[Editor’s note: On November 22, 2006, China’s Southern Weekend newspaper announced its report of "Ranking of the World’s Top 500 International Companies Invested in China" at a press release held at Beijing News Plaza Hotel following a one-year-long investigation. The report is based on how well the world’s top 500 companies in China have performed in terms of their business activities and records of fulfilling social responsibility. This is the second such report by Southern Weekend in two consecutive years. [1,2] The report said that foreign companies performed poorly in China with regards to fulfilling social responsibility and caused a number of hidden problems for China. The following two articles about the investigation report are translated from the website of The China Machinery Industry Federation, a government sponsored trade association, serving as China’s official reading of teh investigation report.]
Six Major Hidden Troubles Found in Foreign Owned Companies in China [3]
"The two-year consecutive ranking by Southern Weekend for the ‘World’s Top 500 Companies Conducting Businesses in China’ show that while direct foreign investments in China have played a major role in China’s economic development, they have also brought non-neglectable, far-reaching negative impacts to China’s economic and social development.
"The ranking covers four aspects of the business these companies do in China, including each company’s accumulated investments in China, their business performance in China, their contributions to the local economy, their social responsibility, and their brand images in China.
"Southern Weekend‘s two-year-long investigation revealed that the foreign companies have brought six major hidden problems to China:"
"1. Foreign Investments’ Monopoly Threatens China’s Economic and National Security
"The multinational companies have an advantage (over domestic companies) because they have deep pockets, advanced technologies, highly efficient management, and excellent development strategies. They can easily accumulate huge market shares in the host country, squeeze the living space of the host country’s domestic enterprises, monopolize the market, control the industries, and threaten the host country’s industrial and economic security. Lately foreign-owned multinational companies have dominated China’s film, elevator, soft drink, cell phone, computer, Internet infrastructure, and computer chips industries, etc. Domestic companies have nearly disappeared in many of these industries. The widespread invasion of the multinational companies has damaged domestic companies and hindered the formation of large Chinese enterprises that can compete internationally. In addition, because these multinational companies control the technologies critical to the development of China’s economy, they have (negatively) impacted China’s industrial and national economic security.
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"2. Favoring foreign investors over domestic ones is harmful to a fair competitive environment and to national confidence.
"In the initial stage of economic reform, in order to solve the problem of capital and foreign currency shortages, China treated foreign investors with favorable tax policies, and gave them favorable treatment in actual operations. These policies artificially caused unfair competition between domestic and foreign companies, seriously damaging the fair market competition environment.
"3. Trade transfer has made China an export-manufacturing base.
"In 2005, the exports to the United States, Hong Kong, the European Union, and Japan by foreign companies in China were 24.59, 20.37, 17.74, and 12.59 percent of the total exports of these enterprises, respectively. These foreign companies largely use China as their manufacturing base and export platforms to provide products to the United States and the European Union. They shift their own trade surpluses with Europe and the United States to China’s trade surpluses, thus amplifying the trade frictions between China and Europe and the United States. As the manufacturing and packaging bases of these foreign companies, China mainly does packaging and only makes a tiny profit in the whole manufacturing chain.
"4. ‘Favoring competition,’ vicious competition among local governments harms the national interest.
"Since the amount of foreign investments is one of the major criteria in assessing the performance of various local government officials, local governments try their best to attract foreign investments at the expense of their area’s ecosystems and their local residents’ interest. They promise excessively favorable terms to foreign investors so that the foreign investors will have the absolutely decisive edge at the negotiation table and be able to squeeze every inch from the local government’s bottom line. In the meantime, due to the lack of consideration for the local people’s interest, it also became a factor of causing an unharmonious social environment.
"5. Environmental pollution—a situation unbearable to China.
"Because they discharge large amounts of polluted water, polluted gases and hazardous materials, some multinational companies investing in China’s heavy-pollution sectors have caused the local environment to deteriorate and made sustained growth of the local economy impossible. Having an urgent desire to attract foreign investments to help the local economy develop, some local authorities blindly introduce projects that enable the developed nations to transfer their highly polluting and sun setting industries to China. Such industries have not only damaged China’s natural environment, but have also harmed the health of the Chinese people, and damaged the sustained growth of China’s economy. In terms of environmental protection, the top-500 multinational companies do a relatively better job than the small to medium foreign companies in China. The majority of the world’s top 500 companies in China have passed the ISO14000 or ISO14001 certification [international standard of environment management system].
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"6. The pricing transfer accelerates China’s loss of income.
"Employing the strategy of reporting a ‘fake loss,’ or a ‘loss on the surface but an actual profit,’ a number of multinational companies transfer their profits from their China subsidiaries to their parent companies abroad in order to evade taxes in China. In addition, some foreign companies exploit the loophole of China’s tax exemption and reduction policy for foreign investments. Once the tax exemption or reduction period expires, they close the operation and then open a new one in another region to repeatedly enjoy the tax exemption policy."
The investigation by Southern Weekend concludes that "while recognizing the positive impact of foreign investments in China, (China) must pay great attention to the problems that the foreign investments have brought to China, treat domestic companies the same as their foreign counterparts, and apply certain restrictions on foreign companies in terms of industries and sectors."
The World’s Top 500 Companies in China Ranked Poorly in Fulfilling Social Responsibility [4]
"According to Southern Weekend newspaper’s one-year-long investigation, a considerable amount of the world’ top 500 multinational companies have performed poorly; some even violated or openly opposed China’s laws and regulations."
"They performed poorly in the following five areas:
1. They have not followed China’s Trade Union Law and refuse or even oppose establishing trade unions in their companies;
2. They have major environmental violations;
3. There have been serious problems in the quality of their services;
4. China’s consumers have many and/or major complaints about the quality of their products;
5. Some bribe Chinese officials and executives or take bribes from them, directly violating Chinese law."
The article continues, "Southern Weekend selected 126 multinational companies that are top-performers based on their revenues in China, gross exports, gross income before tax, and the accumulated investments in China since 2005. Then these companies were evaluated with regard to how they handle basic social responsibilities, including ‘abiding by the law and business morality,’ ’employee rights and labor protection,’ ‘product and service quality,’ ‘environmental protection,’ ‘charitable contributions,’ etc. The companies fell far short of expectations." Following is a summary of the survey results:
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— 21 (17 percent) have committed major environmental offenses as determined by the Chinese environmental authorities.
— 39 (30.95 percent ) have product quality issues,
— 40 (31.7 percent) have had Chinese consumers report multiple major complaints about their products.
— 57 (45.2 percent) refuse to establish trade (labor) unions as required by China’s Trade Union Law. This is the most serious issue of all."
Southern Weekend claims that the survey data is from China’s relevant authorities, consumer associations, labor unions, and information publicly disclosed by domestic media. In addition, they also claim to have confirmed their findings with the companies.
References:
[1] http://finance.sina.com.cn/focus/sjzhqy500/index.shtml
[2] Chinascope, issue March/April 2007, p40-42
[3] http://www.mei.gov.cn/page/news/news.asp?CD=180848
[4] http://www.mei.gov.cn/page/news/news.asp?CD=180846
Translated by Chinascope.