US Law Firms Hindered By Chinese Authorities

We’ve reported previously about the issues faced by Western law firms setting up in China (See: Law  Firms Facing the Chinese Challenge) and the obstacles they face. Some have retreated already and for US firms, they feel hindered by Chinese authorities according to a new survey conducted by the American chamber of commerce (AmCham), according to Business Insider.

The AmCham survey found that almost 60 per cent of the respondentns thought that pricing, anti-monopoly and anti-corruption campaigns saw them being scrutinized in a manner that actively hindered their operations.  Sixty five per cent thought this would negatively impact their business in China.

Forty-seven percent of respondents said they felt “less welcome” in China than was previously the case.

Over 30% of companies have no plans to expand their investment in 2015 – the highest level since 2009, the chamber said in a press release about the survey. However, analysis of the data showed that companies remain optimistic because of sustained economic growth and an increase in domestic consumption. “The country’s growing middle class and urbanisation are also positive beacons for businesses,” the chamber said.

The chamber said that respondents still expect revenue to grow, if “not at the breakneck pace of years past”. More than 70% of respondents identified their organisation as “profitable” or “very profitable”, with 42% reporting increasing margins. Three out of five respondents reported increased revenues from 2013, while around 20% reported comparable revenues to the previous year, the chamber said.

“Since the Snowden disclosures there has been a reduction in trust on both sides, and with good reason,” said Peter Bullock, a Hong Kong-based lawyer with Pinsent Masons, the law firm behind “China’s economy has been slowing and US businesses are seeking every way to repatriate jobs ‘lost’ to China through outsourcing.”

“China’s competition authorities always seem to be the last to give a global transaction the green light, which sometimes smacks of delivering a low ball. But it is not only US businesses who feel the regulatory environment is getting harsher, or perhaps more difficult to navigate.  Japanese companies have perhaps an even more difficult time, given recent border disputes.”

“Most western businesses would sympathise with many of the concerns expressed in the Business Climate Survey. There is a heavy dose of reality to be taken before planning significant growth in the China market at the moment,” Bullock said.

The two main challenges for business are unchanged from last year, the chamber said: high labour costs, and unclear regulations. Nearly a quarter of member companies in the ‘Resources and Industrial’ category have moved, or are planning to move, capacity or investments outside of China because of labour costs, while one third of respondents reported that licensing and government approval processes are becoming more difficult.

While more than 85% believe that the country’s enforcement of intellectual property rights has improved over the past five years, ineffective enforcement is still a concern for nearly 80%, the chamber said.

The survey covered other issues of concern to businesses. Over half of respondents – 53% – complained that air quality makes it hard to hire good staff for their operations in China. That figure has risen from 48% in 2014, and 34% in 2013.

Internet censorship is a problem for 83% of respondents, Business Insider said.

The top challenges faced by foreign companies in China are: protectionism, labour costs, inconsistent interpretation of regulations, and difficulty in hiring good staff and good management, Business Insider said.

There were positive outcomes of the survey: corruption is less of an issue that it has been, thanks to president Xi Jinping’s anti-corruption campaign, it found. It has dropped from the 4th largest concern in 2013 to 13th this year, the chamber said.

“AmCham China member companies are committed to the market but continue to weather a challenging business environment as China continues on a path of economic reform and sustainable development,” said chamber chairman James Zimmerman.

“Our companies appreciate the complexities and difficulties that the Chinese leadership is confronted with as it balances its economy and implements its reforms. Nevertheless, much work lies ahead for all of us in 2015 and beyond as the Chinese economy continues to mature,” he said.

English Conversation About Law
English Conversation About Law
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