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Foreign companies need to reset mentality to engage Chinese market


14:26, October 30, 2011

BEIJING, Oct. 30 (Xinhua) -- Foreign companies are starting to feel a greater financial pinch in the form of rising operating costs in China, which were recently increased by a new regulation that requires foreign companies to pay social insurance costs. However, these companies may not have much of a choice other than to abandon their old mindset and adapt to new conditions.

Foreigners living and working in China have been paying into the country's social security system since Oct. 15. A common practice in other countries, the requirement has been seen by some companies as a sign of a deteriorating business environment in China.

However, their complaints may be related to the fact that many foreign companies automatically assume that they are entitled to favorable policies while operating here. There is also a belief that higher costs are equivalent to a worsening investment climate, which is not entirely true.

Covering foreigners under a local social security plan is a long-standing practice, especially in countries where social safety nets are well-constructed. It is an international norm to protect worker's rights, regardless of whether they are foreigners or locals.

China created its basic social security system just several years ago, and is still working to expand coverage and strengthen the system, as it is still far from perfect. The new provisional rule is just one part of the government's efforts to modernize and improve the system.

Chinese companies have been obliged to buy insurance for their Chinese employees for years. Leaving foreign employees out of the system simply gives their employers an unfair cost advantage in hiring.

Over the past three decades, foreign companies have played an undeniable role in invigorating China's economy. They have also reaped handsome profits from the world's fastest-growing economy, benefiting from cheap labor, generous consumers and a "super national treatment" that includes hefty and exclusive tax breaks.

As China continues to make changes to its market economy, the equalization of treatment for domestic and foreign firms has become an irreversible trend. The lenient policies of yesterday have worn out their usefulness, and foreign companies should keep that in mind.

It is logical that as the economy grows, labor costs will rise accordingly. The idea that rising costs eat up China's competitiveness is arbitrary in nature. The age of ultra-low labor costs is nearing its end.

China is revolutionizing its development by ditching old ways of pursuing growth, many of which harmed the environment and consumed excessive amounts of resources and labor. Instead, China aims to sharpen innovation and spur domestic consumption to create sustainable, long-term growth.

Ample opportunities exist for foreign investors who are eyeing China for future growth. Rather than airing grievances, they should simply change their China strategy and share more knowledge with their Chinese partners.

The still-robust foreign direct investment (FDI) data released over the past year proves that fewer policy incentives have not made China any less attractive to foreign companies.

It is likely that what foreign companies care about most are China's 1 billion consumers and stable long-term growth prospects. Regardless of their motivation, it is in their best interest to change their mentality and embrace new conditions in order to avoid missing the boat.


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