Making the most of China's future
  ·  2022-03-06  ·   Source: NO.10 MARCH 10, 2022
Attendees pose for a group photo during a roundtable on the development of multinational corporations in China, hosted by the Center for China and Globalization in Beijing on February 24 (COURTESY PHOTO)

The Center for China and Globalization released Transition and Opportunity: Strategies from Business Leaders on Making the Most of China's Future on February 24. At a roundtable inside the center's Beijing headquarters, various contributors to the book, all leaders of trade groups and multinational corporations (MNCs) in China, as well as a select group of prominent corporate executives and stakeholders, explored issues concerning the role of MNCs in China's economic transition as well as the business environment and operational realities in the country. Edited excerpts of some statements follow: 

Craig Allen 

President of the U.S.-China Business Council 

Trade with China benefits the U.S. and particularly supports American jobs. There's a common misconception that U.S. companies' expansion of trade and investment in China has led to fewer American jobs. Many in the U.S., including some lawmakers, believe this to be true. In reality, cultivating a strong trade relationship with China has actually boosted the American economy and employment in the most recent year of full data available to us.

U.S. exports to China alone supported nearly 1 million American jobs directly. Indirectly, this number is probably about 3 or 4 million. For U.S.-China Business Council (USCBC) members, 95 percent report profitability for their investments in China, which means more dividends repaid to shareholders in the U.S. and greater cash flow and capital to reinvest in businesses, including research and development functions within the U.S.

China is one of the world's most competitive and dynamic markets. If an American company cannot be a leader in China, they cannot be one in the world. All of that strengthens U.S. companies and makes us more competitive on the global level.

With this in mind, let's take a look at how the trade war impacted American jobs. Multiple studies and anecdotal evidence confirm that Americans paid the price for additional tariffs on imported Chinese products. A report commissioned by the USCBC showed that 245,000 American jobs were lost at its height. We must be honest about the consequences of the tariff hikes and escalating tensions between the U.S. and China.

For the transitions in the Sino-American relationship, my first recommendation is both sides should reestablish a formal mechanism to discuss macroeconomic and trade issues, to better understand the other's priorities, concerns and decisions. Talking is better than silence.

Second, the U.S. and China should both move to lower, or completely eliminate, tariffs. Our research shows that reducing average tariff rates to 12 percent could create up to 145,000 American jobs. Their full removal would create even more. Yet it would prove difficult for President Joe Biden to cut tariffs amid an election year without some type of corresponding move on the Chinese side.

Third, both governments should send clear signals that trade and investment activities that do not impact national security are welcome and encouraged by both governments. An overemphasis on national security and an expansion of its definitions will have a chilling effect on the very positive parts of the bilateral relationship. The vast majority of interactions between both sides are mutually beneficial in promoting prosperity, innovation and human progress.

Jörg Wuttke 

President of the EU Chamber of Commerce in China, Vice President and Chief Representative of BASF China 

In recent years, China has continuously opened up its economy. And we saw some initial results.

A massive BASF plant worth $10 billion is currently under construction in the southern province of Guangdong. It is the first wholly foreign-funded project in China's heavy chemical industry, marking a big leap forward.

However, from the overall viewpoint, the results have lagged far behind the promises. The country will only be able to unleash the full potential of its market by increasing foreign investment, which in turn will strengthen competition. 

China has become the EU's largest trading partner and has benefited greatly from the European market. Chinese exports to the bloc have increased rapidly year on year, much faster than the other way around. Consequently, trade is something we definitely must improve on.

The commencement of BASF (Guangdong) Verbund Site Project in Zhanjiang, Guangdong Province, on November 23, 2019 (XINHUA)

Vaughn Barber 

Global Chair, KPMG's Global China Practice 

For MNCs, a bigger challenge is not the lack of opportunities China has to offer, but rather the surge in misunderstandings and negative sentiments toward the country on the part of many and the impact that's having on attitudes and decision-making courtesy of governments and companies alike. The ongoing pandemic-related travel restrictions are indeed exacerbating that phenomenon. Therefore, I believe the resumption of business travel to and from China will be an important step to help bridge the information gap between head office decision-makers and other important stakeholders, including politicians and academics. 

Last April, Australian Financial Review published an article, saying that foreign capital is pouring into China at record rates, ignoring geopolitical tensions in their search for yield. Today, I hope to elaborate on why I think China will continue to present opportunities.

First, MNCs cannot be leaders without being successful in China. And that phenomenon is only going to continue as China continues to grow.

Second, MNCs need to participate in advanced development in China to stay competitive both in China as well as in other markets around the world, with the country offering scale cost and speed advantages for developing and commercializing new technologies and business models to be successful. As we all know, MNCs need to be agile and innovate at China speed.

Third, foreign investment will continue to play an important role with opportunities relating to industry, upgrading the supply of advanced technologies, satisfying the demand of Chinese consumers and supporting China's transition to an innovation-intensive consumer-led economy.

Fourth, the policies already enacted by the Chinese Government, and those it will endorse in the foreseeable future, aim to catalyze foreign investment in those sectors and geographies most in need and encourage the further localization of value chains.

Last but not least, China is making efforts to reduce the cost of cross-border trade through free trade agreements as well as actions promoting high-quality cooperation under the framework of the Belt and Road Initiative. Their combination increases the appeal of using China as a bridge—headquarters, even—via which to expand to and invest in markets across Asia.

Copyedited by Elsbeth van Paridon 

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