Healthy commercial relationship with China in interest of U.S.: AmCham Shanghai president

The 20th Central Committee of the Communist Party of China adopted a resolution on further deepening reform comprehensively to advance Chinese modernization at its third plenary session. What do these reform measures mean for foreign businesses in China? Our guest shares his insights with China Trends.

Guest:

Eric Zheng

President of the American Chamber of Commerce in Shanghai

Transcript

You Zhixin, Xinhua correspondent

Hi, everyone. Welcome to China Trends. The 20th Central Committee of the CPC (Communist Party of China) just concluded its third plenary session and will unveil the full report on decisions on reforms. So, what do these reforms mean for the foreign companies in China? Today, we are honored to have our guest here, Eric Zheng, president of AmCham, Shanghai. Welcome.

Eric Zheng, President of the American Chamber of Commerce in Shanghai

Thank you, good to be here.

You Zhixin, Xinhua correspondent

So, Eric. My first question is, What's your key takeaway from the resolution?  What's the highlight in your view?

Eric Zheng, President of the American Chamber of Commerce in Shanghai 

Well, certainly, the third plenum of the 20th Party Congress was very significant in the sense that it sent a very strong signal that the country is committed to reform and opening up. So, that's the overall take from a foreign investor's perspective. We also follow some more specific measures announced in the resolution. The overall takeaway is that the country is committed to fostering a business environment that is rule-based, market-oriented, and internationalized to protect the legal interests and rights of foreign investment. I think that's an overall assessment of this resolution as far as foreign direct investment. I think there are several specific measures worth monitoring. Number one, is to ensure, is to expand the catalog for encouraged sectors. So, that's significant. Number two is to the intent, is to shorten the negative list. As we know, back in 2013, they launched the so-called negative list, meaning any categories or industrial sectors not on the list are open for foreign investment. Ten years ago, that list was long. 190. Now it's come down to 31, so significantly shortened the list. The intent is to continue to shorten that list. So, that's very important. More specifically, I think the resolution describes a few specific areas that China intends to open up to foreign investment, such as telecommunications, the internet, culture, education, and medical services. Those are very specific sectors. Some of those are currently on the short and negative lists. We are hopeful that China will continue to open up those sectors to foreign investment. Lastly, which is quite significant, also is the commitment to provide national treatment for foreign investment in terms of access to government procurement, standard setting, the factors of production, and so forth.

You Zhixin, Xinhua correspondent

In this year's third plenum, as you mentioned, the resolution pushes forward more than 300 important reform measures. So, in your view, how will these reforms impact the economic relations between China and the EU in the long term? What kind of opportunities have you seen in terms of collaboration between the Chinese and U.S. companies? 

Eric Zheng, President of the American Chamber of Commerce in Shanghai 

Yeah, certainly, the third plenum resolution is a long document covering 15 categories. We focus more on the 60 points. One of those is very relevant to foreign investment, as I described earlier. So, I think for American investors, also foreign investors, just to open up the market and provide more market access to foreign investment, there will be an immediate positive impact.

You Zhixin, Xinhua correspondent

As president of AmCham Shanghai, how would you review and assess the current business climate in China?   

Eric Zheng, President of the American Chamber of Commerce in Shanghai

I think, overall; we are still in the recovery phase. Certainly, the external environment is quite challenging following the COVID pandemic. We're still dealing with some of the geopolitical tensions at this point. So, overall, the environment is challenging. Additionally, I think the domestic economy is going through structural change, and there is pressure. So, we need to deal with those challenges, and competition is real and very fierce. So, there are many headwinds for foreign investment for investors, including American companies. But most of our companies are still here for the long term, and they are in China, for China. Over the years, many of our companies have been part of that investment and are here for the long term. Just use Shanghai as an example; Disney, the theme park, is the single largest American direct investment in China. Disney has planned for phase two and phase three. We have another famous project, is this Tesla, right? Focusing on the EV sector, Tesla has just launched its renewable energy storage business in Shanghai.

You Zhixin, Xinhua correspondent

So, what are your expectations for the future development of U.S. companies in China? Because I knew AmCham Shanghai, you renewed your survey of your members. Are there any new key findings? 

Eric Zheng, President of the American Chamber of Commerce in Shanghai

Yeah, we're still in the process of completing our latest survey and will announce our survey in September. But I think overall, the impression is that companies continue to do well from a top-line and from a bottom-line standpoint. I think probably half of our companies continue to see growth here, right? From a bottom-line standpoint, most of our companies are still profitable. So, that's very good news. Certainly, as I indicated earlier, our companies face some headwinds, such as geopolitical tensions, such as domestic competition, such as the downward pressure on economic growth. Those are real headwinds. So, we have to deal with challenges going forward.

