US and China economic relations remain deeply intertwined. Two-way bilateral trade in goods totaled US $560 billion in 2020, despite the US-China trade war and the shock from the COVID-19 pandemic. Indeed, in November alone Chinese exports to America reached US $51.9 billion, a monthly record. China’s market is an important market for US products and services, including high-tech sectors like civil aviation and healthcare. China is a key supplier of a vast array of products and components, often at low cost, which delivers benefits to US producers and consumers.
The foreign business community faced twin challenges from a deteriorating US-China relationship and the COVID-19 pandemic in 2020. COVID-19 created a continuing and unprecedented global economic and humanitarian challenge. Additionally, COVID-19 ignited conversations in the US and China about supply chain security, reshoring, and domestic production of critical technologies. Economic shutdowns, widespread lockdowns and other and COVID-19 control policies in China imposed acute operational challenges on the foreign business community. These factors, on top of a broader deterioration of the bilateral relationship in almost all aspects, combined to create a deeply uncertain policy environment for foreign-invested enterprises (FIEs) in China. Consequently, in our 2021 China Business Climate Survey Report (BCS), respondents overwhelmingly cited “rising tensions in US-China relations” as their top challenge.
AmCham China continues to support the goals of the US-China Economic and Trade Agreement (Phase One Agreement) signed on January 15, 2020 and intended to reorient the bilateral economic relationship. Over 50 percent of respondents to the 2021 BCS report that the Phase One Agreement has played a role in mitigating the negative impacts of bilateral trade tensions. Implementation has been generally positive but uneven; we have seen progress in sectors like financial services where there have been important openings in 2020, and in food and agriculture where certain restrictions on the import of some US goods have been lifted. Other areas, such as purchases of US good and services, remain off-track, in part hampered by the COVID-19 pandemic. We remain committed to supporting implementation of the Phase One Agreement and other bilateral trade efforts by providing objective information to both governments and advocating for practical and workable solutions to the challenges facing the foreign business community.
We remain opposed to any effort at outright decoupling of the US-China relationship. The costs of decoupling from losing trade and foreign investment benefits for both countries would be significant and unlikely to generate clear winners. We respect the legitimate needs of both countries to define and protect their national security and law enforcement interests and urge them to do so in ways that leave space for commercially-focused engagement to take place and in close consultation with the business community. We recognize that COVID-19 has refocused conversations in the US, China, and globally with respect to the need to review supply chain security and boost domestic production of critical technologies, medicines, and products. The fact remains, however, that in order to be globally competitive, American producers and service providers must be able to compete in the China market on a level playing field.
We continue to encourage the Chinese government to make good on its promises for further economic reform and continued opening to the outside world. The government should ensure that legislation, such as the Foreign Investment Law, which went into effect January 1, 2020 and included commitments to equal treatment for foreign enterprises in a number of respects, will be implemented faithfully. On the US side, we welcome the opportunity to work closely with the new US administration to provide a full account of the current situation of US companies on the ground in China and identify opportunities to move the commercial relationship onto a more stable, equitable, and sustainable economic footing.
There are significant areas of contention in the US-China relationship, most of which offer no easy prospect for resolution. Despite the current friction in US-China relations, however, the success of multilateral efforts to address issues of the “global commons” like climate change and public health will be dependent on US-China cooperation. AmCham China’s members have technology, expertise, and best practices that they are willing to contribute to help address such issues of global commons. Cooperation will also be needed between both sides to create the conditions to facilitate bilateral foreign direct investment (FDI) and support global economic recovery from the COVID-19 pandemic.
Against this backdrop, our 2021 Policy Priorities reflect the reality of a bilateral relationship characterized by mistrust. They also aim to promote the crucial cooperation called for above. These priorities reflect the opinions of the Chamber’s 900 member companies headquartered not just in the US, but also Europe, Australia, and other parts of Asia. They are drawn from multiple discussions among AmCham China members and supported by analysis from our annual BCS and the American Business in China White Paper.
As a focus of our advocacy efforts, these priorities will guide our conversations with the Chinese government, US government, media, academics, and other stakeholders throughout the year. We acknowledge that the challenges are significant and may not be resolved within the short-term. We hope, however, that these priorities can help form a framework for longer-term engagement and dialogue.
Priority One: Build a healthy working relationship through results-focused engagement
Given the deterioration of US-China relations in 2020, any starting point should focus on rebuilding mechanisms for communication at all levels, an increase in the frequency of interaction between both sides, and a reduction in the level of unproductive rhetoric that has characterized bilateral exchanges over recent years, so as to build a stable foundation for working together. There is an opportunity to restart negotiations with China on multiple fronts and in areas in which the American business community continues to face significant challenges including around market access restrictions, IP protection, cybersecurity and digital policies, and support for state-owned enterprises. Restarting professional communications and negotiations would represent a positive step given developments over the past few years in which many channels of communication were truncated. The foreign business community has a role to play in communicating the reality of operating in the Chinese market in an accurate, objective, and timely manner to our counterparts in both governments. That said, any restart should be results-oriented and focused on the substance of the dialogue rather than the label or process associated with such dialogue.
