US business ‘friends’ staying out of trade war as they try to push China to act, sources say

Beijing’s lack of progress on promised reforms said to undermine support from American business community in China

PUBLISHED : Saturday, 18 August, 2018, 12:03am
UPDATED : Saturday, 18 August, 2018, 5:41pm

Beijing risks losing key support from the US business community in China amid the escalating trade war because those companies are frustrated about the lack of progress on long-promised market reforms, according to sources familiar with the situation.

The assessment came ahead of a fresh round of talks between officials from the two sides aimed at reducing trade tensions.

US companies with an extensive market presence in China have been seen as an effective channel to lobby on Beijing’s behalf and to influence policymakers in Washington, and Chinese officials have sought their support to press the White House to de-escalate the trade war. But their US business “friends” from past decades have so far been reluctant to speak up for the Chinese government, the sources said.

“They are unsatisfied with the market-competition situation in China and want to keep pressure on the Chinese government until it takes moves to address their concerns,” said a Chinese government adviser on trade issues, speaking on condition of anonymity.

More than a month since the trade war kicked off in earnest with an exchange of tariffs, China and the United States are about to resume negotiations, if at a lower level than previous talks.

According to a report in The Wall Street Journal on Friday, Chinese and US negotiators hope to find an accord before US President Donald Trump and Chinese President Xi Jinping meet at the G20 summit in November.

Commerce Vice-Minister Wang Shouwen will lead a Chinese delegation in the United States next Wednesday and Thursday to discuss trade and economic issues with US Treasury Undersecretary David Malpass, according to sources.

Behind the US-China trade war lies a competition for dominance and a rising tide of protectionism

But there is still a wide gulf over how to deal with the trade conflict, and neither side has shown any sign it is willing to make concessions.

Washington wants China to drastically reduce its trade surplus with the US and make big changes to its industrial policy, but Beijing believes the US is demanding too much and has resisted overhauling its state-supported economic growth model.

After imposing 25 per cent tariffs on US$34 billion of each other’s goods from July 6, Washington and Beijing have both said they will slap duties on another US$16 billion of products from August 23.

More sanctions are in the pipeline, and observers have said they doubt whether the coming talks in Washington can achieve any sort of resolution.

Foreign business leaders have for years called on Beijing to take concrete action to deliver on its promises of levelling the playing field in China, widening market access and improving the regulatory environment.

Forget the trade war – it’s the strong US dollar that should really make us worry

Jake Parker, vice-president of China operations at the US-China Business Council, said that the foreign business community was “clearly disappointed” with the lack of real reforms and openings in the country since it joined the World Trade Organisation in 2001.

“There have been lots of promises about reform and lots of requests to ‘be patient’, but nothing much has happened. In some areas – overcapacity, technology (vendors and users), licensing – things have gotten worse. This is what is undermining business support. Business community support will be better recovered by reform, not negative actions,” Parker said.

Foreign businesspeople have also warned that the situation will hurt investor sentiment and expressed concerns about the growing influence of the state in the economy and business operations.

Beijing has started taking steps this year to speed up market liberalisation by further opening the financial and service sectors. But it said that market expansion would happen at its own pace, and foreign companies continue to watch and wait.

“There has been some recent progress in market liberalisations in insurance and securities trading, but until US companies are operating with licences in these newly opened sectors, US industry confidence will remain muted,” Parker said.

US concerns about restricted market access, ambiguous or uneven regulations and state subsidies for domestic firms in key strategic industries are widely shared among other foreign businesses operating in China. Meanwhile, many in the US business community say the White House is taking the wrong approach to tackle the issues.

“The American business community has not vocally opposed Trump’s China strategy and has played the middle ground by coaxing both sides to engage in the obvious – namely, an adult-like dialogue. US business groups are thus taking a wait-and-see approach without thinking of the long-term consequences,” said James Zimmerman, a partner in the Beijing office of the Perkins Coie law firm.

He said he was concerned that Trump’s tactics would not lead to true progress, while American business in China historically favoured “quiet diplomacy and constructive engagement” to push for greater market access and reform.

“Trump’s strategy is wholly contrary to the mission, vision and values of the American companies operating in China. Everything the community has worked for over the past four decades is at risk,” said Zimmerman, a former chairman of the American Chamber of Commerce in China.