Climbing the Walls
Getting into China is the easy part. Once there, foreign
firms will find a maze of trade barriers guarding local
fiefdoms. Regional protectionism has been growing rapidly,
even as import barriers are falling By
CRYSTYL MO
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One village required
all teachers to purchase $100 worth of local
liquor, and even deducted the cost from their
salaries
Selling beer around China involves a lot more than finding thirsty
customers. Just ask Li Yuguo. The regional sales manager of
the Yanjing Beer Group tried for years to distribute its Beijing-made
brew in other provinces. But every time a shipment crossed a
border, the company was charged arbitrary local "inspection
fees." Yanjing Beer finally resorted to buying local breweries,
an expensive step, just so it wouldn't get penalized for being
an outsider. "We have had to acquire 12 local factories in various
cities to manufacture and distribute our low-end products,"
says Li. "One of the reasons we have not done well in selling
our low-end products nationally is because of local protectionism."
Chinese companies know all too well the geographic walls that
make running a national operation a job for only the most tenacious.
Regional trade barriers have been rising since the 1980s, even
as national import tariffs have gradually declined. The trend
could spell trouble for foreign companies with visions of selling
to a 1.3 billion-person market in post-WTO China. "The central
government certainly will do its best to push the local administrations
to abide by the rules of the WTO," says He Jun, director of
research at the Beijing-based Consultancy Anbound Group, "but
on the implementation level, there are severe operational difficulties.
A big country like China has so many different territorial factions."
A raft of new laws and regulations is being drafted in conjunction
with China's WTO entry. And Beijing has ordered local governments
to scrap policies that violate trade treaties. But even officials
are wary of putting too much confidence in the country's immature
legal framework. "In present China, often the problem is not
that there is no law but that few people abide by the laws,"
says Zhai Fan of the Economic Forecasting Division at the Ministry
of Finance. "WTO is an assumption that everybody would suddenly
follow the rule of law. In reality, things could be different."
For every central government official pushing from above to
unite the country under the banner of free trade, there are
29 provincial bosses - some corrupt - strenuously protecting
their local interests. "The provinces have great power today
over their local industries," says Paul Clifford, vice president
of Mercer Management Consulting. "They earn the money and they
keep the money. It's a mirror image of the tax situation, in
which local governments try to keep as much as they can before
they hand it off to the government." The liquor industry, as
Yanjing Beer found out, is rife with outlandish protectionist
schemes. This year, Funing County in Jiangsu province came up
with a charge for applying "anti-forgery stickers" to every
beer bottle coming in from outside the province. In neighboring
Muyang County, one village government required all teachers
to purchase $100 worth of local liquor, and even deducted the
money from the teachers' salaries.
The advice for foreign investors entering this maddening scene,
according to Anbound's He, is to have plenty of "psychological
preparation." That may be the only way to keep your sanity,
as well as your balance sheet, intact.
Commentary
2003-12-06
Coming soon to the commentary column--behind the scenes stories of the how the articles are really put together--the difficulty in getting anyone to accept an interview in China, the political sensitivities, the great stuff that got cut because of space, and much more about the joys and frustrations of writing in China
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