It's been about 30 years since China opened its doors to the rest of the investment world. While several companies remain state-owned; tech, automobiles, and a host of other industries have become booming businesses for foreign investors. It could be argued that China's loosening of economic policies was, in large part, the impetus for it becoming what it is today: one of the world's leading economies, and a critical market for many global corporations.
Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) fans know just how important the Chinese market has become for U.S. tech companies. When Nokia's smartphone division -- now owned by Microsoft -- came to terms with China's largest telecom provider China Mobile, it was widely hailed as a major coup. And when Apple was finally able to forge its own deal with China Mobile earlier this year, Apple CEO Tim Cook called it, "a watershed moment." Unfortunately, doing business in China is quickly becoming a monumental headache for some of the world's largest companies.
The lure of China
With the second largest economy in the world, trailing only the U.S., and the largest global exporter on the planet, China has a lot to offer foreign investors. China's economic strength isn't due to an abundance of natural resources, its position as one of the world's most important economic powers, and what makes it so attractive to companies like Microsoft and Apple, is simple: People; lots and lots of people.
A quick look at China's leading exports says it all: Electronics, furnishings, clothing, and machinery top the list of China's exports, and the common theme among them are the labor-intensive nature of the exported items. In other words, China and its leaders have become extremely adept at utilizing its most valuable asset: the nearly 1.4 billion Chinese citizens. It's no wonder U.S. and other foreign companies, including Apple, the world's largest as measured by market capitalization, trip over themselves to do business in China.
Is China saying, "enough already?"
Based on a recent survey conducted by the American Chamber of Commerce in China, as well as a slew of antitrust allegations targeting multiple foreign companies, including Microsoft, it's becoming clear the Chinese government is going out of its way to make life difficult for outsiders. It appears that government officials took a look around, realized too many foreign entities were generating significant revenue from the Chinese people, and decided it's time to take some of it back.
Case in point: China's recent announcement that it's developing its own mobile OS in an effort to de-throne Microsoft, Apple, and Google's wildly popular Android. Why? There has been talk of cyber-security concerns relating to foreign operating systems, but that seems more like an excuse, not a reason. The bottomline, as the head of China's OS Development Alliance said, is that there's a large gap between the systems available from Microsoft, Apple, and Google, and China's home-grown alternative. That simply won't do, and the answer is what China hopes will be a suitable, "in-house" option, pushing the "outsiders" aside.
The American Chamber of Commerce survey results were also telling. Of the 164 companies doing business in China that responded, 60% said they feel "less welcome." That's up from just 41% who felt the same way the end of 2013. It's apparent that China is ratcheting up its regulations and oversight of non-Chinese companies.
Though not unheard of, it is telling that Microsoft CEO Satya Nadella will begin packing his overnight bag for a trip to China later this month, following allegations of antitrust violations. Chinese officials raided Microsoft offices twice in the past month, and have "ordered" Nadella and team to respond within an unheard of 20 days. Generally, charges of monopolistic activities take months and even years of investigations: but not in China; not anymore.
Final Foolish thoughts
The "targeting" of foreign companies by Chinese authorities isn't limited to U.S. firms. The European Union Chamber of Commerce echoed its U.S. brethren's concerns last month, adding that it received reports that companies are being pressured to pay fines and admit to wrongdoing, without a full investigation, to avoid getting their respective governments involved. If true, that would be a major violation of China's free trade agreements, and potentially cause significant problems for companies like Microsoft, automobile manufacturers, and a host of other global giants with significant financial stakes in China.
An American Chamber of Commerce official described the current business atmosphere in China best, saying regulators were, "taking down" foreign companies to narrow the gap with home-grown firms. Based on recent allegations against Microsoft, not to mention a host of other companies of late, it sounds like the Chamber of Commerce official hit it on the head. Now that foreign investment has jump-started China's economy, helping to make it a world economic power, it appears China's decided it's time to take it back.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, China Mobile, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.