We've gone around on this before, most notably here.
I've struggled to articulate what, exactly, I've been meaning in most of these discussions. But, I read something today and I realized where I've been lacking: real-world examples. Short of finding someone who'll share doing-business-in-China horror stories with us, let me share the following.
An investment bank I know of publishes a quarterly journal highlighting research and analysis by their practice groups. One group focused its contribution on China, from which I quote:
"Among the most significant risks in implementing a successful market entry strategy are:
- A partially privatized business environment which allows unfair trade practices. For example, in many large industries such as steel and mining, banks (which are quasi-governmental agencies) provide below-market rate loans to State Owned Enterprises ('SOEs')." (emphasis mine)
"- A legal system, despite its current transition to full World Trade Organization compliance, which fails to adequately protect intellectual property and contractual arrangements. The inadequate protection results from both/either insufficient codification of rules and business principals (sic) and/or lack of enforcement. Many companies which have developed sources in China have been surprised by the quickness with which knock-offs are developed (e.g. gear and apparel by The North Face)."
When one hears politicians tossing around terms like "fair trade" or "free trade" it is wise to sit up and take note. Large is the answer to the question: what is the opportunity for mischief? Yet, there remains a fundamental challenge in trade relations when one party respects property rights and the rule of law, and the other party doesn't.
The hard truth is this: as a country, we want cheap stuff more than we want liberty for other people. Democratic societies won't be able to provide us that dirt-cheap labor needed to manufacture our stuff as cheaply as possible, so until 1) we change or 2) our trading partners become free societies, we're going to be facing this dilemma.
Which I would guess would be a long time.
I'll try and see if I can get some stories of how the social/political risk of doing business in China has hurt some companies, and will try to remember that my points would be so much more effective if they had facts to support 'em!