Private business sectors in China and US remain optimistic

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The China General Chamber of Commerce-USA (CGCC) released its annual survey on Chinese enterprises in the U.S. on August 10, showing a bullish trend despite challenges on various fronts. Sixty percent of those surveyed stated that they were committed to the U.S. market, where their investments remained the same. 

Another survey released on August 11 by the U.S.-China Business Council (USCBC), representing U.S. businesses in China, showed similar findings. Although negatively affected by the novel coronavirus disease (COVID-19) pandemic and trade tensions, 83 percent of U.S. companies saw China as either the top or among the top five priorities of their companies’ global strategy. 

“The parallels are quite fascinating,” said Craig Allen, president of USCBC at a webinar hosted by CGCC on August 12. “Our survey reflects very closely that American companies in China look at the world very similarly to Chinese companies in America.” 

These surveys gauged the market environment for foreign businesses in the world’s two largest economies at a time when external pressure is being further compounded. At a historic low in China-U.S. relations, looming with calls for economic decoupling, the overall positive results gave voice to private sector leaders, clarified much of the misinformation currently swamping the Internet and injected confidence into the business environment.

Still committed

Over two thirds of Chinese enterprises surveyed by CGCC remained optimistic and expected U.S. investment and business environment to remain the same or improve over the next two years and over 90 percent of them expect their investments in the U.S. will either remain the same or increase over the next year.

Mirroring this buoyant outlook, USCBC found that 87 percent of U.S. companies reported no plans to shift production out of China, given consistent profits and long-term confidence in the China market.

In concrete terms, CGCC members had invested over $123 billion in the U.S. economy as of 2019, building factories, setting up new businesses and employing an estimated 220,000 people.

U.S. companies also poured money into the Chinese market, as the foreign direct investment from the U.S. to China rose 6 percent in the first six months of 2020 over the same period of last year in U.S. dollar terms, according to the Chinese Ministry of Commerce.

According to the surveys, both the Chinese and U.S. sides supported the implementation of the phase-one trade deal signed in January, which agreed to halting further tariff increases between the sides and China buying more agricultural products from the U.S. Yet tariffs remained on $370 billion worth of Chinese goods and more than $110 billion worth of U.S. goods as of the beginning of August.

Pin Ni, president of Wanxiang America, a U.S. subsidiary of China’s largest auto parts company Wanxiang Group, said at the webinar that moving its supply chain out of China is not an easy or ultimate solution to the tariff problem.

Ni said he had proposed the idea of shifting the company’s supply chain to Southeast Asia after billions of dollars’ worth of Chinese auto parts were included in the latest tariffs imposed by the U.S. But his clients rejected the idea.”Tariffs are a short-term issue. We cannot build a new factory elsewhere from scratch based on geopolitical issues,” Ni said. “If we go to Thailand or another country, realistically speaking, our industry costs are going to be much higher,” despite saving a small fraction on tariffs.

“Products from China, with their supply chain capability, are still the most competitive,” he added.

Uncertain times

Although long-term confidence in both markets buffered much of the negative effects of the current climate, Chinese companies in the U.S. and U.S. companies in China shared the same concerns, from China-U.S. relations and tariffs to the COVID-19 economic slowdown.

Complex China-U.S. relations topped the list of the biggest challenges in both surveys. The uncertainties, deeply rooted in bilateral trade frictions, further weighed down by the pandemic, were shown to be the strongest headwind for companies going forward.

Over 50 percent of the companies CGCC surveyed claimed that the anti-China rhetoric and the tension between the two countries during the pandemic have adversely affected their operations.

“Our members are increasingly preoccupied by the political brinksmanship that is distracting us from serving our customers and creating jobs,” said Xu Tan, president of China Telecom Americas and acting chairman of CGCC-Washington, D.C.

U.S. counterparts, meanwhile, indicated that the most pervasive impact of bilateral trade tensions that U.S. companies faced was a loss in sales due to the uncertainty about continued supply as recent U.S. policies restricted the sales of certain products and services to some Chinese companies.

Bilateral trade relations are critical at this point as both countries navigate their own paths out of the COVID-19 economic downturn. “A fresh round of tariffs would derail the fragile global recovery and impose additional costs on the people in both countries as unemployment skyrockets and savings are drained,” said Abby Li, Director of Research and Analysis at CGCC.

The U.S. unemployment rate surged to a record high of 14.7 percent in April, dropping to a still high 10.2 percent in July, after many economic activities were resumed even though the coronavirus is not under control. China, on its way to a rebounding economy after containing COVID-19, also faced downward pressure from sagging retail sales and several floods.

The path forward

The future of Chinese companies in the U.S. and U.S. companies in China is subject to many factors, including the pandemic, China-U.S. relations and the upcoming U.S. general election.

Allen stressed that joint efforts to prevent the further spread of COVID-19 and address the devastated global economy are the first step to restoring mutual trust between the two countries. “Both countries are WTO (World Trade Organization) members and both countries could do a better job at meeting their WTO commitments,” he said.

William Zarit, chairman of the American Chamber of Commerce in China, said at the webinar that the next U.S. administration, regardless of which political party wins, must find “a mechanism to mitigate tensions” between the two countries to “strengthen the bonds but not drive a wedge.”

However, on August 6, U.S. President Donald Trump signed an executive order that gave TikTok’s Chinese parent company, ByteDance, 90 days to sell its U.S. operation or face being banned, citing national security concerns against the short video app.

After the move against TikTok, popular among millennials for its lip syncing and quirky dance videos, the Trump administration threatened to ban WeChat, a far more essential app for daily communication among the overseas Chinese communities that is used for everything from video calls, texting and transactions.

Zarit characterized the recent government actions as “unexpected and politically motivated, which might continue up until the U.S. election in November.

“Not everything is a national security emergency and we should be careful on both sides not to use national security as an excuse for taking protectionist actions,” Allen warned.

Although private sector leaders remain optimistic about the path forward, it is the policymakers who will set the tone of bilateral trade and investment. “If you want a constructive result, then you cannot use a destructive approach,” Ni said. “It’s really the policymakers that have to make a determination.”

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