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What keeps China from playing fair?

Last updated on: July 2, 2013 08:19 IST

What keeps China from playing fair? Foreign CEOs

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John Foley in Beijing
This corporate pragmatism makes sense individually, but may undermine efforts to make China one day "do the right thing".


W
hat keeps China from playing fair when it comes to market access? Foreign CEOs. Faced with an unlevel playing field, many have chosen to work with what they can get.

This corporate pragmatism makes sense individually, but may undermine efforts to make China one day "do the right thing".

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Image: An employee wearing a panda costume slides down from an ice sculpture during the Harbin International Ice and Snow World festival in Harbin, Heilongjiang province, China.
Photographs: Sheng Li/Reuters
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What keeps China from playing fair?

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Consider Dreamworks Animation, the US movie studio whose head Jeffrey Katzenberg joined Western executives at the Fortune Global Forum in Chengdu on June 6-8 to laud the China market opportunity.

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Image: China Maritime Museum in the Shanghai Lingang Industrial Parkin in Shanghai.
Photographs: Aly Song/Reuters

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What keeps China from playing fair?

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Quotas on foreign films and a draconian censorship system haven't stopped Dreamworks from scoring hits, and establishing a joint venture in Shanghai.

For its last release, 10 per cent of global box office revenue came from China. Go along to get along, and you can do quite nicely.

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Image: A tourist boat rows past a group of lanterns, featuring the Yellow Crane Tower, during the lighting test period of the Wuhan-Chengdu International Panda Lantern Festival on Donghu lake in Wuhan, Hubei province.
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What keeps China from playing fair?

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Banks think the same way: better a toehold than no hold. Despite limits on foreign institutions opening new branches, Standard Chartered, another Chengdu delegate, has grown its mainland Chinese income twenty-fold since 2003.

Investors support the pragmatic approach. Google shareholders nixed proposals for a no-tolerance approach to censorship before the search engine pulled out of China.

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Image: High rise commercial and residential buildings in Shenzhen.
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What keeps China from playing fair?

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For Dreamworks and StanChart, or luxury companies like Burberry who roll out stores despite rampant counterfeiting, investing in China builds not just profit but political capital - which puts them at an advantage over other outsiders.

The catch is that what's good for one company can be counterproductive if everyone follows suit. When executives appear to accept China as it is, they undermine high-level attempts to prize the market open further.

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Image: A waitress carrying an umbrella walks down the driveway to Chateau Laffitte Hotel, an imitation of the 1650 Chateau Maisons-Laffitte by French architect Francois Mansart, located on the outskirts of Beijing.
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What keeps China from playing fair?

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Chinese leaders can rightly point out that the lopsided market hasn't stopped 400 of the Fortune 500 companies setting up a presence in China; the country attracted 18 per cent of global foreign investment in 2012.

What's the alternative? In an ideal world, foreign companies might refuse to invest or sell to China on unequal terms.

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Image: Beijing's Central Business District.
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What keeps China from playing fair?

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Starved of foreign knowhow and goods, self-interest might make China relent. Perhaps. But that could take years, and sitting out China's phenomenal growth in the meantime is unlikely to please investors.

Given the choice, choosing something over nothing is probably right.

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Context news

i) The Fortune Global Forum took place in Chengdu, China from June 6-8. Speakers at the event included chief executives of multinational companies, among them Dreamworks Animation, Standard Chartered, Burberry, JPMorgan, Coca-Cola and Dupont.

ii) Chinese Vice-Premier Zhang Gaoli told delegates on June 6 that China had approved 740,000 foreign-invested companies by the end of 2012, and that their total investment had surpassed $1.2 trillion. He added that 400 of the Fortune 500 companies have invested in China.


Image: A view of the city skyline from the Zhongfu Building at night in Beijing.
Photographs: Jason Lee/Reuters

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