Rumors and Facts Regarding Foreign Companies Doing Business in China or With China

I was a panelist on the “China Operational Issues” yesterday at the United States-China Business Council’s (USCBC), 46th Annual Membership Meeting. Jake Parker, USBC’s, USCBC’s Vice President of China Operations was on the panel with me and Anna Ashton, USCBC’s Director of Business Advisory Services, was our moderator. It was a great event and I learned a ton about China’s politics, China’s economy, and China’s military ambitions. Madeline Albright gave a great speech. Attendees are not to write about what was discussed so the below very much focuses on what I said.

My panel was mostly tasked with conveying what we were seeing/hearing about how China was treating U.S. companies in response to the US-China Trade War and how U.S. companies were reacting to both China’s treatment and to the Trade War.

In my talk, I focused on what our China lawyers were hearing about China’s treatment of foreign companies, true or false. I discussed the following:

1. China’s courts would not take on lawsuits brought by foreign companies against Chinese companies. I heard this rumor a week or so ago by a reporter for a top national newspaper who called me seeking confirmation. I reached out to one of our attorneys in Beijing and to various others who would know about this and though some had heard the same rumor, nobody believed it to be true. FALSE NOW AND NOT LIKELY TO HAPPEN.
2. China had retaliated or would retaliate against Apple Computer. This one is all over the media, but Apple’s Tim Cook yesterday said Apple has suffered no retaliation and he does not expect any. I don’t disagree. Apple generates a lot of jobs for China and China retaliation against Apple would scare away other foreign companies. FALSE NOW AND NOT LIKELY TO HAPPEN.
3. Americans getting denied service at retail establishments for being American. I have one confirmed incident of this happening in a 2^nd or 3^rd tier city and I have heard of other incidents involving people I do not know. This sort of thing happens in the United States and around the world – just ask someone Chinese who lives in the United States. This is repugnant, when done anywhere, but isolated incidents do not a country nor a policy make and so long as these incidents remain isolated (and not encouraged by the government) they are not likely to impact foreign companies conducting business in China. TRUE, BUT RARE.
4. Canadians calling their employees home for fear of their remaining in China. China arrested and imprisoned two Canadians in retaliation for Canada’s arrest of Meng Wanzhou and upped the sentence for a Canadian drug dealer from 15 years to execution and stopped buying Canadian canola oil. See How to Avoid Being Detained in China. China is retaliating against Canada and it may eventually do the same against the United States. TRUE.
5. China will ban all foreign TV shows and movies. China did block the Games of Thrones finale (and not to protect its citizens from a weak episode), but it has not banned all foreign TV and movies. FALSE
6. China is telling companies (especially SOEs) not to buy U.S. products. We have heard from clients that this is happening or will happen or might happen. China has previously done issued these instructions for less reason than now and it has happened with Canadian canola oil so I believe it is happening to at least some extent with US and other foreign companies as well. ALMOST CERTAINLY TRUE.
7. Increasing legal enforcement against foreign companies and individual. This has been happening for the last ten or so years and this is what China always does in economic downturns and I have no doubt it is doing so again now. See Want to Keep Your Business in China? Do These Things NOW. TRUE.
8. China banned its citizens from going to the United States. I heard this one via email the morning of the event. China did issue a travel warning for the United States, this warning is not much different than the travel warnings the United States issues regarding US citizens traveling to foreign countries. See China issues US travel warning over ‘shootings’. Was this in retaliation for the Trade War? Probably yes. Does this matter? Probably not and certainly a lot less than the persistent shootings. FALSE.

As for what foreign companies are doing, we discussed the following:

1. Many who manufacture products in China for sale in the United States have moved their production elsewhere or are looking to move their production elsewhere or are considering moving their production elsewhere. Jake said these companies are moving to Thailand, Vietnam and Malaysia and I said that we were seeing the same thing with our clients. I wish I had added Taiwan, Mexico, and the Philippines to the country list because those three countries are definitely in the rotation out of China as well. See The US-China Future: Meet Vietnam, Thailand, Mexico, Malaysia, Turkey, and the Philippines and Doing Business Outside China: It’s Thailand’s Time and China or Vietnam for Product Sourcing? and The China-US Trade War and the Winner is….MEXICO.
2. Many foreign companies whose products are made in China using component parts from the United States are looking to move their production from China as well due to the China tariffs on US goods.
3. Those doing business in China have not been impacted by “nationalism.” I said that I was not aware of any company having been treated badly by the Chinese government for being from the United States. We talked about how in many respects, China is more welcoming of foreign companies than it has been for years. See Why NOW Is a Good Time to Double Down on Doing Business in China.
4. We talked about how Chinese companies are wary about doing business with U.S. companies because they do not view American companies as likely to be in China for the long haul. I will later this week write about how this wariness increases risks for companies that get products from China via contract manufacturing.
5. I talked about how our foreign direct investment lawyers have seen a massive reduction in Chinese companies seeking to buy or invest in U.S. companies.
6. I talked about how we are hearing from companies that are having trouble getting money out of China. See Getting Your Money Out of China and the Importance of Getting Cash Repatriation Requests Done Right the First Time.

What are you seeing out there?

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.