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• MARCH 17, 2010

China Hears Foreign Firm Complaints

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Dow Jones Newswires

BEIJING—China said Tuesday it has heard foreign companies' complaints about the country's investment environment and is working to improve policy, suggesting China is seeking to address a worsening business climate for foreign concerns in the country.

Commerce Minister Chen Deming held a meeting with leaders from 20 foreign companies in early March and heard their opinions, said ministry spokesman Yao Jian at a regular briefing.

"The ministry has gotten both positive and other feedback," Mr. Yao said. "Foreign companies are confident of China's market prospects. Many of them have turned China into their global, instead of regional, headquarters."

But he acknowledged that many foreign companies at the meeting had questions about China's indigenous innovation policy, which some said would benefit only local companies.

Mr. Yao said that the policy, aimed at boosting China's local high-technology sector, doesn't "ignore" foreign companies and that the locally established companies of foreign companies are treated the same as Chinese firms.

"Foreign-invested companies, as long as they are established in China, are all regarded as Chinese companies, as they pay tax, hire staff, and carry out research and development in China," Mr. Yao said. "As long as [their operations] comply with relevant policies, China's economic-stimulus program also applies to them."

China will stick to the World Trade Organization's rules on the treatment of foreign-invested companies, and the commerce ministry is working with other government bodies to improve China's investment policies, Mr. Yao said, without providing details.

Mr. Yao acknowledged there is room for improvement in China's policy, but said China is still "able to provide foreign-invested firms a good environment."

China's investment climate for foreign businesses has been in the spotlight because of recent high-profile cases that have seen foreign companies become entangled in local laws and regulations.

In January, Google Inc. announced it was no longer willing to censor search results on its Chinese-language Web site, Google.cn., as required by Chinese law. The search giant cited China's tightening limits on free expression, as well as a series of sophisticated cyber attacks that Google said originated from China.

Last month, China formally indicted four executives of Australian mining group Rio Tinto PLC, held since July on allegations of corporate espionage and bribery. China hasn't published specifics about the case. Rio Tinto, which isn't a party to the case, has denied wrongdoing on the part of the company and its employees.

China, which strongly protested a U.S. decision in January to sell $6.4 billion of arms to Taiwan, also has threatened to retaliate against American companies involved in such sales.

Mr. Yao's comments follow Premier Wen Jiabao's response Sunday to a suggestion that the climate for foreign investors was deteriorating. Mr. Wen said China welcomes foreign companies to legally operate in China. He also said he is willing to hear more about foreign companies' views on China's policies.

Mr. Yao also said Tuesday that foreign direct investment in China this year will likely be around $90 billion or slightly higher, roughly in line with previous years. China drew $14.02 billion of foreign direct investment in the first two months this year, up 4.9% from the year-earlier period. It attracted $90.03 billion of foreign investment in 2009.

Separately, Mr. Yao said that China's interest in securing iron ore at reasonable prices should be reflected in continuing negotiations and that the government wants to stick to the mechanism of long-term price agreements.

Mr. Yao said his ministry and the Ministry of Industry and Information Technology support Chinese steel mills on their stand in negotiations to set prices for the 2010 contract year starting April 1. He said big price swings should be avoided in the case of iron ore, the key raw material used in making steel.

The comments come amid reports that global iron-ore miners have put on hold annual benchmark pricing talks with China because of a widening gap in expectations on both sides about 2010 prices. The move puts more stress on the annual benchmark pricing system, which pits global miners against their Asian customers to set a single price for bulk iron-ore shipments. Miners, led by BHP Billiton Ltd., are increasingly pushing for a quarterly pricing system, rather than the current yearly agreement. BHP already has some success in converting its coal-supply agreements with Japanese buyers into a quarterly contracts.

During the term discussions, Brazil's Vale S.A. had pushed for a 90% increase in the 2010 benchmark price for iron ore in a verbal notice to Chinese negotiators, though the proposal wasn't put in writing, a senior-level steel -ndustry executive told Dow Jones Newswires last week.

Copyright 2010 Dow Jones Newswires