Letter from the President
Welcome Aboard! But Keep Seat Belt Securely Fastened
by Robert A Kapp
President, The US-China Business Council
The China Business Review (CBR)—which "impartial observers" like me consider hands-down to be the best publication for businesspeople and interested laypersons seeking to stay current on trade and investment with China—has scored a breakthrough. For the first time, in 2004, the CBR is reaching thousands of air travelers on key routes connecting the United States and China. We welcome to the CBR family our new readers moving in and out of China on two great US carriers: United Airlines and Northwest Airlines. They join travelers flying to China on selected Cathay Pacific and Malaysia Airlines routes. We are thrilled to have you and hope that you will want to make the China Business Review a part of your regular reading whether you're in the air or in the office.
That the China Business Review is taking to the air so vigorously is just one of many signs of how robust US-China business relations now are. Two-way trade in 2003 reached $191 billion, with American exports to China up more than 28 percent over 2002 (which registered a 15 percent increase over the same period in 2001). China's massive exports to the United States continued to advance, rising 22.3 percent last year over 2002, leaving the PRC merchandise trade surplus with the United States (by American counting methods) at $135 billion. (Veterans know that US and Chinese counting methods differ, with the United States over-counting Chinese exports to the United States and China under-assessing them.) By China's numbers, total PRC trade in 2003 rose more than 37 percent year on year, even as China's global merchandise trade surplus dropped by 16 percent, to $25.5 billion.
The sizzle in US-China trade arises most importantly from China's high growth rate in 2003, and it is not clear whether such rapid expansion can, or should, continue. But the 2003 trade numbers bear out an observation that we made during the struggle to pass Permanent Normal Trade Relations (PNTR) legislation in the US Congress four years ago: whether the Chinese economy grows at 10 percent a year or shrinks at 10 percent a year is likely to have a greater impact on US exports to the PRC than just about anything found in China's World Trade Organization (WTO) commitments. Meanwhile, PRC exports to China's largest overseas market—the United States—reflect not only China's growing abilities to satisfy US market demands but also the apparent resumption of strong overall economic growth in the States after a long stretch in the doldrums.
Among its member companies, the US-China Business Council finds optimism and the intention to grow. Indeed, the Council itself is growing, as companies of all sizes and from many US regions turn to China with a new intensity of interest. One small indicator of this interest is the number of sectoral trade associations now approaching the US-China Business Council for advice or for speaking appearances by top Council staff; we're meeting people in sectors that formerly had little time to focus on China business prospects.
Contributing to the general optimism has been the remarkable absence of US-China fireworks over the past couple of years. Think back four years: we were in the middle of the all-out US political battle over PNTR, with fresh memories of the trauma over the "Cox Commission" allegations of PRC espionage; the US bombing of China's embassy in Belgrade and the virulent response on Chinese city streets; and a nasty dust-up between Taiwan and the mainland over then-President Lee Teng-hui's latest vision of the Taiwan-mainland relationship.
Few would disagree that US-China relations today are ordered and restrained, the public rhetoric measured even when critical, and the atmospherics much improved. US-China communication at the policy level is extensive and continues to expand. Visits by top leaders emphasize the positive. The Beijing talks on North Korea are back on the front burner. With weeks to go before the Taiwan presidential election, close observers are holding their collective breath that the United States and China can avoid a collision that neither wishes.
Differences persist—some important ones in the trade sector, notably regarding WTO commitments, and others in human rights or other spheres—but they do not, for now, blow us off course.
At the US-China Business Council, however, our job is not just to turn on the autopilot but to scan the skies for signs of changes in the weather. The good news is that we're not looking at any typhoons heading straight for US-China relations. The more cautious news is that there are some clouds and that turbulence is possible. When seated, keep seat belt fastened!
What's in those clouds?
- 1 The possibility in the shorter term of a Chinese economic slowdown Experts differ, but many see slower growth as inevitable and even desirable. Few take the breakneck expansion of the last year or two as a given for the future, pointing instead to emergent supply bottlenecks, the downsides of profligate bank lending, and "irrational exuberance" in the building sector.
