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U.S. firms worry over business chill in China

By Kevin Voigt, CNN

  • Western technology firms in China say protectionist measures are hurting business
  • Amcham report: 57 percent of high tech companies expect to lose China business
  • Comes on heels of Google-China flap and the trial of foreign mining executives

Hong Kong, China (CNN) -- Technology firms doing business in China are raising alarm bells over what they claim are protectionist measures by Beijing.

A Monday report by the American Chamber of Commerce in China found that 57 percent of U.S. IT firms in China expect new rules for government purchases will hurt their business in the fast-growing Chinese market, which is expected this year to become the second-largest economy in the world.

The report comes as the bribery trial of four executives from Anglo-Australian mining giant Rio Tinto begins in Shanghai, and speculation grows that the two-month standoff between Google Inc. and Beijing will soon end with the Internet giant leaving the world's largest online market.

China state media step up rhetoric against Google

Michael Barbalas, president of the American Chamber of Commerce China, said that while he hasn't heard of other technology companies following Google's lead, new rules requiring government agencies to purchase goods from "indigenous" companies is having a chilling effect on sales.

"Google is sort of in its own little category of concern," said Barbalas, referring to the dispute between the company and Beijing over censorship and cyber attacks on Google that emanated from China.

"By and large American companies here are profitable, but you see this growing concern about long-term potential," he said. "Anything that restricts or reduces [access to Chinese customers] will restrict or reduce interest in investing or doing business here."

One-third of the 203 companies surveyed by the American Chamber of Commerce have seen their China sales slide as confusion grows over the new directive for China's government agencies to purchase goods from Chinese companies.

Video: Life without Google in China
Video: Google leaving China?
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  • Google Inc.

Concerns about doing business in China had been brewing long before Google's shock announcement on January 13 that the company is considering pulling out of China. Foreign firms in China have been on edge since July, when four Rio Tinto employees were detained on allegations of stealing state secrets . This came shortly after Rio broke away from a partnership deal with Chinalco, the state-owned aluminum maker.

Rio Tinto trial opens in China

Technology companies were rattled, too, by government announcement in June that all personal computers sold in China would have to have software that blocks harmful content. The government later backed away from the "Green Dam" software requirement.

Simmering behind recent concerns is growing saber-rattling from Washington accusing Beijing that it is manipulating its currency, causing it to be undervalued to help boost exports.

Commerce Minister Chen Deming told an audience Sunday at the China Development Forum in Beijing that such allegations were "irrational." The yuan's role in trade balance is limited, he said.

Last week Chinese Premier Wen Jiabao said China would resist calls to appreciate the yuan and keep its currency "basically stable." He said increasing the value of the yuan could lead the world to a "double-dip" recession.

Wen also urged the United States and the European Union to lift restrictions on exports of certain technology to China.

U.S. business group toughens China stand

A political fight between Washington and Beijing would impact interest in doing business in China, said Barbalas. "When we ask our members about risk factors one of the factors that show up in the top 10 year after year is U.S.-China political relationship," he said. "The risk right now is for trade to become a political issue."