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Chinese companies face cultural shock outside China

overseas Chinese companies

Faced with slower growth at home and rising labor costs, Chinese entrepreneurs are seeking foreign markets as never before. But as they rush abroad, they are grappling for the first time with unruly trade unions, independent courts and meddlesome journalists. And for many, navigating the unfamiliar waters of multiparty politics and confronting the power of public opinion makes for heavy going.



As they venture into foreign democracies, many Chinese companies experience culture shock. Having made their money in a one-party state, where political connections are the key to a successful business and the rule of law is easy to sidestep, they are finding things just aren't as simple abroad.



From the United States to Asia, Chinese entrepreneurs have a litany of complaints and have made a succession of costly mistakes. Even in tiny Cambodia, where China has become a major investor in the garment industry, they can sound bitter.



"In the last two years, things changed in Cambodia," complained He Enjia, president of the Textile Enterprise Association of the Chinese Chamber of Commerce in Cambodia, he explained that factory owners used to be able to hire police to suppress striking workers. "Now it's impossible. The influence of the opposition party is growing, with the help of the Western media."



By some measures, outward investment from China outpaced foreign investment into the country for the first time last year. But abroad, where the public often demands greater transparency and courts enforce stricter environmental and labor laws, it is a steep learning curve for many Chinese companies, experts say.



Some of the first major movers were state-owned companies, extracting the raw materials, such as oil and iron ore, that China needed to fuel its booming economy. Construction companies have also followed government money abroad, as China builds roads, dams and other infrastructure from Asia to Africa.



But, as rules governing outward investment have been liberalized, private companies, from garment manufacturers chasing lower wages in Southeast Asia to IT companies chasing new markets, are also moving abroad.



Official figures show outbound direct investment from the country rose to $103 billion, and the government says that if outbound investment through third parties is included, it would exceed foreign direct investment for the first time.



That would be a major milestone for China, even if the figures are not exactly reliable. In any case, Rhodium's Hanemann said the hasty expansion abroad should not be seen as a sign that China is about to take on the world.



"It's not a sign of strength; it's a sign of weakness," he said. In the past, Chinese companies could reap such handsome profit growth at home that "they neglected global value chains" and did not develop overseas expertise, he said.



But as China's economy slows, as it confronts huge overcapacity in its steel and cement industries, and as labor and land costs rise, companies are being forced to diversify abroad, to "play catch-up" and learn new skills in order to survive.



It has not been smooth sailing. Indeed, there are countless examples of costly miscalculations.



In the United States, Chinese companies are facing hundreds of millions of dollars in damage claims over drywall imported to rebuild thousands of homes in the wake of Hurricane Katrina; it is alleged to have emitted toxic gas, caused respiratory problems and corroded electrical appliances.



In Texas, state-owned Aviation Industry Corporation of China (AVIC) is beingsued for $7.5 billion by a former joint venture partner, Tang Energy, which claims it cheated on their deal to develop wind power — partly by creating competing businesses in the same field. It is something AVIC might have gotten away with at home but not in the West.



All over the world, Chinese companies have faced a political backlash for bringing in their own workers rather than employing locals.



There are, of course, very different problems in different places. Strict laws against pollution and corruption might pose problems in the West, but they are less of a concern in countries such as Cambodia, entrepreneurs say.



But Li Yi, secretary general of the Guangxi province branch of the Chinese Chamber of Commerce in Cambodia, says Cambodia's many nongovernmental organizations are a nuisance. "To grab Western funds, they do everything they can to pick holes and deliberately target big projects," he said.



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