Chinese president’s US trip needs to address uncertainties in the relationship

American voters likely do not go into the poll booth thinking about China, but they often hear about China from the presidential primary campaigns.

Some candidates were even calling for the cancellation of Chinese President Xi Jinping’s visit to the United States this week.

From the business community perspective, the timing of the visit couldn’t be better.

“Uncertainty” best characterizes the current view of American business leaders about China—uncertainty about China’s economic slowdown, the leadership’s commitment to meaningful reforms of its economy, and the strategic issues in the US-China relationship, especially cybersecurity.

The most important thing Xi can do during his visit to the United States is address this uncertainty.

The US-China Business Council’s latest survey of our membership shows a continued steady erosion of confidence in the China business outlook. Five years ago, 58 percent of executives were optimistic about the business outlook and another 33 percent were somewhat optimistic. Now, only 24 percent of executives surveyed are optimistic and 67 percent are somewhat optimistic or neutral. To be clear, pessimism remains in the single-digits and the China market remains a top priority for American executives, but the moderation of optimism is unmistakable.

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China’s economic slowdown over the past year has contributed to the moderating optimism, but the biggest factor is policy uncertainty. The visit gives Xi a timely opportunity to explain how China’s leadership views the slowing economy and the thinking behind recent government moves to shore up China’s stock market declines and adjust its exchange rate.

China’s ambitious economic reform program is entering its third year, but with little impact so far on the issues faced by American companies—put simply, China has yet to begin removing market access barriers across many sectors of China’s economy and build a fairer competitive environment. Business is looking for tangible signals of reforms, but not getting it.

Xi could address this on his visit by moving forward with a bolder approach in investment treaty negotiations that are under way with the US. The treaty will bring much-needed rules to treat American and Chinese companies equally. The key determinant of the quality of the treaty and the timeline for its completion will be whether China is willing to open up more sectors of its economy to American companies. The answer to that is intimately tied to China’s internal reform debate.

Critics say that we should not be rewarding China’s bad behavior in cyber space, the South China Sea, and other areas by negotiating an investment treaty. Those issues must be high on the bilateral agenda, but actually the opposite is true regarding the investment treaty—it doesn’t reward China for anything, but it does fit squarely into the notion of bringing more US-based rules into China’s economic regime. That’s an objective that should be fully supported.

Xi will give the main policy speech of his visit at an event co-hosted by the US-China Business Council in Seattle on the day he arrives in the United States. My meetings with senior advisors to Xi in Beijing last month leave me with no doubt that they understand the landscape in the United States on China issues and that Xi has an opportunity to shape opinion during his visit.

Whether he will do so in a way that reduces uncertainty and boosts confidence will determine the trend line of the relationship for the remainder of the Obama administration—and the state of the relationship that one of the candidates on the campaign trail will inherit in January 2017.

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

(Photo by U.S. Embassy The Hague via Flickr)

Posted by USCBC