American companies often come to us with a “great business idea” that turns out to be prohibited for foreign companies in China. When we give them the bad news, their first response is usually: “But that makes no sense.” Some then suggest that all we need to do is meet with the “right people” in the Chinese government to explain how their business will create jobs and boost China’s economy. We tell them that will never work.

China has deliberately limited foreign involvement in certain industries (e.g., publishing and the Internet) to be able to control those industries. The Chinese government is more concerned with social harmony and the contentment of its citizens than with economic numbers, and you should always factor this into your China business decisions. China’s slowing economy only heightens the government’s focus on contentment.

If you are doing business in China, or even just considering it, you should be mindful of the following…

• Though China’s economy is slowing, the government will continue to encourage wage growth that makes its factories less competitive. The reason: citizen contentment.
• China will continue to get tougher on foreigners, just as it (and nearly every other country) has always done when times are tough. Everything foreign businesses do will be under heightened scrutiny. Doing this makes its citizens happy, which makes it a no-lose proposition.
• Chinese authorities are increasingly eager to distinguish between “contributing” and “noncontributing” foreign businesses. It has never been tougher for foreign companies that pollute, pay low wages, or have no plans to hire Chinese employees to get their foot in the door.
• Chinese exporters, particularly those competing with companies from lower-wage countries like Vietnam and Bangladesh in low-tech, low-wage industries such as textiles, clothing, shoes, and low-end electronics and toys are suffering. Anyone who does business with such exporters will soon be sharing the pain, if they aren’t already.

Now is the time for you to think afresh about what your company contributes to China’s economy and how that is likely to shape Chinese policy makers’ opinions. Focus on scrupulous regulatory compliance and renew your focus on due diligence at a company-to-company level.

In other words, be careful out there.

Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at [email protected].