The American Chamber of Commerce in China
2017 Policy Priorities
Even as China’s economy slows, the influence of the world’s second largest economy on global trade and financial flows is undeniable. Chinese companies have invested increasing amounts overseas, and concern over asset bubbles, rising debt and capital flows are now topics for discussion around the world. With such importance, the question has become whether China is taking adequate steps to weather the increasing headwinds that its economy is facing?
AmCham China members are clearly disappointed in the pace and nature of China’s economic reform. It has been three years since the so-called “Third Plenum” offered so much promise in helping China transition into a modern economy. Since then, much-heralded initiatives such as the Shanghai Free-Trade Zone have fizzled, and negotiations on a US-China Bilateral Investment Treaty continue to drag on.
Meanwhile, political transitions in the US and China are increasingly uncertainty at a time when companies most value stability. In particular, questions are being raised in the US about China’s willingness to engage fairly in economic and commercial issues, especially as Chinese companies expand overseas into areas that are restricted to foreign companies in China.
AmCham China has long been a strong supporter of China’s engagement in the global economic system, most notably through its intense lobbying efforts with the US Congress to support China’s admission to the World Trade Organization. China has benefitted greatly from this global economic integration, as well as the contributions of foreign companies. It has been estimated that the combined investments of US companies in China have now reached $228 billion, and for much of the past decade the majority of China’s exports were produced by foreign-invested enterprises. Despite this transfer of knowledge, skills, intellectual property and money, there is an increasing perception of resentment toward foreign business that belies their contribution to China’s development.
Set against this background, our policy priorities – Building Trust through Transparency, Promoting Development through Open Investment and Stimulating Innovation through Global Cooperation – are the culmination of discussions among AmCham China members and supported by data drawn from the annual Business Climate Survey of member companies and the American Business in China White Paper of policy issues. These priorities reflect, therefore, the opinions of the chamber’s 3,000 members (half of whom are Chinese nationals) from 900 member companies headquartered not just in the US, but also Europe, Australia and other parts of Asia.
While it is easy to focus on the negative, these priorities seek to emphasize the opportunities for all parties in China’s economy of continued reform. The chamber also recognizes the improvements already made not just in economic development in general, but also in specific areas such as protection of intellectual property rights. Nevertheless, it remains the case that many policies continue to hamstring the economy, especially in areas that, with greater investment, could drive tomorrow’s economic growth.
Building Trust through Transparency
Greater transparency would not only help in the government’s fight against corruption, but also boost confidence in private companies from both China and overseas that their investments will be fairly protected under the law. The stability and predictability provided by an unambiguous regulatory environment will be important for China’s continued growth, and we hope the authorities can close the effectiveness gap between legislation and its enforcement through an inclusive process for participation in the formulation and implementation of laws and regulations.
- Inconsistent/unclear laws and enforcement are still the No. 1 challenge for AmCham China members. (2017 Business Climate Survey)
- If realized, greater transparency, predictability and fairness of the regulatory environment was cited by more than half of members as a potentially very or extremely significant driver of new investment. (2017 Business Climate Survey)
- China ranks 78 out of 190 in the Ease of Doing Business index for 2016, just ahead of San Marino. (The World Bank)
- In terms of regulatory quality and rule of law in the Worldwide Governance Indicators, China deteriorated between 2010 and 2015. (The World Bank)
- China ranks 80 out of 113 countries for regulatory enforcement in the 2016 Rule of Law Index, just ahead of Uzbekistan, compared with 71 out of 102 countries the previous year. (World Justice Project)
Promoting Development through Open Investment
The benefits of open, vibrant markets extend well beyond foreign-invested enterprises. We believe government policy should help all parties in Chinese society – including consumers, farmers, private companies – not the narrow interests of the few. This is especially important given the increasing scrutiny of the US-China commercial relationship and the questions being raised internationally about the access being granted to Chinese companies overseas compared to the access foreign-invested companies have in China.
- The economic and technological impact of foreign-invested companies, and the ripple effects through their supply chains and the spending of employees, averaged 33% of China’s GDP from 2009 to 2013. (Developing China: The Remarkable Impact of Foreign Direct Investment.)
- China ranked 58 out of 59 countries in the Total FDI Restrictiveness Index in the last review in 2015, ahead only of the Philippines. (Organization of Economic Cooperation and Development)
- A record low (56%) number of companies say China is among their top 3 investment destinations. (2017 Business Climate Survey)
- More companies say the investment environment is deteriorating rather than improving (31% vs. 24%). (2017 Business Climate Survey)
- More than half of members (55%) believe foreign companies are treated unfairly; 81% feel less welcome than before. (2017 Business Climate Survey)
Stimulating Innovation through Global Cooperation
To realize its innovation goals, China will need to strengthen its infrastructure and open its institutions to allow information to flow more freely. Creativity is the product of diverse ideas combined in an environment where standards are set with broad participation and intellectual property is protected from theft. We also need to recognize that the rapid pace of innovation is beyond the ability of any single government to manage, meaning that technology regulation requires public-private engagement across borders.
- Innovation is a top 3 priority for half (50%) of our members, up from 44% last year. (2017 Business Climate Survey)
- Lack of sufficient IP protection the No. 1 (45%) barrier to increasing innovation in China. (2017 Business Climate Survey)
- After strong improvements at the end of the last decade, the standard of intellectual property rights protection in China has stagnated. (The International Property Rights Index 2016)