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The costs and benefits of doing business in China

We’ve long said that doing business in China can come with high costs. Yet many businesses want a share of the market due to the number of customers. Certain major American companies do more business in China than anyplace else.

While the market for doing business in China is huge, China is now facing pressure to ease up on demands it makes on American companies. A substantial reason for the U.S. placing close to $50 billion in tariffs upon Chinese products is due to claims that China deals with American companies unfairly.

Current Chinese demands on businesses

There are claims that the Chinese government expects American companies to provide trade secret information as a cost of doing business in their country. Likewise, China often only allows firms do business there through joint venture where the majority partners are from China.

This is especially true in the car industry where companies like Toyota and General Motors formed joint venture operations rather than pay high tariffs on vehicle imports. While producing sales, this often allows for Chinese companies to gain access to technology belonging to the American company. These Chinese companies will likely later become major competitors in the same industry.

These circumstances force American companies to make difficult choices when doing business in China. During the last three years, at least 20 percent of American companies faced transfer requests of technology on behalf of Chinese partners. In many instances, it is either provide this technology or pay high tariffs for doing business.

This is not true for every American company doing business in China, however. Boeing, for example, has done well in China without giving up its technology. This is in part because Boeing has so few competitors. China’s own jet manufacturers have been unable to compete in this industry.

Boeing is an exception. Most American companies feel they face unfair treatment by the Chinese government. These companies feel there is inconsistent regulations. There are also limitations on the ability to invest in China.

As many companies continue to see a great opportunity in doing business in China, finding ways to overcome legal obstacles is vital. It is also important to have such information at your disposal for answers to your questions.

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