- 2 US legislative action to punish the PRC for the US trade deficit and China's rapidly expanding position in the US market I remain skeptical that China has sufficient "legs" in this US election year to become the focus of successful legislative attacks on US-China economic activity. But there are those on Capitol Hill who could try to "send China a message" that the United States doesn't like its currency practices or its trade surplus with us. The congressional legislative labyrinth offers the opportunity to send simple messages to multiple audiences (one of the audiences being US voters). Moreover, in some states with large electoral vote purses at stake, popular concern over manufacturing and service-sector job losses will resonate. Congress and the White House have been known to leap first and face the consequences later. Working to prevent that scenario is a Council priority shared by all of our member companies.
- 3 Escalation of tit-for-tat trade actions to restrict imports in the name of combating "market disruption" or fighting dumping Strong political pressures in the United States regularly demand tougher, more intense administration pursuit of such trade cases with China. Big issues impend on textiles and apparel, covered by those so-called "Textile Safeguard" clauses of China's final WTO accession package that the United States first negotiated with China in its earlier bilateral agreement of late 1999. High-visibility US antidumping cases, and even an effort to invoke US trade law to punish China's alleged currency manipulation, are under way. China has bristled at US measures taken or proposed, but has also invoked its own antidumping procedures with increasing frequency. No one talks about reciprocal retaliation, of course: each case is strictly "on the merits." But hammering can become a way of life—and of making a living—and sooner or later the sound of the hammering can drown out normal conversation.
- 4 Longer term, the possibility of over-investment and overproduction in China, with implications for US commercial interests and the condition of the world economy Some US firms, seeking to define their opportunities in China for the long haul and to plan their China investments in global long-term context, see such possibilities out on the horizon. China has known over-investment, glut, and shakeout before. What it can do to prevent it, especially as the government continues to loosen its grip on private economic decisions in the PRC, is a big question. With the transition from socialism to the market far from complete, the role of the state in preserving economic order competes with the necessity of relinquishing the state's grip on the economy in complex ways that every US company in China encounters sooner or later.
- 5 A lurking uncertainty about the longer-term distribution of global economic resources and economic power Even the most sanguine observers of China's rapid movement to the front ranks of the world's trading nations struggle to define the long-term impact of China's arrival upon the system it has entered so well in the space of a few years. China, for its part, has coined the term "Peaceful Rapid Emergence" and has acted in a manner designed to show that its entry creates benefits for all—neighboring states, trading nations able to penetrate China's large markets, and multilateral economic bodies benefiting from China's overall commitment to stable global institutions. But anxieties persist and grow, as in the sudden re-ignition of a hoary US debate over the future of the American manufacturing sector, or global speculation over the future of energy resources worldwide, or analysts' debates about the future of a global financial system in which the American economy is hopelessly in debt to foreign lenders like China and the Chinese economy remains burdened by behaviors and institutional weaknesses that it has found difficult to remedy.
In short, while September 11 has massively readjusted America's concerns in a dangerous world, pockets of concern persist in the United States about China's ultimate intentions and capabilities, both economic and military (for example, the US-China Economic and Security Review Commission, whose mandate from the US Congress is to clarify the links between US-China trade and economic relations on the one hand and US national security on the other, issues pronouncements that regularly veer toward pessimism).
Nevertheless, the bilateral relationship between our two great nations is operating far more smoothly, and the economic engagement of the United States and China has reached far more deeply, than we might have imagined only a few years ago.
As the two countries have expanded their engagement, including the economic and commercial activities that today practically join the United States and China "at the hip" (in the recent words of one senior US government official), keeping US-China relations—including trade and investment ties—on a stable trajectory is no less critical than it was when the trade and investment numbers were low. That makes it a top priority, always, at the US-China Business Council.
Some of the China Business Review's new airborne readers have been making the China trip for years, as our US-China Business Council's hundreds of corporate members have done. They know the need for vigilance, wide-ranging inquiry, and dependable research in a shifting economic and political environment. That's where the CBR and the Council come in. We hope our new friends will want, in turn, to come in to our magazine and to the US-China Business Council for the long haul.
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