After spending the past eight years in the Washington, DC, office of the US-China Business Council (USCBC), I recently relocated to Shanghai to become the new chief representative of USCBC’s Shanghai office. Having worked with the US-based representatives of USCBC member companies, I find it interesting to work on similar issues with their Shanghai-based colleagues, who often have a different perspective.
What immediately struck me upon arrival is the quest among US companies in Shanghai for information about the direction of PRC government policies, at the central or local levels. The central government influences—in some cases quite heavily—what US companies can and cannot do. Therefore, the “philosophical” questions with which US companies must grapple tend to have a political bent to them: Is the government favoring investment in a particular industry, and if so, for how long? Most important, what happens if the government changes its mind?
The challenge is assessing the seemingly accurate yet contradictory information that comes from all sides. For instance, the central government boosted the target for electricity generated from solar energy, then restricted the amount of polysilicon produced and removed certain technologies and materials needed in solar panel production from China’s list of encouraged imports. (Polysilicon is a key ingredient in photovoltaic panels.) The central government said it wants to move away from low value-added and energy-intensive production but raised the rebate on value-added taxes for certain low-end manufactured products. A new law governing labor contracts took effect nationwide, but local officials hesitate to enforce some of its provisions because of local unemployment concerns during the economic crisis. Trying to stay on top of these policies when one government policy overtakes another at dizzying speed is difficult. In such an environment, it is not surprising that lack of transparency remains a top concern of USCBC member companies year after year.
Economic data sometimes just contribute to US investors’ confusion. When executives at headquarters read about domestic growth picking up, they wonder why their business units aren’t reporting double-digit growth as they had before the economic crisis. The reality is complex, and USCBC staff have spoken with a variety of companies across sectors to try to understand how China’s response to and recovery from the global economic crisis affect foreign investors. A few examples highlight this. Sales of home appliances appeared to be up in the past six months, but mostly in less-developed regions that participated in the government-sponsored “Home Appliances to the Countryside Program,” which subsidizes rural residents’ purchases of white goods. This helped keep retailers afloat but did little to ease tight margins. Moreover, the subsidy recipients are primarily located in third- and fourth-tier cities, where few foreign retailers are established. But in more developed cities such as Beijing and Shanghai, most consumer sales related to retail or home goods have remained low, waiting for the real estate sector to recover.
In another example, one USCBC member company in the engineered materials business noted that it has had little difficulty selling to the telecom sector but much greater difficulty selling the same product to the building materials sector. Why? The central government is aggressively building the third-generation (3G) telecom network and has allocated funds specifically for this task. In contrast, construction of office buildings and new residences has not been a focus of central-government spending. Such examples illustrate that it might be hard for US executives to see the full picture without knowing the background context.
One of USCBC’s most valuable services is that we look into these “behind the scenes” types of questions to give member companies the information they need to make sound business decisions. USCBC members also play a valuable role by sharing their experiences and views with each other, thus improving the overall ability of US companies to operate in China. As USCBC’s Shanghai office works to serve members, we look forward to exploring these questions, and facilitating conversations among members, to make the operating environment in China just a little clearer.
[author]Julie Walton is the US-China Business Council’s chief representative in Shanghai.[/author]