Heard on the Street: A study concluding that China is an easier place to do business than France is highly misleading
By Mike Bird Oct. 25, 2019 11:34 am ET China now tops France in the World Bank’s latest “Doing Business” rankings and is closing in on Japan. But there is less than meets the eye to the stratospheric rise in its rank, from 78th to 31st in just three years, making it supposedly one of the easiest emerging markets in which to do business.
Firstly, the World Bank metric is based on domestic firms, not foreign ones. International businesses have a series of additional hoops to jump through in China. Secondly, the survey only covers Beijing and Shanghai, which make up less than a 20th of China’s population. Since much regulatory and tax enforcement is done at the local level, these cities are at best an imperfect guide.
Third, the World Bank publication appears to have fallen victim to Goodhart’s Law: when a measure becomes a target, it can stop being a useful measure. Measures such as the cost of accessing electricity were chosen for the report, presumably, as general indicators of the regulatory burden. But once they are known to the countries, they can be gamed at relatively low cost, with the aim of improving rankings.
Parisian policy makers can wipe the nervous sweat from their brows: it is still probably harder to do business in China than France.Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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