China Power

In China, Foreigners Come First

It’s often said foreigners get special treatment in China. But for multinationals, being singled out is not always pleasant.

Chinese often complain that foreigners come first. During the early years of reform, foreign companies received special incentives for investing in China, and the few nice hotels in the country were reserved for foreign visitors with their foreign currency—no ordinary Chinese allowed. Even today, if a crime is committed, many Chinese will argue that the police are more likely to take action if a foreigner is the victim than a Chinese. Foreigners also may come first however, when Beijing needs a scapegoat for the ills of the country.

Witness the recent crackdown on price fixing. The Chinese government has targeted the pricing policies of a number of foreign firms in a wide array of industries, such as powdered milk, pharmaceuticals, medical supplies, and now apparently autos. A number of analysts have suggested that at least part of the reason for the crackdown is that the middle class is unhappy with the cost of consumer goods, and higher priced—albeit generally higher quality—foreign goods make an easy target. The government, in turn, claims that the crackdown is merely an effort to support the rule of law. The headline of one Xinhua editorial—“Foreign firms should adapt to better regulated Chinese market”—suggests as much. Some reports also claim unfairness in the pricing of foreign luxury goods in China relative to other markets: a luxury car can cost more than 60 percent more in China as compared to one sold in North America or Europe. Breaking down the extra costs to account for transportation, Chinese import tariffs are as high as 25 percent, and any special features included in cars made for the Chinese market can likely explain some, but not all, of the differential. Foreign automakers, therefore, might want to address this charge head on. Nonetheless, if indeed this campaign is about enforcing Chinese regulations, and not just an effort to gain advantage for Chinese firms or appease Chinese consumers, we should soon see similar broadsides against the telecom and banking sectors in China, as Chinese regulators have promised.

Foreign firms are also held to a different standard in other respects. In the environmental realm, Chinese non-governmental organizations (NGOs), such as the Institute of Public and Environmental Affairs, have long targeted multinationals ahead of Chinese firms for environmental wrongdoing. It is less politically treacherous: attacking a foreign firm for not adhering to Chinese environmental regulations will not jeopardize the future of a Chinese NGO. In addition, foreign firms have traditionally been more sensitive to bad publicity and more likely to respond when alerted to their environmental failings. Of course, the multinationals should not need to be reminded to do the right thing, but holding them to account while allowing their Chinese counterparts a free pass not only disadvantages the foreign firms but also does little to address the real source of China’s environmental challenge.

And it is not only foreign businesses that face extra scrutiny in China’s political world. According to the South China Morning Post, a recent report by the Chinese Academy of Social Sciences blames Western-funded environmental organizations working in the Mekong River region for harming China’s reputation by “irresponsibly attacking Chinese investors and misleading local communities with biased reports.” The intent of these NGOs, according to the report is apparently to limit China’s economic influence in the region. When questioned about the foreign sources of funding, however, the report’s authors refused to answer.

Foreigners don’t want special treatment. They want a level playing field—preferably one that is rooted in the rule of law and devoid of political conspiracy theories. Within the next few months, if core sectors dominated by Chinese firms are scrutinized also, we will know whether this is what Beijing wants as well.

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Elizabeth C. Economy is C.V. Starr Senior Fellow and Director for Asia Studies at the Council on Foreign Relations. She is an expert on Chinese domestic and foreign policy and U.S.-China relations and author of the award-winning book, The River Runs Black: The Environmental Challenge to China's Future. She blogs at Asia Unbound, where this piece originally appeared.