Mutual sense of gain

Decoupling of US and Chinese economies is in neither country's economic interests

Generally speaking, China remains a priority market for companies from the United States, and despite the challenges, US companies display optimism about their operations in China.

The American Chamber of Commerce in China released the 23rd edition of the "American Business in China White Paper "in May, providing a comprehensive analysis of the impact of China's economic policies and practices on foreign trade and investment and the opportunities and the challenges facing US companies doing business in China.

Surveys conducted by AmCham China indicate that China is a priority market for over two-thirds of its members, and nearly 85 percent are not considering relocating manufacturing or sourcing from the Chinese market.

China is among the largest and fastest-growing markets in the world and constitutes an important market for US products and services. According to the white paper, nearly 61 percent of the companies surveyed believe that China will continue to open its market further to foreign investment.

China's strong economic recovery and robust growth and the commitment it has demonstrated to further opening-up have provided a solid foundation for this confidence in the Chinese market. While China's enormous consumer market potential is providing significant business opportunities for multinational companies, including US businesses. Approximately 52 percent of AmCham China's members said that the "growth in domestic consumption and the rise of an increasingly sizeable and affluent middle class" represent the top business opportunity in China.

According to the white paper, 78 percent of AmCham China's members regard "US-China bilateral tensions" as the top challenge to doing business in China, one place up from the 2020 rankings and two places up from the 2019 rankings. The impact of rising bilateral tensions was particularly acute in the services industry, where 95 percent of members considered it to be the main challenge.

But among the 10 biggest challenges reported by AmCham China's members, many are related to China's business climate, including inconsistent/unclear laws and/or regulations, concerns about data security, regulatory compliance risks, increasing Chinese protectionism and intellectual property rights infringements. Although 47 percent of the members reported that the enforcement of IPR had improved in China in 2020, 48 percent would like to see a continued effort to strengthen IPR protections as part of any future negotiations between the US and China, suggesting that while China's IP environment is improving, more can be done.

The Foreign Investment Law of China became effective on Jan 1 last year, heralding a fairer competition environment for foreign investors by ensuring that China treats all companies operating in China equally irrespective of their ownership status.

Meanwhile, the Chinese government is also unswervingly pressing ahead with opening-up across the board, despite the COVID-19 pandemic.

In June last year, China released a master plan for the island province of Hainan to become a free trade port, marking a new stage in the country's opening-up to the world. In July, China unveiled new shortened negative lists for foreign investment as part of its efforts to further open up the economy and improve its business environment. The off-limit sectors for foreign investors were cut from 40 to 33. China also unveiled its 2020 negative list for foreign investment access in pilot free trade zones, bringing the number of prohibited industries down from 37 to 30. And in September, China's State Council announced that it will establish three new pilot free trade zones in Beijing, Hunan and Anhui, and expand the FTZ in Zhejiang province to take the lead in innovation on high-standard regulations addressing digital trade and IPR protection.

With China making efforts to improve its business environment and open wider to foreign companies, China and the US should enhance their exchanges and communication to prevent an economic decoupling. Sound progress in the Sino-US relationship is of significance to both countries. The Chinese market is the core component of many US businesses' global strategies and large-scale decoupling of US and Chinese economies is in neither country's interests. The cost to both countries of decoupling from losing trade and foreign investment benefits would be significant. Therefore, the Chinese and US governments should further enhance exchanges and communication on economic and trade issues, climate change, public health, bilateral people-to-people exchange, cybersecurity and national security, so as to strengthen mutual trust and create a better environment for their companies doing business in each other's country.

China should accelerate its opening-up and the improvement of its business environment. It should greatly remove access restrictions for foreign investment to promote opening-up based on flows of goods and factors. The major opening-up measures that have been released should be implemented at a quicker pace. The negative lists for foreign investment should be further shortened to give foreign-invested enterprises wider access to the Chinese market. A negative list for cross-border services trade should be established and improved, in a bid to promote the opening-up of the service sector. China's industrial regulation should be further improved by conforming with international practice and standards.

With regard to high-standard economic and trade rules such as those for digital trade, State-owned enterprises, competition policy, IPR, government procurement and supervision consistency, China should conduct trial runs to promote opening-up. The current approval and application procedures should be further simplified. China should also continue to strengthen its IPR protection to provide a better institutional environment for foreign-invested enterprises.

The author is a researcher at the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce.