To what extent are companies willing to bend over backwards and twist themselves into pretzels to sell their products in China? This depressing article makes it quite clear: they will do anything and everything, even if China’s demands are in clear violation of the WTO. The China market is simply too big and you have to play by China’s rules. Which means your domestic competitors will always gain the upper hand. The government guarantees it.
TIANJIN, China — Judging by the din at its factory here one recent day, the Spanish company Gamesa might seem to be a thriving player in the Chinese wind energy industry it helped create.
But Gamesa has learned the hard way, as other foreign manufacturers have, that competing for China’s lucrative business means playing by strict house rules that are often stacked in Beijing’s favor.
Nearly all the components that Gamesa assembles into million-dollar turbines here, for example, are made by local suppliers — companies Gamesa trained to meet onerous local content requirements. And these same suppliers undermine Gamesa by selling parts to its Chinese competitors — wind turbine makers that barely existed in 2005, when Gamesa controlled more than a third of the Chinese market.
But in the five years since, the upstarts have grabbed more than 85 percent of the wind turbine market, aided by low-interest loans and cheap land from the government, as well as preferential contracts from the state-owned power companies that are the main buyers of the equipment. Gamesa’s market share now is only 3 percent.
With their government-bestowed blessings, Chinese companies have flourished and now control almost half of the $45 billion global market for wind turbines. The biggest of those players are now taking aim at foreign markets, particularly the United States, where General Electric has long been the leader.
The story of Gamesa in China follows an industrial arc traced in other businesses, like desktop computers and solar panels. Chinese companies acquire the latest Western technology by various means and then take advantage of government policies to become the world’s dominant, low-cost suppliers. It is a pattern that many economists say could be repeated in other fields, like high-speed trains and nuclear reactors, unless China changes the way it plays the technology development game — or is forced to by its global trading partners.
Everyone who works with foreign companies trying to sell into the China market is well aware of this phenomenon. What I think is not so well known outside of China is just how much grief these companies have to go through, the concessions they are forced to make, and the rage they feel even as they continue making speeches and putting out press releases about how committed they are to doing business with China and how delighted they are with their Chinese partners.
This exhaustive article makes the point you’ll never get from the press releases or speeches: that these companies will bow and scrape and kiss ass ad infinitum because they are scared shitless of rocking the boat. Even as their piece of the pie is sliced thinner and thinner, the China market is so immense they simply can’t afford not to be there.
The government’s bullying may be illegal and unfair, but for these companies, lured by the sheer size of the market, there really is no other choice but to submit and bite the bullet. Complain or show even a hint of ingratitude and you’ll risk losing all that precious guanxi you’ve spent so many millions building up. But as this article shows, the joke is really on them. All that guanxi was essentially worthless. There was no two-way street, no mutual scratching of backs. The foreigners are forced to give everything, only to get back less and less. And through it all, they remain “committed to China” and “deeply appreciative of our Chinese partners” and full of praise “for the Chinese government officials who helped make our prosperous partnership possible.”
What a Kabuki dance. What two-facedness. But then, what else can they do?
Anyone interested in learning more about the hoops China’s partners are forced to jump through have to read this book.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.