China's move to a more transparent, rule-of-law business environment is driving the anti-corruption, anti-monopoly campaigns says Professor Ang. The process is not smooth but should yield better business opportunities

By Siah Hwee Ang*

Most of you will be aware of the anti-monopoly campaign that China is undertaking as part of its reform, which I covered in this column last week.

China has officially explained, in the last week or so, that it never intended to target foreign companies in this campaign.

So the fact that many foreign companies are affected is collateral damage - if you choose to believe it.

Without getting bogged down by the uncertainty and confusion of this campaign, another development is China’s efforts to improve the transparency of doing business in the country for both domestic and foreign companies.

Setting more regulations

China’s continued interest in sparking vitality in its markets saw the removal of the lowest registered capital requirement, for foreign and domestic companies.

The caveat is where specific industry laws require a minimum capital amount to play.

While this kind of move certainly reduces market entry, the lack of transparency with the execution of such regulatory adjustments in China (and many other developing countries) is often a hindrance of participation.

As we all know, transparent regulations are more often associated with developed countries.

The extent to which organisations have confidence in and abide by the rules of society is based on how well a country formulates and implements sound policies and regulations.

Quality of contract enforcement, property rights, the police and the courts are all key indicators of the evolution of an economy.

To this end, China is busy setting more regulations.

You might recall that earlier this year, as a result of scandals in the Chinese dairy industry, the authorities shut out over 800 export brands. New regulations were subsequently put in place, for example exporters will have to apply for the license to export. Companies were then allowed back into the industry gradually.

At this time, only about 100 brands have been permitted to export to China. This is an interesting way to make adjustments to the regulation of a market.

To regulate its online industry, by March 31 next year, every foreign TV show and movie shown on Chinese online streaming sites will have to be licensed. Otherwise, they risk being taken off air.

The argument for this is to bolster online culture and meet China’s increasing spiritual and cultural demands. In some ways, this is also to ensure that online content is properly managed.

So much for only setting rules for foreign companies.

At least we will be seeing domestic enterprises having to conform with a new set of expectations in terms of disclosure of information to the relevant authorities.

The new regulation is to enhance the credibility of the enterprises and to protect the interest of all market players and investors.

Government authorities themselves are also subject to similar disclosure requirements.

Transparency through regulation

Setting regulations allows more certainty in the conduct of business activities. But often it is not the case. It’s one thing to set regulations, it’s another to make sure that these are transparent.

Having regulations does not make things more transparent. Very often, the implementation process is not properly aligned with the design.

It is imperative however, for China to continue down this path as its moves toward becoming a more developed country.

Yet foreign companies are confused. Perhaps many are used to the old regime of doing business in China. The informal ways of doing things can be more convenient.

Unfortunately, the informal ways of doing things come with corruption - which China is trying to distance itself from.

How many times have we heard that China’s business scene is too corrupted? Yes, a lot.

Now, the Chinese authorities have decided to set things (more) straight by setting regulations to hopefully provide more transparency. There are many complaints too.

Which is the lesser of the two evils?

I would pick a regulated China to be better, though this will take time.

For many foreign companies, this may mean short-term pain and long-term gain.

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Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a regular column here focused on understanding the challenges and opportunities for New Zealand in our trade with China. You can contact him here