You Zhixin, Xinhua correspondent

In your view, what's the impact of the U.S. presidential elections and the impact on the future of China and the U.S. economic ties, especially after Biden announced that he would not seek reelection? 

Eric Zheng, President of the American Chamber of Commerce in Shanghai 

AmCham is, first of all, a nonpartisan business association, and we represent American companies that operate in China. What's happening in Washington, we are certainly watching. But, at the end of the day, we want to make sure that we continue to do business well in China. Our hope is that whoever is in the White House next year will recognize the fact that doing business and having a healthy commercial relationship with China is in the interest of the United States. I’ll give you one example. We strongly believe that for our companies to be globally competitive, they have to be in China. Because China is such a big market, and the competition is so fierce. In order for a company to be globally competitive, you have to be here, competing with these local peers to learn from them so that you will be more capable, right? Using electric vehicles again as an example, imagine if a U.S. automaker is not in China, then it's not in the major league. You are not competing with the best in the business, such as BYD and so forth. So, for Tesla, for GM, they have to be here to learn from the market and to compete with these very formidable competitors. So that you can be prepared and improve your capability and your competitiveness, so that's our strong belief, hopefully, policymakers in Washington will recognize that fact. 

When you look at just the trade between the United States and China, and despite the trade war, tariffs, and so forth in recent years. The bilateral trade levels are still at very high levels, right? Last year, bilateral trade between the United States and China amounted to 575 billion U.S. dollars. That was at a very high level despite tariffs and the trade war. I think that's an indication that the two economies are complementary to each other. The market in the United States needs China. In fact, if you take the U.S. as a single-country market, it's the number one export market for China. If we exclude ASEAN and EU trading blocks, right, treating the United States as one single market. It's the largest market for China. China is also the third largest market for the United States, right after Canada and Mexico. It is very important for these two countries to continue to trade with each other. That's foreign trade. On the investment side and FDI side. It is also very important, right? China actually reached a pretty high level in terms of investment in the U.S. as well. It has grown so much over the years. But now, obviously, because of some political issues, a few years ago, FDI from China to the United States dropped significantly. FDI from the U.S. side has leveled off somewhere due to various factors. But it's still quite stable, I would argue. So, just from the foreign trade and FDI, from those fronts, I think these two markets are highly connected with each other. I think it's in the interests of both countries to continue to trade with each other and to continue to invest in each other's markets. So, that's good for both countries.  

You Zhixin, Xinhua correspondent

Besides the economic ties, the cultural and educational exchanges between these two countries are pivotal. You have another initial that you might be quite familiar with is that in the next five years, China will invite 50,000 young Americans to China. So, in your view, what's the role of the cultural exchanges between these two countries? 

Eric Zheng, President of the American Chamber of Commerce in Shanghai

I think it's very fundamental. People-to-people exchanges play a critical role in developing bilateral relationships. I think sub-national dialogues are very important. Certainly, in Washington and Beijing, those dialogues are important, too. We are very happy to see some progress at the national level, right? Since the summit in San Francisco, the two countries have engaged in a series of dialogues at a very high level, which is good progress. But, in addition, I think we would like to see more sub-national dialogues going on. City to city, province to state, and we would like to see more of those dialogues going on. People-to-people is definitely important. Certainly, from the Chinese side, President Xi initiated 50,000 students in the next five years to come to visit China and study in China, and that's very important. We need more American students to come to China to learn and to understand this market and this country. So that they can become policymakers in the future; hopefully, we will have more young American people who understand this country better. American Chamber, AmCham Shanghai, is deeply involved in supporting that initiative. Becasue some of our members are in the education sectors, such as NYU Shanghai and Duke Kunshan, and those are directly involved in promoting educational exchanges.  So, we are supporting our members, and certainly, we're supporting other American universities when they send students here to study in China. I did a briefing for a visiting group of Harvard students last week, and it went very well. They're spending the summer in China, and they are learning about China. We are also trying to connect these students with our member companies. For instance, at Duke University, we'll send a group of students to China next month, starting with Jiangsu and then to Shanghai. I will travel to Jiangsu to meet with them and brief them. But when they are in Shanghai, we will bring them to one of our member companies, 3M, to look at how they are doing because 3M is one of the first American investors in China. Outside of Shenzhen, it was the first one registered in Shanghai. So, we'd like to see more of these groups coming, and hopefully, we can contribute to those exchanges. I think people-to-people exchanges are very, very important.

You Zhixin, Xinhua correspondent

Thank you, Eric, for being here. We can see that it benefits all if China and the U.S. can better promote coordinated development in terms of the economy, culture, and technology. See you next time.