China

Crashes and crackdowns: Does it still make sense to do business in China?

By Tina Irgang

You’ve heard the news: China’s economy is growing at its slowest pace in 25 years, and the stock market is in turmoil. But what does all this mean for your ability to conduct business there profitably?

It’s certainly true that companies doing business in China are feeling the effects of slowing growth. “More than a third of 500 companies featured in the American Chamber of Commerce’s annual China Business Climate Survey Report reported flat or negative revenue last year — the highest proportion in the past five years,” reports the Financial Times.

However, there are other factors in play as well. In fact, rather than the slowdown, respondents to the new survey were most likely to cite inconsistent interpretation of regulations and unclear laws as their top challenge in China. It’s the first time that concern has topped the list, FT adds.

In particular, companies seem to feel that anti-foreign sentiment is growing. This year, 77 percent of responding companies feel less welcome in China than they did a year ago. That’s up from 47 percent on the last survey, the Wall Street Journal notes.

Among other concerns, the government has been strengthening domestic businesses to compete with foreign entities and pressuring U.S. tech companies operating in China to share their source code. Some companies fear this could be only the beginning of attempts by the Chinese government to step up control of foreign companies’ operations. In particular, there is concern about broadly written new national security laws, the Washington Post reports.

Add to that the fact that no one is really sure of the exact state of the Chinese economy — something the government guards closely. While official government statistics have the economy growing at a rate of 7 percent, in reality, growth may be closer to half that, according to CNN Money.

To some extent, of course, the future of your business in China depends on the nature of what you do. Service businesses have been doing notably better than those in other sectors.

However, there is a plethora of issues that will affect any company, including censorship of the internet and the catastrophic levels of pollution in major population centers that China so far has been unable to bring under control. If you are hoping to send your top talent to China, you’d better hope that respiratory health is not on their list of concerns.

Finally, The Guardian notes that in China, progress has trumped infrastructure safety for many years, meaning incidents like the recent landslide in Shenzhen and the catastrophic explosion at a factory in Zhejiang province are likely to recur.

All that aside, the fact remains that China is the world’s biggest economy, and that consideration is likely to weigh heavily for most companies already doing business there. But if you haven’t taken the leap, the reasons are piling up for why you probably shouldn’t.

Tina Irgang is the production editor for SmartCEO. Contact her at tina@smartceo.com.