In 2010 Google was banned from China for suggesting ways around censorship. Now, Google is reportedly working on a mobile version of its search engine that will comply with strict censorship controls in China. Google’s move serves as a testament to how much the Chinese market is coveted by U.S. corporations. (AP Photo/Andy Wong, File)
Since the late 1990s and into the early years of China’s ascension to the World Trade Organization, U.S. companies loved China. It didn’t matter if they were a big multinational selling to the world like Nike or an old-school corporation like Caterpillar: China was a market no one could ignore. The hope for all involved was that one day they could have greater access to the local market. Instead of being just an export story, or having to partner with a Chinese local, everyone believed that a burgeoning middle class in this hybrid Communist/Capitalist system would be a boon to the bottom line.
Over the years, attitudes towards China’s opening up have changed. But, based on an American Chamber of Commerce (AmCham) survey conducted at the time of the 19th Party Congress and President Trump’s visit last year, companies are largely bullish on China. They are also making money in China. And their biggest concern is that as China starts to modernize, its weak regulatory laws on labor and the environment seems to be the biggest problem for American firms. When China first entered the WTO, it was not put under the same rules as members in the advanced economies, leading to an exodus of manufacturing from Italy to the U.S.
President Trump supposedly has a good relationship with Xi Jinping. If so, then investors should at best expect a stalemate in the ongoing trade war. Tariffs are not coming off anytime soon. Photographer: Andrew Harrer/Bloomberg© 2018 Bloomberg Finance LP
In technology and R&D intensive industries, some 57% blame new, “inconsistent and unclear” regulations as their top business problem. For industrial firms that rises to 60% and in the services sector, it’s as high as 66%.
In 2016, a majority of AmCham survey respondents (55%) said that they were treated unfairly compared to their local competition. In 2017, it fell to 46%.
Whether that is due to warnings from Beijing and Chinese partners that loose lips sink ships is unclear. Most U.S. companies do not want to talk to the press about trade tensions between the two countries. Over the last two years, Chinese president Xi Jinping has cracked down on criticism, which includes silencing mainland critics of the trade war and fund managers painting a less than rosy picture of the economy.
Xi Jinping, China’s president, meets with Trump at the G20 Summit in Buenos Aires Friday and Saturday. Will their be a pause in the trade war? Or will things heat up, as many investors believe. Photographer: Andrey Rudakov/Bloomberg© 2018 Bloomberg Finance LP
See: China Thinks It’s An Emerging Market. It Doesn’t Look Like One — Forbes
American companies seem to feel out of place in China but remain there because it remains the biggest growth story in the world. Just 25% of AmCham members said they felt more welcome this year than last year, which is relatively flag from 2015. A total of 75% said they felt less welcome, though that number has oscillated from 77% to 81% in 2015 and 2016.
All told, 60% of AmCham members say China is a top three investment priority, up from 2016 but down from the 58% who said so in 2012 and 48% in 2013.
Companies selling directly to the Chinese consumer are the most enthusiastic with 76% saying China was a top three investment destination for them, up from 65% in 2016.
One of the biggest obstacles in the China-U.S. trade war is Washington’s insistence on intellectual property rights. The thinking in Washington is that China advanced so quickly in technology due to its joint ventures and tech sharing with the U.S., and outright theft on some occasions. Chinese corporate spies have been charged, for instance, with stealing trade secrets from nuclear industrial player Westinghouse Electric, now owned by a Canadian private equity firm.
Over the last five years, though, 96% of AmCham members say China is improving on IP. And despite Beijing being somewhat of a secret society, 53% of AmCham members said China’s policy development and communication process has become more transparent. Less than 10% said the government has become less communicative about rules changes. China may be more communicative, but that doesn’t mean they are more transparent. A total of 67% say Beijing is still a closed system, hard to interpret.
Xi will meet with Trump at the G20 Summit in Buenos Aires. The two-day summit begins on Friday.
The Apple store in Shanghai on Nov. 27, 2018. Apple, which has lost a fifth of its value in a tech market rout since October, is poised for another setback after U.S. President Donald Trump suggested that 10% tariffs could be placed on mobile phones, like the iPhone, and laptops made in China. Photographer: Qilai Shen/Bloomberg© 2018 Bloomberg Finance LP
If there are no moves towards a ceasefire in tensions between the two, investors will return to their status quo view on the situation — tensions will rise, and tariffs on everything Made in China is more likely than not. The Chinese stock market will get hammered on Monday if this is the outcome this weekend.
Following weeks of Vice President Mike Pence calling out China for everything from civil rights and protectionism, the President seems willing to play the good cop to Pence’s bad cop. Trump will not be joined by China hawks Peter Navarro and John Bolton in Argentina.
“I think China will open up a few industries including finance, pharma, and auto to allow foreign companies to operate in without having to partner with Chinese companies,” thinks Stanley Chao, author of “Selling to China: A Guide for Small and Medium-Sized Businesses” and managing director of All In Consulting in Los Angeles.
Chao thinks China will promise to buy more in Made in the U.S.A. industrial goods for use in China’s aerospace industry, along with pharmaceuticals and perhaps farm commodities that have been hit by retaliatory tariffs.
“China will cut tariffs on key industries such as auto, steel, computer components to appease Trump,” Chao says.
For years, AmCham and its counterpart in Washington, the U.S. China Business Council, have lobbied Congress for a bilateral trade deal with China.
Last year, 36% said they thought relations with China would improve under Trump. Only 16% said they would deteriorate, down from 33% who said so in the last survey published in 2017. Another 78% of AmCham members said that bilateral relations between China and the U.S. were very important, up from 72% in 2016 and 64% in 2015.