Reverse of globalization – can a country sustain growth?

‘Globalization’ is the buzz world in almost all world countries for their growth of business, GDP and living standards as well. Some countries after establishing business relations with several countries for more than a decade are adopting global trade policies look conservative and akin to ‘Eat the cake and have it too’. While their quality for some of the products as minor as children’s toys are under scrutiny they do not want to play the global business game on level field. Other countries dealing with China particularly US must take a proactive role in making the country play a fair game. There are also certain essential commodities required by such countries for their own population and the exporters to such conservative countries adopting double business standards can restrict the supply as well. One of the countries currently playing safe with their domestic products is Asia’s most reputed business country and that is China.

Faced with a glut of foreign capital and massive trade balance, China has now begun either to restrict market access to foreign companies or create new hurdles for those that have already entered the field. This is evident from several recent measures including the latest move to restrict the entry of foreign insurance companies.

Doors to Chinese insurance market would be open only to foreign companies with assets worth $2 billion or more according to the government. The China Insurance Regulatory Commission issued a set of rules for foreign investors. The rules stipulated that they should retain their shareholdings for at least three years and abide by the principles of holding stakes for the long-term, improving management of business cooperation and avoiding competition.

In India, the government has been under pressure to enhance the foreign capital limit in insurance ventures from 26% to 49%. Foreign investors often cite the example of some of the conservative business countries when they try to persuade India to open access doors wider.

But the Chinese regulator has said it would continue with the foreign investment cap of 25%. Moreover, no single foreign company would be allowed to invest more than 20% in an insurance company of that country. CIRC is seeking industry feedback on the draft rules, which is expected to meet heavy resistance from foreign insurers set on entering the local market.

But domestic insurers are divided on the issue. Major players like China Life want restrictions on foreign rivals while the smaller companies are looking forward to having foreign partners. There have been other signs of restrictions being imposed on entry of foreign companies as China is flushed with cash and is not more interested in foreign capital.

Beijing also brought in a rule last year requiring foreign companies to obtain government approval if they wished to go in for mergers and acquisitions involving local companies.

At another level, the government has been infusing capital in state-run companies to build them up as strong competitors for foreign rivals that have already managed to obtain licenses. It recently separated out the postal saving element of China Post, the national postal service in to a separate bank. The new bank now has the largest number of retail branches in post offices across the country and provides a major challenge to retail expansion by foreign companies.

Beijing is also encouraging state-run companies to expand their investments in foreign countries so that they become more capable of dealing in the international market. Domestic insurers were recently allowed to invest 15 per cent of their assets in overseas markets, which is a marked increase over the earlier limit of 5%.

One key reason for restrictions on foreign entry in certain businesses like insurance is the heavy involvement of state-run companies, which own the bulk of their shares. State bureaucracies are still reluctant to loose control.

Unlike India, branches of foreign banks have not been allowed to do business in the local currency. Beijing set up a barrier saying that they must take the hugely expensive route of local incorporation if they wished to deal with local citizens in the local currency. Eight foreign banks have already obtained government permission to incorporate as Chinese companies while several others are waiting in the queue. The Chinese market is far too attractive for foreign companies to miss the opportunity of expanding business in the local currency.

In conclusion if such countries are adopting double standards only to promote and expand their businesses world wide by any means hook or crook it is doubtful whether they can survive and sustain in world markets because other countries having fair trade practices with competitive quality and price are ready to jump into the fray and displace the countries with unfair business practices.