From Microsoft To Mercedes, Foreign Companies Under The Gun In China

Transcript

ROBERT SIEGEL, HOST:

Doing business in China has always been rough and tumble - and for some foreign companies it's getting rougher. In the past year, Chinese government regulators have raided the offices of Microsoft and Daimler - the maker of Mercedes-Benz - as well as the chipmaker Qualcomm and Accenture, the management consulting firm. Officials say they are investigating monopoly practices including price-fixing, but some foreign business leaders say they're being targeted as part of a populist political campaign.

NPR's Frank Langfitt reports from Shanghai.

FRANK LANGFITT, BYLINE: In recent months Mark Jephcott has been giving clients advice on what previously might've seemed an obscure topic - the art of managing the dawn raid.

MARK JEPHCOTT: I wouldn't say there's panic (laughter). But I would say there's an increased awareness.

LANGFITT: Jephcott works in the Hong Kong office of the law firm Herbert Smith Freehills. He tells client to cooperate when investigators come knocking, but keep track of what they seize.

JEPHCOTT: Literally count how many of them there are. Try and get business cards from them all. Believe me. I can tell you from experience. If you do not keep very, sort of, close tabs on where they're going, it's just like herding cats - you know, they will go off. You'll have no idea what they're looking at.

LANGFITT: Chinese officials insist they're cracking down on companies over what they call unfair pricing and helping consumers, who often complained that foreign products cost more in China than elsewhere.

Nie Huihua teaches economics at People's University in Beijing. He says regulators began by going after Chinese telecom companies.

NIE HUIHUA: (Through translator) Then they focused on baby formula pricing and this time it's the auto industry. Everyone knows imported cars are expensive and enjoy a monopoly position so it's quite normal that they target imported cars.

LANGFITT: The government is focused particularly on the high price of spare parts. A report from an auto repair association said replacing all the parts of a Mercedes sedan can cost 12 times the price of the actual car. Nie Huihua says parts here are sold through special stores.

HUIHUA: (Through translator) There's nowhere else you can go to buy these parts. Of course you can go to an ordinary car shop to fix your car, but the car parts they've got are probably not authentic.

LANGFITT: Mei Xinyu is a researcher with China's Ministry of Commerce. He says the government is applying is applying China's anti-monopoly law fairly.

MEI XINYU: (Through translator) Before, there were too few antitrust investigations targeting foreign companies manipulating prices. So this time around when foreign companies are being investigated, it's gotten a lot of attention.

JAMES MCGREGOR: It's baloney.

LANGFITT: James McGregor is chairman of Greater China for APCO Worldwide, a communications and business strategy firm. He says most of the anti-monopoly cases against Chinese companies have involved smaller ones and low fines, and he thinks raids on famous international firms are targeted and designed to send a message.

MCGREGOR: There's been a power shift. Foreign business used to be special here. They were treated special. They were friends of China. Their investments were helping China recover.

Let's fast-forward, you know, 30 years later. China's got its own companies. They want to go global. Power is on the other side and to do business here, China's saying, if you want to be in our market, this is what we want you to do.

LANGFITT: A recent survey by Beijing's American Chamber of Commerce in China found 60 percent of respondents think foreign business is less welcome here than before. A separate survey by the U.S.-China Business Council found 30 percent fear becoming targets of Beijing's anti-monopoly campaign. McGregor that says during investigations, Chinese officials have strong-armed foreign executives, even suggesting ways they can confess.

MCGREGOR: Basically they call them in and they say, you know, the way you're doing your pricing is illegal. If you use lawyers and you try to take this on, you're going to have a very bad day. Here's a sample of the way you could express yourself in confessing that you've done wrong and your penalty will be mitigated.

LANGFITT: In the current atmosphere, some companies have quickly capitulated. Since summer, at least seven auto firms including Toyota and Chrysler have cut prices.

Are any of these multinationals in a position to just leave if things get bad?

MCGREGOR: Nope.

LANGFITT: Why not?

MCGREGOR: It is the market. And it's the growth market at a time when Europe is flat and America goes back and forth. And so you got to be here.

LANGFITT: And learn to live with more scrutiny, a tougher business environment and what some suspect will become the new normal in China.

Frank Langfitt, NPR News, Shanghai. Transcript provided by NPR, Copyright NPR.