A roadshow's memo to US companies: China is still open for business

Jessica Stone

China is going straight to corporate America to improve its commercial relations.

Former government officials and others working in a semi-official capacity have started lobbying US companies " including the pharmaceutical giant Merck and the engineering multinational Emerson " with the most recent information on what policies Beijing is changing, and what they mean.

Beijing's two-year effort to reach a trade agreement with Washington, only to sign a phase-one deal on January 15 that sidestepped the most challenging obstacles, makes it clear that China's government needs a new approach. Traditional channels have either been reined in because of caution during trade negotiations or politicised past the point of usefulness.

"There must be an information channel that's current and reliable," said John Tang of the Beijing DHH Law Firm.

Thus, Tang is organising a series of sessions in major American cities, intended to reach US companies doing business in China or considering it. "We're getting either retired Chinese officials or people that were involved in policymaking in China," he said.

For example, China's new foreign investment law went into effect on January 1. "These people were involved in the drafting, editing and the idea and concept behind what China is trying to achieve with these new laws," he said.

He has already held the first of these roadshows in Washington, and is focusing next on New York, Chicago and San Francisco. He said other Chinese business-related groups would make similar presentations as well.

As the Trump administration have ratcheted up tariffs on China, hawkish voices in Washington have grown louder. Congress has clamped down with legislation imposing sanctions on mainland and Hong Kong officials responsible for human rights abuses and overwhelmingly passing a measure denouncing the mass detention of as many as one million Uygurs and other ethnic Muslims in Xinjiang.

Even Beijing's traditional allies, such as the US Chamber of Commerce, have questioned China's failure to fulfil promises to further open its markets to foreign investment and to lower barriers to entry.

According to the China Dashboard, a gauge of Beijing's economic reforms compiled by the Asia Society and the Rhodium Group consultancy, state-owned enterprise reforms "did not advance despite superficial policy developments" in 2019, and foreign acquisitions declined, "indicating weakening foreign appetite for longer-term investments in China".

At the same time, Beijing's usual avenues of influence, like the China Council for Promotion of International Trade and other Chinese trade groups, have pulled back their outreach in the US, not wishing to influence the trade negotiations. Some American business groups have also become more reluctant to speak too frequently.

Tang said it was precisely "because those channels are becoming more political" that sessions like his were needed.

He said that Beijing's prominent trade associations were sponsoring his effort, which he has titled "Recent Updates in Chinese Policy for Foreign Companies " In Response to US-China Trade Issues".

As researchers wrote in the International Journal of Business and Management in 2017, China's government "endows trade associations with the tasks of undertaking the government transformation change".

In addition, this channel between China and US businesses supplements a social media offensive: increasingly, Beijing has allowed its foreign-based diplomats and academics to maintain Twitter accounts to defend Chinese practices and to promote support of Beijing's policy objectives.

"China as a whole is starting to see that they need to be more vocal and make their point of view heard," said Tang. "It's not necessarily coordinated but definitely directed."

Tang kicked off his first roadshow session in Washington back in October, with Xu Mingqi, a Shanghai Academy of Social Sciences economics professor and government adviser, giving the initial presentation.

A small group of business executives and trade lawyers sat around a long rectangular table, including representatives from the National Manufacturers' Association and other supply chain and components producers.

Xu, who helped to create the Shanghai Pilot Free Trade Zone, described how Beijing used it as a testing ground for what resulted in the new foreign investment law.

He also previewed other reforms to be tested in the zone, including the opening of additional service sectors to foreign investment; the reduction of time it takes to set up a new business; and the removal of some government controls on borrowing by companies in the zone.

Xu noted that China had improved its standing in the World Bank's "Doing Business" rating " a gauge of the ease of business activity in 190 countries " from 78th in 2016 to 31st in 2019. Still, he acknowledged, some sectors face heavy regulatory burdens, such as health care under the Public Health Ministry.

International trade lawyer Gaston Fernandez also gave a detailed presentation on China's reforms in the financial services and insurance sectors. He said they would enable foreign companies to compete more fairly with domestic ones.

"In addition, a series of new measures published by the China Securities Regulatory Commission (CSRC) accelerate the timetable for full liberalisation of other avenues of financial and insurance services, allowing foreign investors to tap into multiple multitrillion-dollar markets and compete with their domestic counterparts on a more level playing field," he said.

Sara Gibber, chief finance officer at Make It Real, a small maker of toys and beauty products for young girls, is currently trying to set up operations in China. She said she appreciated an opportunity to learn more about the business environment there.

"We are constantly being told of the red tape and challenges for companies like ours that are looking to conduct business in China, so it was very refreshing to see during the presentation the proactive efforts that are being made to help us facilitate investments in our China operations," she said.

Tesla chief executive Elon Musk at the January 7 delivery ceremony for the first batch of Model 3 sedans made at Tesla's manufacturing plant in Shanghai. Overall, though, US corporate investments in China have fallen off sharply. Photo: EPA-EFE alt=Tesla chief executive Elon Musk at the January 7 delivery ceremony for the first batch of Model 3 sedans made at Tesla's manufacturing plant in Shanghai. Overall, though, US corporate investments in China have fallen off sharply. Photo: EPA-EFE

Scott Williams, co-founder of the US China Investment Council and a former vice-president of the American Chamber of Commerce in Shanghai, said he learned new information on the progress China has made to reduce its negative list of controlled imports as well as significant steps Beijing has taken to open its insurance, entertainment and financial services markets to foreign investment.

"It's very clear there is gradual change," he said.

Merck and Emerson, which both had executives in attendance, declined to comment.

But will this approach provide the counterbalance Beijing needs to stave off cases of commercial cold feet from US companies during this time of increased tensions?

Already, according to the US Bureau of Economic Analysis, net US foreign direct investment (FDI) flows to China fell 23 per cent from 2017 to 2018. More recently, a survey by the US-China Business Council found that only 20 per cent of its member companies were "optimistic about their prospects in China five years from now" " the lowest level since the survey began.

Additionally, a report from the Rhodium Group and the National Committee on US-China Relations estimates that after a peak of US$17.4 billion in cross-border venture capital investment in 2018, "US venture investment dropped to less that US$4 billion in 2019".

Scott Kennedy, a China expert at the Centre for Strategic International Studies, said it was unclear that the root of Western business concern over Chinese market access is based only on a lack of information.

"It may just be that there's a difference of opinion between Americans companies and what Beijing would like everyone to believe," he said. "I don't think that Chinese-based organisations can appear entirely neutral unless they recognise that the situation is really complex."

Brandon Hughes, founder and chief executive of FAO Global, a consulting firm which operates in China, cautioned that attendees of sessions like these should remain sceptical.

"The best way to gauge how Chinese law has improved the business environment is to watch how US-based multinational companies are being impacted in terms of their ease of doing business," he said.

Bill Black, president of the Greater Washington China Investment Centre, suggested that the timing for such sessions was off.

"In the US, candidates for president are incentivised to bash China," he said. "To the degree that there is a desire on either side to increase commercial relations, the path has to be in industry and locations which are off the political radar. So any industry that has any connection to national security or technology would be one you would want to avoid."

Tang countered that an election year is the perfect time to launch his effort.

"I believe we're actually a good fit to do this, because we're not political. We're not afraid of ... Trump or the Chinese government. We're just trying to get business done," he said.

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