David Hoffman remembers a time when the interests of the US business community carried great weight in Washington, especially regarding US economic policy toward China. Hoffman, who formerly worked at PricewaterhouseCoopers, once led the firm’s technology and entertainment advisory practices in that country.
But sympathy for those interests disappeared during the administration of former President Donald Trump, Hoffman says. And it has not gotten any better under President Joe Biden.
“Business is vilified by its China presence in all respects,” said Hoffman, now at The Conference Board, a global business and research think tank.
An annual survey released this week by the American Chamber of Commerce in China found China remains a “top global priority,” but that many businesses are not planning on any major investments there this year.
Sino-US relations continue to be strained and further exacerbated by China’s close ties with Russia and Beijing’s desire to stay neutral on the war in Ukraine.
Even before Russian troops entered Ukraine, US regulators and lawmakers had been weighing policies aimed at curtailing business and investment between the two nations over a range of competitive, national security and human rights concerns. China’s crackdown on its own businesses has also affected US investors and firms, some of which have pulled out of the country over the past year.
“One of the things I noticed about the difficulty American companies face is pleasing Beijing and Washington,” said Scott Kennedy, a senior adviser at the Center for Strategic and International Studies at a recent event.
The China market
For multinational corporations, there is still no substitute for being in China, which after the US, is the world’s second largest economy with 1.4 billion people. Despite the at-times hostile political rhetoric, China remains the US’s largest trading partner.
During his administration, Trump accused China of not offering an even playing field for foreign businesses to compete. The result was a trade war in which the two countries imposed high tariffs on each other’s products.
While dialing down the rhetoric, the Biden administration has continued with Trump’s hard line. “Engagement,” Washington’s approach toward China for decades, has given way to harsher rhetoric of de-coupling or even punishing China, complaining business community members.
In Washington, some recent China-focused legislation and proposals have the business community’s attention. They include a regulatory battle over Chinese companies listed on US stock exchanges and proposals to review US investments in Chinese companies.
US business concerns
At a recent Asia Society of Northern California event on the future of US-China relations, some speakers said they were worried about measures emanating from Washington and Beijing that seem to be pulling apart business ties between the two nations.
Nicholas Borst, vice president and director of China research at Seafarer Capital Partners, argued that the US business community should have a voice when it comes to US policy toward China.
“It’s one of the few areas between the US and China where we can really get away from a lot of the zero-sum thinking, where China’s economic development doesn’t have to come at the expense of the US,” he said.
Myron Brilliant, executive vice president at the US Chamber of Commerce, told the gathering that Washington is going to tighten export controls and investment screenings.
“The political environment in Washington is that one thing that unites the two parties is China and the threat of competition,” he said.
Washington is going to put pressure on US companies “to divest a little bit, to bring back resources here, to invest domestically and think about our own national security in the lens of economic competitiveness, which puts at risk US engagement over a long time in China,” he said.
In Washington, where US business focuses its considerable lobbying efforts, the consensus has shifted to a more aggressive stance toward the Chinese government because of the increasing role of the Chinese government, under President Xi Jinping, in taking over large parts of the economy, says one lawmaker
“The development of state champions in key industry sectors should have been a warning signal to the businesses in the US business community,” said Rep. Rick Larsen, a Democrat congressman from Washington state and chair of a bipartisan US China Working Group.
“If there are individuals and companies or industries within the business community who feel aggrieved or not being listened to, the government they need to first look at is the government of Xi Jinping. The Chinese government policy has been very clear over the last decade plus about its direction — further regulation, further state involvement in the economy, in fact, not just state involvement but the state taking over large parts of the economy.”
However, there is a role for US business to help the administration and Congress understand the implications of its decisions, Larsen said.
“That doesn’t mean it’s going to change those decisions, just that we might make those with our eyes opened wider,” he said.
Business climate in China
Ken Wilcox, former CEO of Silicon Valley Bank, went to China in 2010-11 to set up a joint venture. From experience, he says the Chinese Communist Party controls the outcome of foreign and domestic businesses there and “the party wants to control the entire economy.”
Both Washington and business are too extreme in their views about China, the former too negative, the latter too positive, “giving China a hall pass,” said Wilcox.
In the current climate, businesses would be wise to rethink their China strategy, said Martijn Rasser, a former senior intelligence officer at the US Central Intelligence Agency and now senior fellow and director of the Technology and National Security Program at the Center for a New American Security.
“Yes, there’s a lot of money to be made, but these companies have to think much longer term and ultimately devise business strategies that don’t rely on the Chinese domestic market for long term growth, because that is ultimately ephemeral and there is a time limit on it,” he said.
Hoffman encourages US companies to work with regulators to address national security concerns while doing business in China.
If they don’t, he argues, “any forthcoming ‘safe trade’ regulations will likely be more restrictive, less efficient, and more costly than they need to be.”