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Politically powerful state enterprises are a towering barrier to foreign business since many enjoy special protection from the government. In July, a WTO panel ruled that Chinese regulations violated its rules by forcing local-currency credit and debit cards issued in China to use the payment network of state-owned China UnionPay, limiting the ability of Visa and MasterCard to expand into the market. Many state firms also receive extensive subsidies, from access to cheap land to ample, low-cost credit. Most of them "can never be outcompeted because they cannot go bankrupt," Scissors of the Heritage Foundation told a U.S. congressional committee in July. "A firm contemplating the Chinese market should find it daunting."
The Chinese view of the environment for foreign business is quite different. Policymakers have made it clear that they do not believe foreign firms face unfair restrictions on their activities in China. International companies "enjoy national treatment, and there is no so-called discrimination," Liu Weimin, spokesperson for the Foreign Ministry, said in June. "As a matter of fact, foreign companies have been treated favorably rather than unfairly for a long time. With Chinese companies growing stronger, foreign companies should adapt to the new situation of a level playing field with their Chinese counterparts."
Yet China's government needs to take foreign frustration seriously--for its own good. With wages rising rapidly and other emerging markets like Indonesia growing more appealing, China is facing stiffer competition for the world's capital. While foreign direct investment in China remains steady--it reached $124 billion last year, up 8% from the year before--the barbarians at the gate may eventually move on. If the new Great Wall doesn't suffer the same fate as the old, it could end up blocking the riches China still needs.