Productive commercial relations continue to need USCBC’s leadership.

There is no doubt that the US-China commercial relationship has progressed since the US-China Business Council (USCBC)—then called the National Council for US-China Trade—opened its doors 40 years ago. In 1973, the United States was six years away from reestablishing diplomatic ties with the People’s Republic of China, and China was more than 20 years away from joining the World Trade Organization.

Today, China is the United States’ second-largest trading partner and third-largest export market. Between 2000 and 2011, exports to China have risen every year except one, expanding 542 percent. US exports to the rest of the world grew by just 80 percent during the same time period. In 2011, the US exported more than $100 billion of goods to China. At the same time, China’s export-led growth has lifted millions out of poverty and has created a rapidly expanding and vibrant middle class.

The United States has a large bilateral trade deficit with China, largely because our imports from other Asian suppliers have been consolidated on the mainland over the past decade. Unlike those other Asian economies, however, China offers market growth for American companies, with a middle class expected to grow from 200 million people in 2011 to 575 million by 2020.

The next 40 years will only bring more investment and trade between the world’s two largest economies, but more work needs to be done to ensure this commercial relationship benefits everyone.

Investment can be an engine of growth, but it is an area that needs attention. Chinese investment in the United States hit a record by the third quarter of 2012, with $6.3 billion in foreign direct investment projects in the United States. But Chinese investment in Europe is higher than in the United States, even in the midst of an ongoing economic crisis in Europe.

US investment in China stands at nearly $68 billion 30 years after China’s reform and opening period, according to China’s Ministry of Commerce. While two-thirds of respondents to USCBC’s 2012 China business environment survey said they plan to increase investment in China over the next 12 months, half of the 17 percent that had halted or delayed planned investments did so because of market access and investment barriers. US investment in China actually declined by roughly 26 percent from 2010 to 2011, and although it has rebounded by 5 percent from January to October 2012, investment still remains below 2010 levels.

The US and Chinese governments will need to embrace investment in each other’s countries by pledging openness to foreign investment and taking steps to create a level-playing field for US companies, develop commercial ties, and bring even more benefits to each country’s economy.

In China, the government needs to continue reducing foreign investment barriers, including foreign ownership restrictions in nearly 100 manufacturing and services sector categories. China wants to become a global financial center, but this goal will be much more difficult to accomplish without reducing investment barriers for foreign financial services companies.

In fact, investment issues will move to the forefront of the bilateral agenda in the coming years. Chinese companies want to invest more in the United States. Most have done so successfully; some have encountered political or national security headwinds that feed perceptions in China that they are not welcome in the United States. Uncertainty inhibits investment, and more work needs to be done to better inform Chinese investors about navigating the US environment. At the same time, a bilateral investment treaty, if it addressed ownership barriers in China, could also provide a boost to the relationship and provide needed additional protections to US and Chinese investors in both markets.

China must continue to strengthen intellectual property rights enforcement to develop an innovative economy. This issue is also critical for encouraging more US companies to do business in China.

The Chinese government should also work to improve its innovation policies. Removing domestic intellectual property ownership requirements and implementing non-discriminatory tax incentives and other programs would better align China with international best practices. Innovation needs global collaboration, not walls.

US policymakers have plenty of work to do to advance the trade relationship as well. The United States can help American businesses by increasing the Export-Import Bank’s support for exports to China, especially exports from small and medium enterprises. The US share of Chinese imports has fallen to 7 percent from 10 percent in 2000, and efforts should be made to boost our share of the pie. Working with China to adopt reciprocal, five-year, multiple-entry visas for business travelers would make it easier to build customer relationships. The US government should also accelerate sensible reforms of US export controls, regulations that limit what items US companies can sell to China, to eliminate unnecessary licensing controls on products that are no longer a threat to US security. Such reforms will boost US exports and help support and create jobs.

Only time will tell what’s to come in US-China relations, but both countries can do their part to ensure that their economies, citizens, workers, and businesses benefit from a strong commercial relationship. Political transitions provide an opportunity in 2013 to develop a new long term economic liberalization framework that would comprehensively address opportunities and challenges in the relationship, rather than approach them incrementally.

Twenty-five years ago I worked at USCBC in a more junior role. I used to half-jokingly say to my colleagues that our goal should be our own demise—that business with China would become so normalized that USCBC would no longer be needed. That is still the goal, but I see a vital role for USCBC in the years and, perhaps, decades ahead. With the China market only growing in importance, the need for business-focused information, analysis, best practices sharing, and advocacy to both the Chinese and US governments is more necessary today than ever before.

[author] John Frisbie is president of the US-China Business Council. [/author]

Posted by US-China

The China Business Review (CBR), published since 1974 by the US-China Business Council, and online since 1997, is the leading voice on commercial relations with China.