CHONGQING – China has urged its small-and-medium enterprises (SMEs) to familiarise themselves with foreign laws in their overseas operations, in what analysts call a timely reminder amid worsening US-China trade tensions.
This was among the guidelines released on March 13 by 15 government departments, including the central bank and the ministries of finance and commerce.
Under the guidelines, SMEs are urged to “comply with international rules and practices” and “effectively respond to external risks related to trade protectionism, export controls and multilateral bank sanctions”.
Analysts see the move as an important reminder, given that SMEs – unlike larger corporations – lack the resources and expertise to navigate complex international regulations, making them more vulnerable to compliance risks.
“As more and more Chinese firms engage in cross-border economic activities, and as rising trade tensions complicate the world trading system, the risk of non-compliance by Chinese firms has been rising,” Professor Hu Guangzhou at the China Europe International Business School in Shanghai told The Straits Times.
Trade tensions between China and the US have escalated since President Donald Trump started his second term. On March 4, Washington doubled duties on Chinese imports to 20 per cent, prompting Beijing to retaliate with additional tariffs of 10 to 15 per cent on selected US imports.
Beyond tariffs, regulatory scrutiny of Chinese firms has also increased. In December 2024, the US authorities widened an existing ban on the export of high-end chips and chip manufacturing equipment to China, adding more chip-making tools and other fresh restrictions.
Some experts warn that such restrictions could extend to other sectors, further complicating compliance for Chinese businesses operating abroad.
Professor Li Changan at the University of International Business and Economics in Beijing told state media Global Times that many Chinese firms may face more scrutiny under the pretext of non-compliance, given a rise in protectionism and growing discrimination against Chinese firms in some countries and regions.
Prof Hu told ST that SMEs should not only be aware of international trade laws and regulations, but also the specific laws of the countries they invest in. This is particularly important in industries affected by the US-China technology rivalry, where regulatory changes – often driven by export controls – can have significant business implications.
Ms Shan Guo, a partner at business consultancy Hutong Research, said Beijing’s latest reminder to its SMEs is partly to ensure “that other countries still welcome Chinese investment”.
She pointed to how China’s electric vehicle giant BYD had to stop the construction of a factory in Brazil, Latin America’s largest economy, after the Brazilian authorities reportedly found more than 160 Chinese nationals living in terrible conditions.
“So, concerns are emerging, and the guidelines are a pre-emptive move,” Ms Guo told ST.
Beyond supporting SMEs to expand overseas, the guidelines also aim to boost foreign investment in China, she noted. SMEs are urged to focus on key areas of compliance in China itself, including employment, tax, product quality, work safety and environmental protection.
Said Ms Guo: “Beijing is trying to discipline SMEs to reduce disorderly competition, so that everyone doing business in China can make money. It’s getting particularly important because Beijing must improve companies’ profitability to attract foreign investment.”
On Jan 7, the State Council – China’s Cabinet – released guidelines on developing a stronger domestic market by removing local and regional protectionist measures as well as eliminating unfair competition.
Growth in China has been slowing since the authorities cracked down on the country’s formerly high-performing tech and property sectors in 2020.
Sentiment among businesses, including foreign ones, was further dampened during the Covid-19 pandemic due to China’s strict rules that were lifted only in December 2022. This was compounded by growing US-China trade and tech tensions, which started in President Trump’s first term from 2017 to 2021.
Foreign direct investment in China plunged by 99 per cent over the past three years, official data showed in February.
At its annual parliamentary meetings earlier in March, China’s top policymakers vowed to curb “neijuan”, a term describing cut-throat competition that results in diminishing returns or even stagnation.
China is aiming to maintain growth momentum at about 5 per cent a year by cultivating its world-class tech sectors and boosting its private economy to counter an anticipated slowdown in exports due to the US-China trade war. Exports have been a strong contributor to China’s economic growth.
Ms Guo said: “A profitable domestic market is why foreign companies and countries want to stay engaged with China.”
- Aw Cheng Wei is The Straits Times’ China correspondent, based in Chongqing.
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