Saturday, December 10, 2011

American business rethinks China’s dreams

EBay  has abandoned its efforts to build a Chinese marketplace where people bid for goods online after it ran into stiff competition from a free Chinese site. Its new strategy is to sell goods from Chinese companies to international buyers.
“It was about finding a business model that works in China,” said Daniel Feiler, spokesman for its China operations.
Google Inc. last year pulled back to Hong Kong on concerns Chinese were hacking the Internet search giant and a row with China over censorship.
Jeffrey Immelt, chief executive of General Electric Co which has multibillion dollar contracts in turbines, railroad engines and aircraft parts with China, also faced choices in how to compete.
“The notion was, if we’re part of the Chinese economy, we should be allowed to win.” But finding ways to win means that companies have to avoid confrontations with Chinese authorities, he said. “We’re not naive or stupid about these things. We really do think a lot about it,” said the CEO, who advises Obama on business competitive issues. “There is a multitude of ways to succeed in China.”
China’s policies have helped vault its industries to global prominence. It has 61 companies today among the global Fortune 500 list, almost quadruple the number in 2005. The US tally over the same period has fallen to 133 from 176. What American business finds disturbing is that most of the Chinese companies are state-owned, including the three in Fortune’s Top Ten — China Petroleum and Chemical Corp, China National Petroleum and State Grid.
The US Chamber of Commerce said in a joint report with the Coalition of Services Industries that China and other countries lavish regulatory favors and generous subsidies on their state-owned firms, making it very difficult to compete.
“No adequate and effective international disciplines now exist to deal with this problem,” it said.
In the past three years, the United States has brought five cases against China at the WTO, more aggressive than the seven cases during the eight years of former President George W Bush’s administration. By March 2010, the United States had won three WTO cases against China, four were resolved before WTO action, and four were pending.
Apart from negotiations at WTO complaints, the United States also is working to draw other big Asian trading nations into regional or bilateral trade pacts, which are designed to open markets and serve as a hedge or counterweight against Chinese trade policies. It ratified a free trade agreement with South Korea recently and has breathed new life into the Trans-Pacific Partnership (TPP), a nine-nation free-trade group that gained new heft in November when Japan, Canada and Mexico announced plans to join negotiations. US officials want TPP to set new standards on free trade and become a template for future international trade deals.
What remains unclear in Washington is whether China’s new leadership in 2012 will resume market opening or turn further inward. The country took a huge leap in the 1990s as it prepared for WTO entry, slashing red tape, removing layers of protection for domestic factories and farms and opening its markets. That work is widely credited inside and outside China with turning the country into the industrial dynamo of today.
The US ambassador to the WTO Michael Punke said China made “impressive steps” to bring its laws and regulations into line with global rules in the five years after WTO entry.  Some trade experts say reform fatigue then set in and they expect opening measures to resume. Other US experts say China turned away from market liberalization as early as 2003, when the reform-minded team of President Jiang Zemin and Premier Zhu Rongji retired and handed power to the more cautious current leadership of Hu Jintao and Wen Jiabao, respectively.
“Nobody who was watching China enter the WTO back then saw this change coming,” said China trade analyst Derek Scissors of the Heritage Foundation. “It was as if a different government with different priorities came in,” he said.
Hu and Wen are due to retire from their state posts in March 2013 and hand over power to successors, most likely led by current Vice President Xi Jinping. The next generation of leaders has not expressed economic or trade policy views that depart from current statist orthodoxy, and are expected to proceed cautiously once in power.

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