Long term investments require one thing, certainty. You are not going to get certainty and you are not going to win a game where your opponent is free to set and change the rules.
 

All trade, like a good personal relationship, is a matter of reciprocity. The last economic expansion of the prior decade even though successful was not sustainable. Mercantilist policies that limit domestic consumption, protect local markets, subsidize export industries and currency manipulation might be very successful for a while, but they cannot ultimately last, because the benefits are unequal. Eventually one partner will refuse to play.

Although many countries have increased their protectionist policies, China in particular stands out. Its policies might not have been so important when its economy and share of global trade was small. In those days the issues could be ignored. No longer.
 
In the past the lure of a fast growing economy with the largest consumer market on earth was sufficient to silence critics, but things have changed. China's trading partners have started to complain, loudly.
 
One of the most recent outbursts came from Jeffrey Immelt, CEO of the American conglomerate GE. In a speech in Rome, Immelt accused China of becoming increasingly protectionist. "I am not sure that in the end they want any of us to win, or any of us to be successful."
 
Immelt is not alone. Peter Löscher of Siemens and Jürgen Hambrecht of BASF have spoken about China. Formerly, these "foreign friends" kept their counsel. They stayed quiet about the problems and often defended China from overseas critics. The reason is simple. No one would criticize China, because it is often the largest market in the world and companies need it to grow.
 
But it is not only companies that have problems with China. Usually trade disputes with China are viewed as between China and the US. But recently other countries including Indonesia, Brazil, Thailand, Russia, and Europe have expressed concerns. Last year India filed more trade complaints against China than any other nation. Argentina was involved in spat with China over agricultural exports that originated as reprisal for Argentine anti-dumping measures.
 
The Chinese themselves have been dismissive. Before the price of gas collapsed, Russian foreign policy was anything but accommodative. The Kremlin felt that they had Europe by the scruff. China feels its markets and place in the world economic order gives it similar privileges. As Vice Premier Wang Qishan said last year, "You are going to invest here anyway."
 
Not exactly. Some companies may have already concluded that China's business environment is not worth the risk. They are realizing what they should have discovered many years ago. Despite the spin, China is not a market economy. Probably more that 50% of its economy is directly controlled by the government and the government sector is growing not shrinking. The rest is tightly managed through a vast regulatory bureaucracy and the state banks.
 
Since the state owns the economy and has the power to make laws and policies, why would it create a system that would allow more efficient companies or countries to compete? The barriers in China are just what you would expect. The state has used its power with an excessive bureaucracy, an "undervalued" currency, subsidies for home-grown industry and lack of enforcement of intellectual property rights to protect what it owns. Worse, China uses its security apparatus as a weapon for corporate espionage.
 
A good example is the case of Google. Google has been the subject not only of censorship of what information it can present; it was also the target of hacking. The hackers, who proved to be from China, were responsible not only for hacking and stealing intellectual property but of trying to hack into the emails of human rights activists. Google of course is not alone. Security has been breached in at least 30 and perhaps as many as a 100 companies.
 
Certainly it is true that other countries have used subsidies, non tariffs barriers, currency manipulation to further what they consider their national interests. China is not alone in this. The difference is in degree and the incentive to change. Without economic incentives of the state ownership of industries, other governments have to cater to other groups including consumers and voters.
 
For now China can and will most likely ignore the complaints. It rulers are heavily invested in what they see as a successful policy and see no reason to change. But markets are, if anything, flexible. There are other countries with lower wages. They are building infrastructure and have governments more amendable to changing laws. One country's arrogance is another's opportunity.
 
Still these multinational companies have only themselves to blame. Long term investments require one thing, certainty. You are not going to get certainty and you are not going to win a game where your opponent is free to set and change the rules. In the end, they will simply have to move on. As one expert said about Google, "If they didn't leave this year, it would have been next year." Immelt was right. Chinese government has no intention of letting it succeed.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).