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China investment risky as long as rule of law falls to the side

The difficulties and predicaments facing Taiwan companies doing business in China have once again been underscored by the troubles that Pacific Sogo has seen running department stores in one of the world's biggest and fastest-rising markets.

The company this week has revealed that owners of the buildings housing its department stores in China have been constantly raising the rents higher than levels stipulated in the contracts.

The most unreasonable demand has been made by its land and building owner in Dalian, northeastern China, Pacific Sogo claims.

According to the company, it has made concessions on several occasions, returning the first and sixth floors of the department stores to the owner, even though having leased them in long-term deals.

Last year the owner doubled the rent to 390 million yuan annually and demanded that the company prepay 10 years of rent.

When Pacific Sogo refused the terms, the owner disrupted the power supply daily and sent security guards to block customers from entering the store.

This sounds more like extortion than a business row.

Of course this is only Pacific Sogo's version of the story, but it still highlights the sense of insecurity many Taiwan firms and individuals face while doing business in China.

If a company that owns Taiwan's leading department store has to suffer like this, others are unlikely to be immune to the prevalent irregularities in China's world of business — such as inner-circle connections, or “back doors.”

The allegations against disgraced Communist leader Bo Xilai may be more intriguing than any Hollywood screenwriter could think of. Bo's case may be an extreme, but it serves to remind us that China is still miles from being a country ruled by law.

A popular saying in China sums up the condition: The government or higher-ups may have their own policies, but the people or subordinates always have their own countermeasures.

So legally signed contracts may end up being irrelevant, as in Pacific Sogo's case, and actually it is not the first department store chain from Taiwan to suffer in China.

1 Comment
July 17, 2012    elumpen@
Businessmen chasing riches in China deserve what they get. Nobody would consider investing in Nigeria or Afghanistan to this sort of extent, yet China - which is still very much a third-world country - attracts vast sums of cash.

Far better for all concerned to stop feeding the Dragon. Let them stand or fall on their own merits. It is a bad idea for Taiwan - which, socially, is several decades ahead - to attempt an economic spinlock with a rapidly-failing state.
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