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This column originally appeared in Forbes.

Although Google's (NASDAQ:GOOG) declaration that it is no longer willing to censor searches in China gets all the headlines, another American giant, Goldman Sachs (NYSE:GS), is locked in its own battle there. When oil prices were soaring, Shenzhen Nanshan Power signed oil derivatives contracts with Goldman's commodities-trading subsidiary, J. Aron, to help it hedge against rising prices. When oil prices plummeted last year, Nanshan's bets went south. Nanshan is now refusing to pay the $80 million it owes, because it says the contracts were signed by officials who didn't have signing authority.

China's State Assets Supervision and Administration Commission entered the fray last September when it announced it would back state-owned companies in any legal action against foreign banks that had sold them oil derivatives. A backlash against Wall Street is starting to emerge in China, just as it has on Main Street in the U.S. Two weeks ago Morgan Stanley (NYSE:MS), in a similar case against China Haisheng Juice Holdings, realized the cards were stacked against it and agreed to accept just $7 million instead of the $26 million it had been seeking.

The Goldman-Nanshan tussle, together with the Google imbroglio, raises two questions. First, is increased protectionism making it difficult for foreign firms to invest in China? Second, is there a push by the Chinese government to have state-owned enterprises dominate the economy again?

The European Union Chamber of Commerce in China issued a report last September criticizing China for increasing its barriers and protectionism. James McGregor, a former Wall Street Journal China bureau chief who is now a senior counselor for the public relations firm APCO Worldwide, recently wrote in Time that the mood in the foreign business community in China was the worst he had seen in his two decades there.

Is the situation really that bad? Overall, China's economy remains fairly open for most sectors. The government fears that a trade war could collapse the export sector and is going out of its way to be more open. Consider its subdued response to Google, and its statement that it won't let the issue hurt bilateral trade and relations. There are places where the government encourages investment and places where it doesn't. The reality is that you need to know which is which, for foreign firms will continue to be boxed out of certain industries like media that the government considers sensitive and where well-connected elites dominate.

The E.U. Chamber is right that protectionism is an issue to worry about, but it is wrong that protectionism is rising. Making a profit in sensitive businesses like media and energy has always been hard for foreign firms. Protectionism has always been there. What is increasing is the number of foreign firms trying to operate in such protected industries. Government officials become less willing to make concessions as they grow more confident about China's role in the world, and that leaves more and more firms getting frustrated.

I usually don't recommend that foreign firms invest in sectors tightly controlled by the government or by the elite, unless they have the patience to deal with low returns and mind-numbing lengths of red tape for years on end. It just isn't worth it, and there are other markets that are far easier to navigate.

However--and this is where I disagree with the E.U. Chamber and McGregor--in my experience, and that of most companies my firm works with, officials in regions like Guangdong seem to be more welcoming to new investment projects now than ever in the past five years. Until the financial crisis, it was getting increasingly difficult to win approvals for smaller projects that would have gotten a go-ahead a decade ago.

The government is actively pushing for foreign investment in technology and clean tech. Pollution problems are so grave that it actively courts investment from anywhere that can help reduce pollution. Companies like Corning (NYSE:GLW), GE Water & Process Technologies (NYSE:GE) and Bosch are making the most of this by selling chimney scrubbers and products for water treatment and wind energy. (See: "China Is Pulling Ahead On The Environment.")

So worries of increasing protectionism are largely unfounded. But is the dominance of state-owned enterprises starting to return? After all, the government has been pushing for consolidation in the steel, mining and dairy sectors. But that fear, too, is largely exaggerated.

Most of the consolidation by state-owned enterprises so far has been good for consumers. Why? Take mining and dairy. In those industries, too many smaller firms suffer from horrible working conditions and quality control. The government feels it can oversee large operations better than networks of tiny entrepreneurs, and ensure food safety and decent working conditions. Consolidation has been a direct response to quality catastrophes like the melamine in dairy products scandal and an attempt to improve protections for laborers.

My fear is that the financial crisis has slowed the drive for privatization, because state-owned businesses did so much to save China's economy in 2009. They didn't fire people or reduce wages, and that helped increase consumer confidence, especially in third- and fourth-tier cities, where state-owned enterprises play a larger role than in metropolises like Shanghai and Beijing.

There has indeed been a push in some quarters for a return to the dominance of the state-owned sector. That wouldn't be good for China in the long run, despite the sector's 2009 results. Aside from a few enterprises like China Mobile, most are not market-oriented, and too many of their executives jockey for political power instead of focusing on business.

Take for instance the Bank of China. It gets horrible customer satisfaction rates, according to interviews with its current customers conducted by my firm, the China Market Research Group. Two-hour waits to see surly counter staff are the norm. Meanwhile China Merchants Bank, a large private operation, enjoys nearly 90% customer satisfaction with its service.

Goldman's battle with Nanshan in China is serious. If it isn't ended satisfactorily, it could set a bad precedent for Chinese companies that want to hedge their risks in the future. However, fear that China is becoming an increasingly protectionist and dominated by state-owned enterprises is largely unwarranted. There are countless opportunities for growth--if you develop the right strategies and target the right industries.

Disclosure: none

Source: Goldman Sachs' China Problem