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CBR July-August 2010 - Services

Letter from Beijing

Looking Back to See Ahead

by Robert Poole

Robert Poole

For the US business community in China's capital, 2009 proved to be a year of coping and waiting. Adjustments to address the global economic crisis were job number one for all companies, notwithstanding the impressive performance of the Chinese economy and companies during the global downturn. Budget cutbacks and curtailed plans have been a major occupation for most multinationals in China, despite the 8 percent economic growth here.

Waiting was also the rule in Beijing last year, as companies and PRC officialdom watched for key appointments in the new US administration and for signs of changes in US trade or political policy. Many of the appointments came only last summer or later (though no later than usual, in a change of administration), and major or comprehensive reviews of trade policy have apparently taken a backseat to US domestic political priorities.

It was, in the end, a year in which hardworking employees have gained more white hairs, with the gratifying recovery in business perhaps being offset by a slowdown in economic reforms and an increase in local protectionism. It was a similarly worrisome year for PRC officials, who were trying to balance lost export markets and local unemployment against the demands of an increasingly integrated global economy, amid rising domestic and foreign political pressures.

Reform on hold

China's economic management has remained conservative, keeping the currency value steady and using fiscal stimulus and relatively loose monetary policy to maintain stability. Economic and financial market reforms, however, seem to be on hold, even though such measures are often discussed and the PRC leadership appears to agree they are necessary for the long-term health and development of the economy. Similarly, China's goal of increasing services' contribution to the economy notwithstanding, market access for foreign and private firms and meaningful competition to domestic state-owned providers seems no closer, despite the obvious benefits for Chinese consumers and markets.

Major national themes also remain unchanged. "Scientific Development"—the Chinese Communist Party (CCP) and President Hu Jintao's broad framework for progress—continues to receive great attention throughout the country. In the economic arena, indigenous innovation, building national champions, and "going out" (investing overseas) lumber ahead. True economic reform seems a memory of years gone by.

Protectionism draws attention

Companies have repeatedly cited an increase in commercial protectionism in surveys regarding China's business climate in 2009, including our own (see the CBR, November-December 2009). Here in China, US companies tend to view protectionism in terms of lack of opportunities for sales in China—whether in government procurement or in equal treatment under local policies—and market access in services and industries that allow foreign investment. Protectionist policies also extend to other areas such as standards setting or uneven enforcement of regulations.

But the media stays focused on another form of protectionism, namely the cross-border antidumping and countervailing duty cases in both countries. According to US Secretary of Commerce Gary Locke, such measures affect less than 4 percent of US-China trade. Yet, the percentage they occupy in media headlines and stories seems far greater.

Outlook for 2010

Looking ahead, it is difficult to forecast significant change in China's economic or business plans. One bright spot is that the Obama administration will almost certainly increase cooperation with China; the now-annual Strategic and Economic Dialogue, to be held next summer in China, provides one forum for more cooperation.

For commercial interests, the areas of energy and environmental protection will be prominent, and developments in China's healthcare reform will also be important. We hope that attention to trade disputes will lessen, though sustained efforts in China and the United States will be needed to ensure fairness in trade and investment. We also hope that engagement on economic challenges—from the managed end to stimulus spending, currency values, or the various rebalancings—will provide the impetus to restart reforms that will bring opportunities for US companies in China.

After a cold spell here in Beijing, we also hope that the Year of the Tiger will bring warmer weather and an early spring, sustained economic and business growth, and perhaps gradual renewal of reform. After several big events in Beijing—the Olympics in 2008, the 60th anniversary of the People's Republic last fall, and the visit in November of the US president—we welcome the chance for Shanghai to take the spotlight for the 2010 World Expo that opens in May.

Robert Poole is vice president, China Operations, at the US-China Business Council in Beijing.




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Copyright 2010 US-China Business Council

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