U.S. companies can succeed in China, but it won't be easy

Google's travails in China, Chinese policies favoring domestic content in manufactured goods, and congressional rumblings about China's currency have fueled perceptions that U.S. companies are "souring" on that country, but that picture isn't entirely accurate, according to a top executive of the U.S.-China Business Council. "It's an intriguing bit of hype... . But the reality is somewhat less dramatic," said Erin Ennis in her keynote address at the Coalition of New England Companies for Trade (CONECT) Northeast Trade & Transportation Conference in March. "Companies face significant challenges in China that they want addressed, but the market remains important to their bottom lines, so they want to see those challenges addressed in ways that are constructive and productive."

Although China clearly has felt the effects of the global recession, it's been one of the few economic bright spots, Ennis continued. U.S. exports to China set records in November and December, for instance. But her group remains concerned that China's regulatory controls could rein in export growth. A particularly onerous practice is China's requirement that foreign companies obtain a separate license for each individual office and product, she said. The process for licensing a representative office, for example, can take nine months, yet the license is only good for a year from the application date—meaning the entire process must begin anew just three months after the license is approved, she said.

"Indigenous innovation" policies intended to boost domestic design and manufacturing at the expense of foreign producers are creating huge headaches for foreign companies, according to Ennis. In November 2009, the government announced that buyers at Chinese government agencies would give preference to products that contain intellectual property developed, owned, and registered in China. The rule mostly affects computers, software, telecommunications, and "green" technology.

In addition to the national government's rules, some provinces require domestic, regional, and even local content in certain products, Ennis said. This forces many companies to develop China-only versions of their products. These policies "do not flat-out say they are favoring domestic producers, but when they are implemented, you see that's what's happening," she said.

Editor's note: This article is a revised version of a news article that was posted last week, "Doing business in China tougher than ever, trade group exec says." The original article contained reporting errors.