U.S. firms frustrated by Chinese red tape

BEIJING Tue Mar 22, 2011 6:26am EDT

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BEIJING (Reuters) - U.S. firms are increasingly vexed over growing Chinese red tape that prevents them from expanding quickly in China's vast market, a survey by the American Chamber of Commerce showed on Tuesday.

Road blocks faced by firms in getting business licenses have multiplied to the extent that companies are now more worried about bureaucratic hurdles than by nebulous laws and regulation or corruption, AmCham's annual survey on China's business climate showed.

"The number-one challenge that our members listed this year is bureaucracy," Ted Dean, AmCham's chairman in China, told reporters at a briefing. "Members are saying that licensing procedures have become more difficult."

The survey took pains to stress that U.S. firms want to stay in China, but criticisms were also thinly veiled, making plain the alternating love and hate that executives feel when it comes to doing business in a tightly controlled environment in the world's fastest-growing major economy.

"As China enters the tenth year in the World Trade Organization, the goal of a fair and transparent regulatory environment has not yet been achieved," Dean said.

Dean said U.S. firms believe they are discriminated against when they apply for licenses as they face delays and a lack of transparency, and at times are unable to get the licenses that their Chinese peers have received.

Nearly 435 firms took part in the AmCham survey. A total of 31 percent of 338 respondents said bureaucratic processing was their biggest challenge, compared with 23 percent last year. To a question on what permit was most difficult to get, 42 percent of 220 respondents said it was a new business license.

This is frustrating U.S. firms at a time they want to court the Chinese consumer.

"This is just the moment when companies are looking to benefit from domestic demand in the market and looking to sell into the domestic market," Dean said.

Chinese Commerce Ministry spokesman Yao Jian said, however, that China was committed to treating foreign companies well and to opening its market.

"We will continue to further promote the opening up of the domestic market," he told a regular news conference. "We will give equal treatment to foreign investors and Chinese companies alike."

FIRMS STILL EXPANDING

Though China has made significant progress in welcoming foreign firms since joining the World Trade Organization in 2001, companies want China to move even faster.

Occasional setbacks, as with Google Inc's (GOOG.O) accusation on Monday that the Chinese government is foiling its Gmail service, are also unhelpful. China's Foreign Ministry on Tuesday dismissed Google's accusation as "unacceptable."

The AmCham survey outlined a laundry list of concerns that foreign firms usually have when operating in China -- difficulties in hiring managers, unclear laws and regulations, inconsistent interpretation of regulations as well as infringement of intellectual property rights.

Preferential treatment that Chinese firms get when it comes to bidding for contracts from China's government was also a growing concern among foreign firms.

Forty percent of firms polled said they believe China's policy of favoring "indigenous innovation" would soon start to hurt their profits. But for now, almost 70 percent said they have yet to feel an impact.

Still, firms are not slowing their China expansion plans.

Nearly 10 percent of 281 respondents said they plan to expand their business by more than 50 percent this year, with 33 percent planning to grow operations by between one-tenth and one-fifth.

(Additional reporting by Ben Blanchard; Editing by Richard Borsuk)

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