U.S. firms’ enthusiasm for China cools as political, economic uncertainty deepens
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American companies’ enthusiasm for investing in China has been dampened by a combination of policy uncertainty, an economic slowdown and narrowing profit margins, the head of the U.S.-China Business Council said Friday.
Attacks on Western values and on foreign companies’ business practices this year have also unsettled some U.S. businesses operating in China, while barriers to foreign investment in many sectors of the economy remain substantial, escalating concerns about the extent to which the firms will be allowed to benefit from growth in the world’s second-largest economy.
Cybersecurity has been another significant worry since evidence emerged this year of widespread, and seemingly state-directed, commercial espionage against foreign companies.
In an interview during a visit to the Asian superpower, USCBC President John Frisbie said that the Chinese market is worth roughly $300 billion to American companies and that, while expansion has moderated, the market is “still showing growth when a lot of other markets around the world aren’t.”
“You have market growth here, you have companies that continue to prioritize China in their investment plans,” he said. But he added, “There is more uncertainty about the policy trends, and therefore there is a little more of a tempered optimism than, say, two or three years ago.”
Since Chinese President Xi Jinping took office this year, foreign companies have come under fire for alleged transgressions ranging from price-fixing and poor customer service to corruption and the sale of unsafe food products, with some firms maintaining that they have been unfairly targeted.
“Let’s make sure they are not singling out foreign companies,” Frisbie said. “Let’s make sure whatever is being done is based on the law and on evidence.”
Attacks on Western political values in China’s state-run media also have intensified in recent months in what has been characterized as a political shift to the left. That sits uneasily with government pledges of economic reform, some political observers say.
Frisbie said the USCBC’s annual survey of members, to be released later this month, showed that rising labor costs and slowing growth are putting pressure on margins, though he noted that 90 percent of members reported that their Chinese operations still were profitable.
U.S. exports to China have been growing at a rate of about 5 percent this year, Frisbie said, a dip from the double-digit levels seen after China joined the World Trade Organization in 2011.
Frisbie said he was encouraged by China’s decision this year to reopen negotiations on a bilateral investment treaty with the United States, as well as last month’s announcement that a free-trade zone would be established in the country’s coastal commercial capital, Shanghai, though details of how that zone would operate have not yet been provided.
More generally, he noted that China’s leaders have acknowledged that reforms are needed to reinvigorate the country’s economy after several years of relative inaction on that front.
“Over the last 18 months or so, that reform talk has come back, which is a good thing,” he said. “The question is: What is going to be the scope and pace of the reforms?”
Restrictions on foreign investment in China remain in place in 100 product or sector categories, from cloud computing to automobiles, Frisbie said.
It remains unclear, he said, whether China will embark on a period of “reform and opening up,” as it did under Deng Xiaoping, or whether reforms will be undertaken without any further opening up of market access to foreign companies. On that question, he said, the signals have been mixed.
“Foreign investment barriers in China are market access barriers, because U.S. companies tend to invest here to reach the domestic market,” he said. “It’s really all about: Can American companies access the growth [in China] in a way that is fair and equitable?” ..................................................................................................................................
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