Chinese companies face culture shock in many countries
Faced with slower growth at home and rising labor costs, Chinese entrepreneurs are seeking foreign markets as never before. But as they rush abroad, they are grappling for the first time with unruly trade unions, independent courts and meddlesome journalists. And for many, navigating the unfamiliar waters of multiparty politics and confronting the power of public opinion makes for heavy going.
As they venture into foreign democracies, many Chinese companies experience culture shock. Having made their money in a one-party state, where political connections are the key to a successful business and the rule of law is easy to sidestep, they are finding things just aren't as simple abroad.
From the United States to Asia, Chinese entrepreneurs have a litany of complaints and have made a succession of costly mistakes. Even in tiny Cambodia, where China has become a major investor in the garment industry, they can sound bitter. "Trade unions are all the same: They are blackhearted," complained He Enjia, president of the Textile Enterprise Association of the Chinese Chamber of Commerce in Cambodia.
"In the last two years, things changed in Cambodia," he added, explaining that factory owners used to be able to hire police to suppress striking workers. "Now it's impossible. The influence of the opposition party is growing, with the help of the Western media."
By some measures, outward investment from China outpaced foreign investment into the country for the first time last year. But abroad, where the public often demands greater transparency and courts enforce stricter environmental and labor laws, it is a steep learning curve for many Chinese companies, experts say, that mirrors the challenges foreign companies faced when they first entered China more than two decades ago.
"If you look at foreign companies going into China, it was extremely difficult for them to adjust," said Thilo Hanemann, who tracks global investment flows at the Rhodium Group, a New York-based economic advisory firm. "Chinese companies are now going through the same thing, but it is even more complicated for them. The regulatory environment they grew up in is so vastly different than in markets overseas."
The flow of capital out of China had begun to make it expensive for the country's central bank to maintain the yuan's value against the dollar. Last week's surprise devaluation will push up the price of foreign investment for Chinese companies, but - if investors think the currency will weaken further over time - could encourage some to invest abroad now before the exchange rate falls further.
Some of the first major movers were state-owned companies, extracting the raw materials, such as oil and iron ore, that China needed to fuel its booming economy. Construction companies have also followed government money abroad, as China builds roads, dams and other infrastructure from Asia to Africa.
But, as rules governing outward investment have been liberalized, private companies, from garment manufacturers chasing lower wages in Southeast Asia to IT companies chasing new markets, are also moving abroad.
Official figures show outbound direct investment from the country rose 14 percent last year to $103 billion, and the government says that if outbound investment through third parties is included, it would exceed foreign direct investment for the first time. That would be a major milestone for China, even if the figures are not exactly reliable. In any case, Rhodium's Hanemann said the hasty expansion abroad should not be seen as a sign that China is about to take on the world.