Rule of law promises fair, just climate for doing business

As the curtain fell on a key meeting on rule of law on Thursday, Israeli Yuval Golan, 29, felt good about his business prospects in what should be a more transparent and predictable China.

As CEO of Unique 1 Asia Creative Business Consulting Co, in Haikou, capital of Hainan province, Golan was recently recognized by the province for cross-border economic and cultural exchanges and for creating jobs.

Despite the award, Golan has plenty of gripes and complaints about doing business in China. He wants approvals and dispute settlements to be dealt with in a way that he would recognize as fair and just.

The end of an era

According to the 2014 Business Climate Survey of members of the American Chamber of Commerce in China, inconsistent or unclear laws and regulations have been one of the top three business challenges in the last five years.

The regulatory environment has changed drastically in two decades as legislation has struggled to keep pace with the rapidly evolving economy. Understanding and navigating this legal labyrinth is a major headache for AmCham China members.

About 10 years ago, foreign businesses basically received their advice from one book, One Billion Customers: Lessons From the Front Lines of Doing Business in China by James McGregor.

The bestseller, once the bible for anybody doing business in China, advised businessmen to pull whatever strings they could to evade local laws and regulations as "rule by law" instead of "rule of law" was the norm in a country obsessed by social connections.

Applying McGregor's dubious wisdom today could be fatally misleading.

Showering business prospects with expensive gifts or multifarious financial shenanigans may have worked in the past, but things are starting to change and the government is now claiming a zero-tolerance approach to corruption. The former British boss of GlaxoSmithKline's Chinese arm was convicted of corruption and thrown out of the country after his firm gave billions of yuan in bribes to doctors and hospitals. GlaxoSmithKline was fined almost $500 million.

Leaner and meaner

Last week, the 18th Communist Party of China Central Committee held its Fourth Plenary Session and laid out major tasks to "comprehensively advance the rule of law".

There will soon be no need for string-pulling as the streamlining of administration and a negative list approach are likely to become law, not just to reduce business costs but to reduce the necessity for under-the-table deals and make these ambiguous practices substantially costly.

No informal mitigation of a sentence will be tolerated. Judicial cases must not be influenced by personal connections, favors or bribery. The judiciary will be completely overhauled, with the Constitution reigning supreme over a revamped legal system.

Rebalancing equation

"The market is becoming more orderly and regulated, but high transparency and a standard market economy may take years to cultivate," said Zhang Yansheng, secretary-general of the academic committee at the National Development and Reform Commission, the top economic planner and major power in administrative approval.

Along with swaths of red tape, gone are super preferential tax policies enjoyed by foreign firms in the past. A transparent market demands fair competition.

"Foreign firms should get used to the new norm and set a good example for their Chinese counterparts," Zhang added.

"We hope the laws and regulations will be applied in a logical and consistent manner regardless of time, place, or parties concerned," said Greg Gilligan, chairman of AmCham China.

Gilligan said he wants enhanced protection of intellectual property rights that will encourage entrepreneurs, support the private sector and promote high-tech growth and high-paying jobs for educated workers.

Strong rule of law will not help only businesses, be they foreign or domestic, but it will also be good for all aspects of the Chinese economy, rebalancing the equation as it enters a new era of development, Gilligan added.