In this regard we recommend:
- Both sides commit to reduce the public use of inflammatory and unhelpful rhetoric that has characterized exchanges in recent years.
- Both governments prioritize communication at the working level and with strong business community engagement on both sides, as well as high-level dialogue not only on economic issues, but also dialogue on all spheres of the bilateral relationship including national security, law enforcement, and diplomacy.
- Both governments conduct a review of the progress on the Phase One Agreement to date in close consultation with the business community for objective assessments of the status of that implementation, while issuing regular updates on progress or guidelines for implementation.
- Both governments look for ways consistent with public health requirements to restart bilateral visa issuances, deliver transparency and efficiency with respect to travel policies, and for the Chinese government to issue policies that enable foreign nationals outside of China to return to work.
- The Chinese government provide information and reliable channels for Chinese and foreign employees of member companies to receive vaccines in a transparent manner and approve the use of foreign-made vaccines in the China market in a timely manner. Vaccine approval should be conditioned upon their safety and effectiveness as measured using internationally-accepted standards and scientifically-grounded processes, not upon reciprocal approval of Chinese-made vaccines in other jurisdictions.
- Both China and the US negotiate to join the Comprehensive and Progressive Agreement for Transpacific Partnership (CPPTP.) The US rejoining CPPTP would enable the US to participate in developing the rules, norms, and trading patterns among countries party to the agreement which constitute nearly 14 percent of global GDP at present. China by joining CPPTP could accelerate its economic growth, diversify its export markets, and mark a commitment to implementing high-level policy standards that affirm China’s movement towards a modern, open economy.
- The Chinese government engage foreign business community in ways that permit FIEs to discuss their operating environment in earnest without fear of retribution and prioritize patterns of communication that allow for engagement on both industry-wide challenges and technical issues relating to normal business operations characterized by measurable improvements.
- The US government focus on engaging with its counterparts in the China government to continue to address the “non-level” elements of the commercial and economic and trade relationship particularly around market access restrictions, discriminatory enforcement, and implicit guarantees for domestically-invested companies, especially state-owned enterprises (SOEs), that tilt the playing field against FIEs.
Priority Two: Ensure that rhetorical commitments to “national treatment” and a level playing field for FIEs operating in China are met with faithful implementation on the ground
US-China economic and trade relations have positive benefits for both countries and the China market is a central component of the global strategies of many American companies. China’s National Development and Reform Commission (NDRC) estimates that FIEs in China contribute 25 percent of China’s gross output, 20 percent of China’s tax revenue, and account for 7 percent of total employment and 40 percent of China’s trade value. A January 2021 study estimates that US exports to China support 1.2 million American jobs and that Chinese multinationals in the US employ 197,000 Americans. Nevertheless, AmCham China has for many years highlighted the persistent challenges FIEs face in the China market including China’s state intervention in the economy, restrictive market access policies, IP rights violations, pressure to transfer technology, and an often opaque and discriminatory regulatory environment.
Additionally, innovation has ripple effects that bring broad benefits to the economies of both China and the US in areas like economic competitiveness, human capital development, ability to attract investment, and quality of jobs in knowledge-intensive sectors. Research and development (R&D) activities are a critical activity for both FIEs and domestically-invested companies operating in China. Sustained innovation, however, can only be realized on a level playing field with equal protection of rights under law – both on paper and in practice – for FIEs and domestically-invested domestic companies alike. Some 87 percent of our members report that innovation is important or a top priority for their business growth in China and 47 percent report that the enforcement of IPR improved in China in 2020. Nevertheless, 48 percent of members 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.
In this regard we recommend:
- The Chinese government ensure that any market access commitments are accompanied by actions that guarantee a level playing field for all firms within those industries, regardless of the nationality of their shareholders, including within China’s Dual Circulation Strategy and New Infrastructure Initiatives announced in 2020. The government should abandon the use of implicit, unpublished, or internal guidance to replace US or other foreign-made products/services with domestically-made equivalents.
- The Chinese government expeditiously implement the commitments made as part of the Phase One Agreement to protect IP and remove any prerequisites for technology transfers as a basis for market entry. In particular we recommend that the encouraging development of IP courts be continued, the power of administrative bodies (e.g., CNIPA) to investigate and punish infringement be accompanied by the continued development of IP courts to adjudicate IP disputes, and a clear system of penalties be developed to deter IP theft, including through cyber-enabled means.
- The Chinese government open its markets to FIEs on equal terms in emerging sectors such as the cloud computing service business to enhance competitiveness. China should also work to ensure that its cloud computing sector develops in tandem with and adopts globally recognized standards and practices.
- Commitments to meaningful reform by the Chinese government include clear benchmarks, timelines, and intensive monitoring to ensure lasting changes to China’s legal and regulatory architectures and impartial implementation of laws and regulations. Similarly, coordinated and consistent policy development, implementation, and enforcement between Chinese government ministries must be prioritized.
