China is muscling tech firms—investors need to pay attention

China is flexing its regulators muscles and labeling select technology companies as monopolistic tyrants. And because China makes the rules, technology companies better consider the potential consequences of this new environment. China wants control and one would be wise not to ignore the rumbling of the ruling party; technology companies are under attack by Chinese authorities.

A Microsoft logo is pictured at a electronic store in Shanghai on July 29, 2014.
Johannes Eisele | AFP | Getty Images
A Microsoft logo is pictured at a electronic store in Shanghai on July 29, 2014.

Microsoft already suffers from rampant piracy, but China is now labeling the company as a monopoly that charges excessive prices. It's a unilateral move that is bad news for Microsoft and companies that rely on intellectual property. We have already seen China's stance on Google and the company still has not recovered from the government's focus on Google as a problematic firm seeking to disseminate unwanted information. China targets companies that don't fit with their vision of the future. And with China's recent actions towards targeting technology companies that they perceive to be too powerful, there will likely be a chilling impact on investment in this still emerging global giant.

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Investors need to recognize that if China continues down this path, it will have a real impact on future earnings and the willingness of companies to operate within China. Just think of the number of companies that state their biggest growth market is China. When assessing an investment that is global in nature, it is even more important now to factor in the risk associated with Chinese regulation and governmental declarations.

We sometimes forget China is not a free market and certainly is not a democracy. As the ruling party dictates, so it becomes reality. One only needs to notice the nuclear power plants just outside of major metropolitan areas to recognize that decisions are made by a select few and not by those necessarily impacted by governmental action. And if China decides to build nuclear power plants near metropolitan areas, what would stop them from unilaterally making judgments about business practices of global companies? The answer is nothing and it's important that investors recognize this now evident fact.

There is still tremendous opportunity as the middle class expands in China. Companies like McDonald's, Starbucks, Disney and others are all doing their best to capture opportunity. Technology companies as well such as Apple and Microsoft are focusing efforts on China to tap into the massive demand from Chinese businesses and individuals. But technology companies in particular now need to realize (as well as investors in these companies) that a new variable needs to be considered.

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Recent news from China that regulatory actions are focusing on companies that China deems to be too powerful mean that it might be prudent to ratchet down expectations.

We sometimes forget that emerging markets are, in fact, emerging and that goes for the rules as well. What is emerging now in China is that the playing field is shifting and the economic tectonic plates might lead to a very different landscape for companies seeking to capture profit in this emerging power.

Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor.

Disclosure: The author has no personal ownership of any of the stocks mentioned. DWM invests for clients in Disney, Apple and McDonald's.

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