Dean C. Garfield photo

Persuading China

The recently completed U.S.-China Strategic and Economic Dialogue (S&ED) creates an opening to improve the role of China on the global stage that should not be wasted. Heading into the upcoming G-20 summit in Toronto, it's critical that public and private sector leaders immediately engage in a robust dialogue aimed at clearly defining the prioritized objectives for our nations' long-term strategic partnership.
Intellectually, we all know it is wrong to frame our relationship with China in reductionist terms. The private-sector challenges in China, however, are so vast that many companies are being forced to rely more heavily on survival instinct rather than intellect. The results of the recent S&ED did not fully resolve those concerns, but established some key principles on which to build.
Other world events highlight the need for a near-term solution. The contagion created by Greece's financial crisis, for example, reinforces the increasingly interconnected nature of global economies and the importance of integrated approaches that involve consistent engagement among global leaders.
Obviously, what is at stake with China is several multiples beyond anything we could possibly encounter with Greece. China is the largest holder of foreign exchange reserves, ranks number two in world oil consumption, and has helped to lead Asia, and the world, out of global recession with a blistering 11.9 percent growth rate in the first three months of this year alone.
A China pursuing economic policies that veer from global norms and discriminate against foreign players will make it that much more difficult for the United States and its allies to manage the most challenging facets of globalization. In contrast, China vectoring towards full integration into the global economy would help maintain a more stable international financial system, open vast new markets, help stem the spread of nuclear materials and weapons, and address climate change.
Two interlocking factors will ultimately determine the extent of China's long-term viability as an effective trading partner.
First is whether the Chinese government embraces its position as a responsible leader in global commerce while staying true to its commitments. China is the largest recipient of foreign direct investment in the world: 480 of the Fortune 500 companies have business presences there along with 660,000 other foreign enterprises. The tech sector, in particular, has been an early leader in making such investments by committing to working and investing globally with an eye towards the benefits that cross-border trade creates locally.
Yet the lack of predictability surrounding China's rules for foreign companies presents an ongoing challenge. Regardless of industry sector, clarity serves as a fundamental element of a strong trading partnership and is critical to the health of global commerce. While the Asia-Pacific region is, and will continue to be, a critical growth area for nearly every major company in the United States, China's black box approach to policy development may force many U.S. companies to rethink their level of investment in China and consider moving more resources to neighboring markets.
China's commitment to submit a revised offer by July to join the WTO Agreement on Government Procurement is a step in the right direction. Later this month, the G-20 leaders will have an opportunity to underscore with China the importance of submitting a robust offer this time, unlike the previous unimpressive offer China made a year ago.
Second is the degree to which China commits to borderless innovation and fair and predictable trade practices. Over the last two decades, the high-tech industry has invested billions of dollars in China and employed hundreds of thousands of Chinese citizens. It has worked hard to build a partnership with China's public and private sectors that is focused on driving economic growth in China and the United States while all the while strongly encouraging their adoption of global norms.
China's continued advancement of "indigenous innovation" policies intended to give a leg up to domestic industry at the expense of foreign companies, as Secretary Geithner recently cited in Beijing, serves as a direct example of the thicket of vague and random rules and regulations that thwart trade and investment and call into question China's commercial aspirations. While China's commitment to launch high-level bilateral innovation discussions and adopt necessary policies is a positive step forward, indigenous innovation will slow continued foreign investment in China, hinder the country's continued potential as a global leader and limit the flow of cutting-edge products to its economy and people.
Persuading China to recalibrate its role in the global economy won't be easy. Yet, both China and the United States have much to gain long-term if it does. Rather than tiptoe around this elephant in the room, we must confront these issues head on while avoiding nationalistic extremes on both sides. Stated simply, our future commercial relationship with China warrants a long-term and honest conversation that involves the public and private sectors collaborating more closely than we have in the past. We must be straightforward about what has worked and what has not. The G-20 is an opportunity to advance this conversation.

Public Policy Tags: Trade & Investment
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