if Beijing saw that foreign investment really was dropping off, the bureaucracy would be very worried. Multinationals have a choice, therefore. They can complain as loud as they like about Chinese industrial policies, but if they continue to behave as if there is no alternative, Beijing will keep calling their bluff.
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