March 22,2010

In Looming Currency War, China Can No Longer Take US Business Support for Granted

By CSC Staff, Shanghai

For long, whenever China has quarreled with the US and the bilateral trade relationship has slid towards a showdown, the Chinese government has almost always been able to count on the US business community in China to lobby, calming politically outraged law makers and persuading them to work for a compromise.


This time, perhaps, such support can not be taken for granted, as US companies in China are feeling a chill on their business interests along with the political heat. 


Google is expected to announce its exit plan from the Chinese market this week. It has said it would stop censoring its search results after it was hit by a cyber attack that was traced to China. Google stated at the time it was increasingly troubled by demands by the government to limit free speech.


A Chinese proverb says when lips are lost, teeth feel the chill. According to a new survey by the American Chamber of Commerce in China, a growing number of U.S. companies are feeling unwelcome here, as measures aimed at squeezing foreign technology companies out of the vast government-procurement market start to bite.


Negative sentiment among Amcham's members, who traditionally have been a strong lobbying force in Washington in support of more engagement with China, does nothing to blunt the edges in U.S.-China relations.


The Financial Times quotes Myron Brilliant, US Chamber senior vice-president for international affairs, who has previously helped to shield Beijing from hawkish trade policies, as saying, "I don't think the Chinese government can count on the American business community to be able to push back and block action [on Capitol Hill]."  


The political temperature concerning China's currency policy increased last week as a group of bi-partisan group in the House of Representatives urged the Treasury to describe China as a "currency manipulator," a move it has always hitherto refused to make, in its report due in mid-April. This could be followed by sanctions. In addition, lawmakers from both parties in the Senate last week proposed legislation designed to put greater pressure on China to allow the renminbi to appreciate.


In the 1990s, Mr Brilliant helped lead the Chamber's lobbying efforts in favor of China's accession to the World Trade Organization, successfully urging thousands of companies to push for its inclusion in the global trading system. "I don't think I could pull that coalition together now. Part of it is that China is not playing by the same rules," he says.


Meanwhile, China vowed again on Sunday to resist pressure for a renminbi revaluation and threatened to retaliate if the US imposed trade sanctions.


Speaking as Beijing sent a senior official to Washington to try to ease trade frictions, Commerce Minister Chen Deming said China would "not turn a blind eye" if it was labeled a manipulator by the US Treasury. Mr Chen said if the US, for domestic political reasons, falsely called China a manipulator and sanctions followed: "We will not do nothing. We will also respond if this means litigation under the global legal framework."


In the first two months of 2010, China's imports increased by 64% and the trade surplus was down by 50%. China may show a trade deficit in March. In 2009, China's foreign trade surplus decreased by 34% year on year. While China boasts a trade surplus with the US, it has a US$120 billion trade deficit with its neighboring trade partners. China also runs a deficit with both Latin American countries and 58 most under-developed countries.  


Chen added that adjusting the value of the renminbi would not solve global trade imbalances, predicting that China could see its trade balance turn to deficit in March.


Corporate America's attitude had changed in response to a range of "industrial policies" pursued by Beijing, not just the alleged undervaluation of the renminbi, all of which make it harder for US companies to do business and compete with China. Mr Brilliant also cited the tough economic times in the US ?particularly the near 10 per cent jobless rate ?as making it more difficult to argue against tough action on China.


Other contending issues between the two countries include US arms sales to Taiwan and a recent meeting between President Barack Obama and the Dalai Lama, the Tibetan spiritual leader whom Beijing accuses of "splittism."


According to the Wall Street Journal, people with close links to the U.S. business community in China say a number of multinationals are starting to rethink their China strategy, and are considering diversifying future investments to other parts of the world.


Amcham's survey polled 230 members about Chinese planned government-procurement regulations, and repeated a question asked in annual surveys about the general business climate.


The percentage of companies that feel they are unwelcome to participate and compete in the Chinese market jumped to 38%, up from 26% in the 2009 annual survey, released in December, and 23% in 2008. It was the highest level of dissatisfaction recorded in the four years since Amcham began polling its members on this question, and indicated that sentiment is rapidly deteriorating.


Amcham conducted the latest survey because it was concerned about the deteriorating investment environment and the impact of the rules on indigenous innovation.


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