Multinationals committed to Chinese market despite rising costs
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Multinational executives Monday voiced continued commitment to the Chinese market despite rising labor costs, while the government continued to reassure them of open and fair business environment.
Glenn Jordan, president of Coca-Cola's Pacific Group, said China is "extremely important" to the U.S. beverage giant even as more local rivals are ready to gain bigger market share with lower margin.
"We are committed to long-term growth and investment in China," Jordan said at a TV debate of the World Economic Forum (WEF)'s annual summer meeting, known as "Summer Davos", in the northern Chinese city of Tianjin.
According to Takeshi Niinami, president and chief executive officer of Lawson, the business environment in China has improved over the past couple of years as the Japanese retailer expanded in the second-tier Chinese cities.
"Competition in the largest cities like Beijing, Shanghai and Guangzhou is very fierce. But you can get more welcome in smaller cities," Niinami said.
Lawson is moving up to high-end retailing in China because of cut-throat competition in the low-end. "I'm very optimistic about our growth in China," he said.
Unlike big cities, smaller ones are vying for foreign investment with more incentives, like quicker government approval and location choosing, Niinami said.
The commitment to China was made even after China, who has overtaken Japan as the world's second-largest economy, faces challenges of rising labor costs and inflation.
A spate of strikes and suicides has led to salary increases in the auto parts plants of Japanese carmakers Honda and Toyota and also Foxconn, the world's largest electronics contract manufacturer.
Some foreign businesses also have voiced concerns over worsening business environment in China, but many still regard it as one of the best investment destinations.
To address the concerns, Chinese Premier Wen Jiabao said Monday at the opening ceremony of the Summer Davos that the country is committed to creating an open and fair environment for foreign invested enterprises.
He added that all foreign invested enterprises registered in China enjoy national treatment.
Earlier Chinese Vice President Xi Jinping also pledged at the World Investment Forum the country's commitment to creating a better, more open and fair environment for foreign investment.
China is now one of the world's largest foreign investment destinations. More than 470 of the top 500 global companies have established their presence in China. By July this year, China had received 1.05 trillion U.S. dollars of foreign investment in cumulative terms, ranking the first among developing countries for 18 years in a row.
Experts said China, with huge market potential, will underpin future growth of multinationals after it has offered them a buffer in the global financial crisis.
China will continue to spur market demand as it increases the urbanization rate and bridges the gap between the rich and poor, said Jia Kang, director of the Institute of Fiscal Science with Chinese Ministry of Finance.
The rising labor costs in the coastal areas have forced many businesses to move inland, but the world's most populous country still has surplus labor, Jia said.
Foreign businesses, many of which are leaders in high-tech and green business, can still get tax incentives as China supports these sectors to transform industrial structure, said Jia.
Unlike consumer goods manufacturers, green tech giant GE was not moving production elsewhere only because of labor costs, said Ferdinando Beccalli-Falco, president and chief executive officer of GE International.
Rather, strategic importance, talent and market are among the considerations, Beccalli-Falco said.
GE has moved to penetrate further in China by setting up R&D centers to tailor products for the increasingly more important market, he said.
Beccalli-Falco also welcomed China's regulation changes to cover foreign businesses set up in China in the "indigenous innovation" support policies.
Foreign companies feared that the earlier edition of "indigenous innovation" support policies could cost them in government procurement orders.
Wen, however, reassured that in government procurement, China gives equal treatment to all products produced in China by foreign invested enterprises and Chinese invested enterprises alike.
"I wish to reiterate here that all enterprises registered in China according to Chinese laws are Chinese enterprises. Their products are made-in-China products. And the innovative products based on their research and development are created-in-China products," he said.
