Google, the world-famous search engine, officially withdrew from China in 2010 because they could not withstand China’s stance on censorship. Google announced that the Chinese government’s closed economy clashed with their motto, “Don’t be evil,” so they had to withdraw from the country. However, this year, Google is attempting to make a return to the Chinese market. This drastic change in Google’s position illustrates the impact that the Chinese government has on foreign corporations that enter the country.
Since China’s domestic market is the second largest in the world, countless international corporations seek to enter the country. Despite its allure, the Chinese market is infamous for its laws and regulations that strictly control foreign capital. However, just as Google is once again making a play for the Chinese market, many corporations are still cautiously waiting for an opportunity to enter China. With the global community hoping for greater openness from China, the question of whether the Chinese government will change their attitude has gained global attention. Will China continue to be unyielding in its market control, or will there be room for negotiation?
What They Face
In several cases, China has regulated foreign corporations for economic reasons. For instance, the Chinese government pushed foreign suppliers to the sidelines as soon as their own corporations had developed the necessary technology in that field. This ensured that the Chinese corporations reaped more profit from the domestic market by restricting its competitors. China has also demanded that foreign corporations that enter the country surrender their technology or accept joint ventures with other Chinese companies.
▲ Professor Choo Jae-woo. PROVIDED BY CHOO JAE-WOO
“China is doing this to protect its local corporations and market in order to preserve opportunities for further development,” said Professor Choo Jae-woo (Department of Chinese Studies, Kyung Hee University). If China allows foreign companies to compete in equal conditions, it is likely that their companies will be severely damaged. Thus, when China plans to foster a certain industry, it regulates foreign companies that are possible competitors. “For instance,” said Professor Park Ki Cheol (Division of International Regional Studies, Pyeongtaek University), “China has been showing interest in the sectors related to the Fourth Industrial Revolution, and companies that are advanced in this field, such as SK or LG, have been regulated or barred altogether from China.”
▲ Professor Park Ki Cheol. PROVIDED BY PARK KI CHEOL
Moreover, China’s severe censorship also allows it to maintain strict control over the economy. China’s internet censorship is called “The Great Firewall,” and all content uploaded on the internet is examined, with postings that go against the government often banned. According to the Chinese government, national censorship aims to promote national security and protect the citizens’ rights and interests while fostering information development. This policy is not only applied to its own corporations, but to foreign media platforms as well. As a result, Google, YouTube, Facebook, and news outlets are inaccessible in China.
China often takes advantage of its closed economy to retaliate against its adversaries. A prominent example of this is the Terminal High Altitude Area Defense (THAAD) initiative. When China was displeased about Korea refusing to withdraw THAAD from the Korean peninsula, economic sanctions were immediately imposed. Exporters and the tourism industry were not the only ones that suffered from China’s decision. Korean corporations such as Lotte received significant damage as well. Due to the drastic decrease in sales, Lotte announced that it was abandoning its stores in China and withdrawing its department stores.
An Economic Leader
Will China keep regulating foreign corporations that enter its market this severely? “There is speculation that the regulations will be reduced,” said Professor Lee Jung-nam (Asiatic Research Institute). This is expected to happen due to China’s ambitions. China has shown aspirations of becoming the economic leader of the world. This can be seen in the announcement by Xi Jinping at the World Economic Forum Annual Meeting 2018. He stated that China would be more open and global in terms of its economic activities.
“These opposing positions can be analyzed as China revealing its goals to become the economic leader. This is because an economic leader usually is more generous when it comes to trade with other countries, so that those countries may grow dependent on them,” said Professor Lee. Thus, it could be said that there is a possibility that the regulations might be relaxed.
▲ Professor Lee Jung-nam. PHOTOGRAPHED BY LEE JAE EUN
In the meantime, what should individual companies do to minimize their losses in the Chinese market? Currently, the best option is to pay close attention to how the Chinese market actually works. “They must be keen on China’s policy, strategy, and tactics,” said Professor Choo. Many corporations were blinded by the attractiveness of the market, but they did not consider its distinctive characteristics.
One of the notable traits of the Chinese market is the economic planning. Every five years, the government announces new economic plans along with programs that will result in long-term development. “If the corporations look carefully,” said Professor Park, “they will be able to find suitable areas in China that they might enter.” Thus, it might be necessary for the corporations to analyze Chinese legislation and understand China’s economic trends—more so than they do now.
Moreover, they need to understand the nature of Chinese consumers. “Unlike countries like Korea, where the government’s position does not necessarily align with that of ordinary consumers, Chinese consumers are very cooperative with their government’s ideals,” said Professor Lee. For instance, in the case of the Taiwanese bakery café chain 85C, it was not the government that openly pushed to make it leave China. The people voluntarily boycotted the brand, saying that it was pro-independence.
The Chinese market is peculiar in this way, and businesses should remember that offending the Chinese government might result in serious reprisals by consumers. China is known for being strict with its policies when it comes to foreign corporations that enter its market. However, there is some speculation that their stance might not be as firm in the future as it is now. Until then, companies that wish to minimize their losses in China might want to learn the distinctive traits of the Chinese market.