Frustrated In China, US Industry Hopes For Post-Election Reset To Annual Talks

As the United States and China wrapped up talks this week touting bilateral cooperation on strategic and economic issues, many in the U.S. business community say the annual dialogue is delivering diminishing returns in resolving commercial disputes.

Foreign business in China is growing increasingly pessimistic, in part due to the country’s slowing economy, but also because of growing fears of protectionism and rules that companies think could make it harder to operate there.

Concerns include draft regulations for China’s insurance and banking industries and a pending cybersecurity law that business groups say could limit sales for foreign companies in favor of domestic competitors.

Beijing’s Made in China 2025 plan also calls for a progressive increase in domestic components in sectors such as advanced information technology and robotics, and President Xi Jinping has pledged to increase government support for technology companies, raising concerns that foreign providers will be at a disadvantage.

Those plans and proposals sit uneasily with China’s “commitments to not impose nationality-based conditions on the sale, purchase or use [of info-technology],” a pledge repeated during the U.S.-China Strategic and Economic Dialogue (S&ED), which on Tuesday wrapped up its eighth and final round under President Barack Obama.

Chinese Foreign Ministry spokesman Hong Lei said on Wednesday that China would “earnestly put into effect” the many important consensus points reached during the talks, but many in the U.S. business community feel the talks provide a forum to repeat previously made promises rather than push progress on market-opening reforms.

“Increasingly, there’s been a sense that commitments have been made, and not necessarily adhered to. There’s a sense that a growing set of bilateral challenges is outpacing the ability of the dialogue to effectively manage those areas of difference,” said Jeremie Waterman, executive director for Greater China at the U.S. Chamber of Commerce.

Just hours after the S&ED finished in Beijing, the U.S. House Judiciary Committee on Tuesday heard testimony on concerns over China’s enforcement of competition law, which include draft regulations that could force firms to license technology to competitors or face sanctions.

But the list of outcomes from this week’s talks made no mention of antitrust policy.

China’s promise to table next week an updated list of sectors off-limits to U.S. investors for ongoing talks on a bilateral investment treaty was seen as a highlight of the dialogue, though people in the U.S. business community privately say they are not optimistic it will be enough to make real progress on the treaty before Obama leaves office.

Relationship Benefits

James McGregor, Greater China chairman for communications consultancy APCO Worldwide, who attended a Tuesday event for executives with senior U.S. and Chinese officials, said executives were blunt in stressing how negative things were becoming for foreign companies in China.

"I think they [officials] all walked out of the room feeling like they’d learned something today and that things are changing and not heading in a good direction now,” McGregor said.

The official rhetoric in China has focused less on the concrete achievements of the dialogue and more on the relationship benefits.

The official Xinhua news agency said the talks had infused relations with a “shot of confidence.”

“Only by constantly augmenting the areas of cooperation and pursuing consensus can China-U.S. ties move in a positive direction,” it said in a commentary late on Tuesday.

That can help counter some of the anti-China sentiment whipped up during the American presidential race, some Chinese officials have said.

“During the ongoing raging fire of the U.S. election, candidates from both parties frequently make a fuss about trade problems with China. But China has not made an excessive response because we can more truly and accurately understand the true nature of problems and avoid misjudgments through the dialogue mechanism,” Vice Premier Wang Yang said in a speech on Monday.

U.S. businesses also acknowledge that the S&ED has provided a high-profile forum to air their concerns and are advocating reforming it, not writing it off.

“In the next administration, the mechanisms for dialogue can be tweaked to make further improvements and become more effective, but high-level engagement is now mandatory in the U.S.-China relationship,” the U.S.-China Business Council said in a statement.