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DOING BUSINESS IN CHINA

U.S. Businesses Not Betting on Market-Access Breakthroughs During Trump Visit

By Doug Young

Where’s the beef?

U.S. cattle farmers were given the pleasantly surprising answer to that question during the first meeting between U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, back in May, as Beijing finally lifted a 13-year-old ban on American beef imports in a move that many felt was long overdue. Now as Trump makes his own inaugural trip to the Middle Kingdom to meet on Xi’s home turf, the need for more such reciprocity seems to be one of the key calls coming from the American business community here in China.

The need for greater transparency and more-level playing fields are other messages American businesses want Trump to stress during his brief visit to Beijing this week. William Zarit, chairman of the Beijing-based American Chamber of Commerce in China, said its members expect many of the usual big agreements and deals to come out of Trump’s upcoming visit, in line with other similar meetings where China likes to show off such high-profile signs of cooperation and goodwill.

One of those was in the headlines in the run-up to the trip, with announcement of a reciprocal deal that would allow each country to accept the other’s certification for new aircraft. But those on the ground said such reciprocity is still far too lacking in many areas, and that what’s needed are major structural changes in the way China permits foreign investment through the signing of a long-stalled bilateral investment treaty.

Many of us here in China know that sometimes it does feel as if the country’s tag line could be “Where’s the beef?” due to its obsession with superficial appearances that often lack the necessary substance to make them meaningful. A great example is a World Trade Organization ruling that came back in 2012, saying China was unfairly locking global electronic money-transfer giants like Visa and Mastercard out of its huge market.

Beijing acknowledged the ruling, and said it would take steps to rectify the situation. Fast-forward to the present, more than five years later, when Beijing has yet to let in a single major foreign player, even as China’s own UnionPay recently boasted its own network is now available at nearly all U.S. ATMs and at 80% of U.S. stores that accept credit cards. With that kind of one-way access, it’s no wonder the U.S. companies here in China are constantly complaining about lack of market reciprocity.

At the same time, many American businesses acknowledge that China is decades behind them in terms of its corporate development, and realize it wants to play catch-up by creating its own giants that can play with big multinationals like Microsoft and Unilever not only at home but also on the global stage. The big question, of course, is how long China should get to play catch-up before it’s time to open the gates and let the contender enter the city.

None of this is really that new, but some were hoping they might see some changes under Trump’s “America First” mantra, which promised to get tough on partners that had big trade imbalances with the U.S. The big theme that came out of my survey on sentiment among U.S. companies here in China was that not much has changed for them in Trump’s first 10 months in office. But that said, there are a few subtle changes worth noting, which could point to some positive changes if Trump really decides to play hardball as he has promised.

Cautious Optimism

From a purely psychological standpoint, American businesses were cautiously optimistic about the Trump visit, according to Kenneth Jarrett, president of AmCham Shanghai and a longtime China hand. He told me that “any presidential visit to China presents an opportunity for progress and this one is no exception.” But he was also quick to add that no one is expecting any major breakthroughs.

Jarrett said the local American business community is also encouraged by Trump’s signals that he will take a “tougher approach” on China trade issues, as we saw when he formally launched an investigation into the country’s trade practices back in August. Some were distressed at first that he was perhaps rocking the boat a bit too much in one of the world’s most important trade relationships.

But as with many things that Trump does, initial consternation seems to be evolving into quiet support from those who think that China has received an easy ride from the West for long enough. Now it needs to be admitted to the club of countries that no longer require the extra support given to developing nations — or at least that’s how that train of thinking goes.

Personally speaking, I would tend to agree with that view to some extent, since China certainly has some private sector corporate giants like Tencent and Huawei that can and do compete quite well on the global stage. But then there are still the many basket cases, otherwise known as state-run enterprises, which still dominate traditional industries like banking and energy and will probably never make the grade. If the U.S. companies have to wait for these bureaucratic behemoths to reform to gain equal market access, they could well be waiting for the next century.

At the end of the day, China needs to take a more structural approach to foreign investment instead of the patchwork one it has used during most of the reform era, said another one of my well-placed contacts. The most obvious place that could come is from a series of bilateral investment treaties that have been in negotiations for years but never seem to result in actual agreements. He added that many of the issues are directly related to the state-owned enterprise complex, the result of China’s socialist past where companies were owned by the state and distinctions between the two were nonexistent. “Companies can’t compete against countries, but that is increasingly what we see happening,” he said.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com.

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