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Foreign firms losing way in China’s regulation maze

(Global Times)

08:12, June 21, 2012

China received $9.23 billion in foreign direct investment (FDI) in May, up 0.05 percent year-on-year and the first FDI increase in seven months, the Ministry of Commerce reported, signaling that international entrepreneurs' confidence in China is recovering.

As the world's growth engine in terms of output and consumption, China continues to attract foreign companies despite the current economic downtrend, Ernest Wong, managing director of Netherlands-based TMF Group's Greater China region, a global provider of accounting, corporate secretarial, human resources and payroll outsourcing services, told the Global Times, emphasizing that foreign companies will still encounter great hurdles when they are trying to establish themselves or expand in China.

Entering China in 2005, TMF Group employs more than 400 staff in eight Chinese cities, including a shared service center in Chengdu, Sichuan Province, which opened on June 12 to standardize and coordinate TMF's operations in the country. The company plans to cover 25 cities across the country with a total staff of 1,000 employees by the end of 2014, said Wong.

But, apart from widely-discussed gains in labor and material costs as well as shortages in high-level talent, the biggest challenge for foreign companies in China is the constantly-changing business environment, Wong said.

As China opens its domestic market to the world, authorities are working to attract foreign capital to energize the country's economy while still protecting the core domestic industries which greatly contribute to GDP.

This stream of mixed messages has confused foreign companies, inevitably shifting their focus away from developing their business in China toward surviving in the government-capped market, Nie Riming, a research fellow at the Shanghai Institute of Finance and Law, told the Global Times.

Frequently-changing regulations will not only make it difficult for foreign companies to adapt to the local market's rules, but also discourage them from envisioning long-term development plans in China, Wong said. What's more, enforcement of regulations in China can differ widely by location or by sector.

One of the biggest headaches for foreign companies entering China's market is human resource-related regulations, said Sumeet Chander, head of the Greater China region for Evalueserve, a Switzerland-based outsourcing service provider, adding that foreign executives can hardly be expected to grasp the complex nationwide social welfare system.

As such, foreign companies need insiders, like TMF Group or US-based Automatic Data Processing Inc, to help them navigate a myriad of administrative operations and smoothen time-consuming procedures, said Wong.

Facing such hurdles, foreign companies have to spend time nurturing guanxi networks with both governments and industry insiders.

Close relations with the government helps foreign companies minimize hiccups with higher authorities when trying to obtain certain official approvals; and association with industry insiders helps them get advanced warning of new developments that could affect their businesses, Nie explained.

Admittedly, sustaining an extensive guanxi network helps a business run more smoothly, yet a guanxi-driven market will only hinder companies' incentives to develop via their core businesses, said Wong.


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