Dr. Kenneth Lieberthal, Former Special Assistant to the President, National Security Council, Professor, Political Science and Ross School of Business University of Michigan gave a lecture in Shanghai on 01 March 2006 on AMERICAN PERSPECTIVES ON THE PEACEFUL DEVELOPMENT OF CHINA.

Key Questions that will impact the relationship:
1.        Will the US cite China as a currency manipulator in the upcoming WTO statements?  There is a good possibility that it will because of the huge pressure in the US.
2.        Will congress gain the right to do final review of all US assets deals?
3.        Will additional barriers be raised for China exports to US – penalty duties, etc?
4.        Will the US lodge a formal WTO complaint about currency manipulation?
Initiatives that can be taken on strategic factors to improve relationship:
These will be uncomfortable for both sides.
·          Fundamental domestic economic structure in each country – set up a structure to discuss the issues of differences and find strategic solutions for each.
·          Energy – it is silly for the G8 to discuss energy issues without China.  China is, in reality, a major power and not a developing nation.  All may be reluctant to do this and China especially since it would lose some position as a “developing nation” if it is able to join the G8.  China should join IEA and be allowed to participate.  Should begin a process for developing NE Asia Energy security strategy.
·          US should work countries in the region to find ways to participate more in the Asia Forums instead of being left out and worrying that China is replacing them in the region.
In summary Dr. Lieberthal concluded:
1.        Speed, Scale and Momentum of China’s development is a worry to the US.
2.        US-China relationship is mature, but very complex.
3.        China’s enhanced role gives possibility for it to participate in solutions.
4.        I’m cautiously optimistic!
 

Despite ongoing bilateral trade disputes, U. S. companies in China are profitable according to an American Chamber of Commerce survey released Feb. 16.

About three-quarters of companies surveyed were making a profit. The companies are gaining more access to domestic markets and are finding it easier to set up wholly foreign-owned enterprises, according to the survey of half of the chamber’s 900 member companies. Sixty percent of the companies surveyed last year said they had a wholly foreign-owned enterprise in China, compared with just 33% in 1999, reflecting loosening restrictions that required firms to have joint ventures, according to the survey.

By Cindy Sui, Agence France-Presse

American companies in China are prospering as they gain more access to domestic markets despite the ongoing trade frictions between the two countries, according to an American Chamber of Commerce (AmCham) survey released yesterday.

China’s increasing market growth and improved regulatory environment have contributed to more AmCham-member companies producing for the domestic market and trying to become wholly foreign-owned enterprises (WFOEs), said the report, which is based on seven years of annual AmCham polls in China.

About 38 per cent of respondents in 2000 cited market access restrictions as a top-three barrier to profitability, while 66 per cent reported negative effects from business scope restrictions.

However, from 2002 to 2005, two-thirds of the respondents were successful in expanding products and services offered in China.

“Market access, while it still is a challenge, has become much easier,” Teresa Woodland, co-chair of AmCham’s public policy development committee, said at a news briefing to release the report.

She said the issue had dropped off the list of the companies’ top-10 challenges of doing business in China.

Members were also increasingly more likely to have WFOEs, with 60 per cent reporting to have one in 2005, versus 33 per cent in 1999. Conversely, the percentage of AmCham members with joint ventures dropped to 27 per cent in 2005, versus 78 per cent six years prior.

“That really exemplifies how things have changed here. Companies really do have a lot more options,” Woodland said.

According to the survey, companies in recent years have also been able to introduce more products and services to the Chinese market.

About 83 per cent of respondents in 2005, versus 60 per cent in 1999, listed producing goods and services in China for the local market among their top three reasons for entering China.

For the last three years, three-quarters of companies surveyed were making a profit, more than in previous years, according to the survey.

However, competition-based issues have been the top challenge faced by AmCham members in China. This trend is putting pressure on profit margins.

In 2005, 70 per cent of respondents reported increased competition from both foreign and local companies.

On Tuesday, the US Trade Representative Office (USTR) released its first top-to-bottom review of Sino-US trade in five years.

The review has positive comments on trade growth between the two countries in the past five years, but Washington also blamed China for its large trade deficit.

AmCham-China President Charles Martin said the chamber mostly agrees with the report’s conclusions, noting US-China commercial relations are quite robust.

As illustrated in the chamber’s report, China is opening its markets while US firms as well as the US and China economies are benefiting, he said.

The US figures released last week showed the US trade deficit with China had risen 24.5 per cent last year to US$201.6 billion. China reported that its surplus with the United States last year was US$114.2 billion because of different statistical standards.

The USTR report said it would take a tougher stance and set up a taskforce to ensure China abides by trade laws.

In terms of boosting US business in China, however, the US “must move to a much higher level of trade promotion on behalf of small- and medium-sized companies,?Martin said.

Federal and state governments and industry and trade associations need to open offices in China to promote their products, he said.

“There is a large communication gap at present. China’s marketplace is hungry, but our SMEs need help to feed it,?he said. “US efforts are modest compared to those of the EU and inadequate given the opportunities available.?

Martin suggested using the WTO’s dispute resolution process only as a last resort.

“That process is lengthy and difficult and should be used only when other efforts have failed,?he said.

He noted that bilateral negotiations, such as those used to solve last year’s textile dispute, were fast and mutually beneficial.

Even so, Martin said important problems remain in areas such as IPR enforcement and transparency. “Much more needs to be done in these areas,?he said. “They require commitments of substantial Chinese resources.?

Source: China Daily

The US government reported that the US trade deficit with China hit USD 202 billion last year, the largest ever with a single country and a 25 percent increase from the 2004 deficit. There were about USD 243 billion exports from China to the US and only about USD 41 billion imports into China from the US. The deficit with Japan was about USD 82 billion, with Canada USD 76 billion and with Mexico USD 50 billion. The total US trade deficit for 2005 was USD 726 billion, highest on record.

China put its surplus with the United States last year at USD 114.2 billion, largely because it does not count exports shipped through Hong Kong as originating in China, which Washington does. Chinese officials said that it is multinationals, not Chinese firms, who accounted for most of China’s trade surplus. Officials said that 83 percent of China’s trade surplus in 2005 came from foreign companies in China. Officials were using Chinese trade statistics, which differ from U.S. ones.

This large deficit with China will focus additional political pressure to “do something about China.” It brings renewed complaints that China’s currency is undervalued – some say by as much as 40%. There is the refrain that China is “stealing US jobs.” There are several bills proposed in the House and the Senate that would place additional trade barriers in the US for China goods.

We expect US-China relations to be both up and down this year. The focus on China about economic issues and continuing problems with Intellectual Property (IP) issues will also raise the old questions of freedom of the press and internet access, financial market access, as well as some issues about political dissidents which is getting more press in Washington.

US-China trade tensions could backfire for U.S. firms, just when sectors like retailing, distribution and financial services are beginning to open according to the President of The American Chamber of Commerce-China. “That’s the real tragedy of escalating trade tensions between the two countries, because you don’t want to cut off your own opportunities just as you’re getting started,” he said. He said he thought that U.S. federal and state governments, as well as trade associations, should put considerably more resources into helping their country’s small and medium sized firms export more goods and services to China. “Unless this is forthcoming, I don’t think we’ll be very successful.”

Regardless of the ups and downs of US-China relations, China will continue to grow as domestic consumption increases and trade with Europe and Asia continues to expand. As the economy continues to expand – expected to be 8 to 9% growth again this year – China remains an opportunity for business.

Edward (DE Global) from various sources