- Laws and regulations, enforcement activities, approval processes, procurement preferences, and other requirements that treat foreign entities, products and services less favorably than domestic firms in the China market be eliminated.
- The Chinese government’s national security reviews and “secure and controllable” technology requirements be narrowly applied and not used for economic protectionism or in support of industrial policy.
- While recognizing that the China government submitted its sixth proposal for accession to the WTO Agreement on Government Procurement in October 2019, its proposal has yet to be accepted. China should promptly submit a proposal to join the GPA in accordance with globally-recognized norms commensurate with its status as the world’s second largest economy.
- The US government solicit input from American and Chinese companies as it determines what will be covered as emerging and foundational technologies with respect to export controls and make determinations based on global availability as well as the critical nature of the technology.
- The US and China governments adhere to globally-accepted trading rules, support and strengthen the existing multilateral trade regime, and avoid protectionist tendencies.
Priority Three: Identify and develop patterns of cooperation on issues of global commons, particularly public health and climate change
Given the size of both countries’ populations, the fact that their economies together comprise around a third of global GDP, and their leading role in a number of multilateral organizations including permanent membership in the United Nations Security Council, making progress in confronting and overcoming global issues requires cooperation between the US and China. Challenges like infectious disease and public health, climate change and greenhouse gas emissions, global financial stability, or agricultural and food safety, are unlikely to be meaningfully addressed in the absence of bilateral and multilateral cooperation.
While the US and China have engaged in high-level negotiations on economic and trade issues over the past few years, similar negotiations are not currently being replicated in other spheres of the bilateral relationship such as national security and law enforcement, to the detriment of the broader bilateral relationship. Such negotiations would help both sides to mitigate their differences on national security issues so as not to preclude cooperation on issues of global commons.
The US and China have traditionally enjoyed robust scientific and medical collaborations, although the level of this collaboration has declined in recent years. Unfortunately, the response to COVID-19 thus far has been marked by a lack of cooperation, blame shifting, and an exchange of accusations by both sides. This has handicapped efforts to foster international cooperation and mobilize a coordinated, multilateral response to the pandemic.
Addressing climate change is another area of common interest and global significance. As the leading greenhouse gas (GHG) emitters, any progress on emissions reduction and decarbonization will require US-China cooperation. There are mutually beneficial reasons for US-China collaboration in this space. Both countries have announced pledges for carbon neutrality. General Secretary Xi announced a commitment to carbon neutrality by 2060 at the UN General Assembly. During his campaign, President Biden announced an infrastructure plan and clean energy plan that targets net-zero emissions by 2050.
Finally, the education sector has long been an important driver of people-to-people exchange, which constitutes an important axis of the US-China relationship. Travel restrictions imposed by COVID-19, as well as broader tension in the bilateral relationship over the past few years have decreased the opportunity for such exchanges in 2020. A sustained reduction in the level of people-to-people exchange is likely to have a chilling effect on foreign investment and commercial relations.
In that regard we recommend:
- The US and China governments engage in dialogue not just on trade and economic issues, but also intensify negotiations on national security, law enforcement, military-to-military, people-to-people and cultural exchanges, and other spheres of the bilateral relationship to improve coordination and understanding across each of these spheres.
- Both sides ringfence issues of national security and identify guardrails to guide bilateral competition in other spheres. National security concerns should seek to minimize any restrictions on innovation to the extent appropriate.
- Both sides aim to cooperate in areas of global commons. Most immediately, cooperation on a global scale is critical to addressing the COVID-19 pandemic through vaccine production, distribution and dissemination.
- The mutual recognition of COVID-19 vaccines is an important starting point. For this to happen, China should publish and share data on its domestically-produced vaccines with the international scientific and medical community so that they can be comprehensively evaluated and approved internationally as appropriate.
- As the immediate emergency conditions recede, China and the US should find opportunities to strengthen global public health infrastructure so that the world is better prepared for the next public health crisis.
- Both sides should also work to cultivate the conditions to promote bilateral FDI and trade and help the global economy recover from COVID-19.
- The US and China look for opportunities to reduce GHG emissions and combat climate change. There are large export opportunities for member companies in both the US and China with respect to clean energy and associated technologies. China should honor its commitments to purchase substantial quantities of energy products under the Phase One Agreement.
- The US and China governments involve the business community and leverage its technology, expertise, and experience in future public health or climate change initiatives.
- With respect to people-to-people and education exchanges, both governments should continue to encourage and facilitate people-to-people and other education exchanges which increase bilateral trust and communication while maintaining appropriate controls to prevent such exchanges from being undermined or misused to illegally or unfairly procure sensitive information or technologies. Education exchanges should be accompanied by employment eligibility opportunities for participating students.
 Xi Jinping, “Statement by H.E. Xi Jinping President of the People’s Republic of China at the General Debate of the 75th Session of The United Nations General Assembly,” Speech at the UN General Assembly, Ministry of Foreign Affairs, September 22, 2020. Available here