LDN - Business

U.S. business in China warms to possible Trump trade policy shake-up

[February 15, 2017] By Michael Martina and Matthew Miller

BEIJING (Reuters) - "Reciprocity" has become the new buzzword in the U.S. business community in China, with some industry leaders saying they would welcome a tougher approach from the Trump administration in opening up the markets of the world's second-largest economy.

It's a striking shift within the American community here, which had long lobbied Washington against taking more aggressive policies, fearing they could draw retribution from China's leaders.

President Donald Trump's picks for Commerce Secretary and Trade Representative, Wilbur Ross and Robert Lighthizer, have in the past backed the reciprocity principle when it comes to China: that Beijing should provide the same access and benefits to American business in China that Washington gives the Chinese in the United States.

"Our membership has moved to some extent in that direction as well, in advocating a firmer posture with respect to China," said Lester Ross, chairman of the American Chamber of Commerce in China's policy committee.

He made the remarks in January after the group issued a report that found over 60 percent of the chamber's members had "little or no confidence that the Chinese government is committed to opening markets further in the next three years".

Many sectors of China's economy are either off limits or severely restricted to foreign investors.

Foreign banks in China, for example, account for less than 2 percent of total assets, according to the China Banking Regulatory Commission.

A 50-percent ownership cap for foreign life insurers, despite China's 2001 World Trade Organization commitments to lift it, has helped limit their market share to about 6 percent.

China's Anbang Insurance Group <ANBANG.UL>, on the other hand, has spent more than $8 billion acquiring U.S. assets, including the Waldorf Astoria Hotel and Strategic Hotels & Resorts. It is still waiting for regulatory approval to buy U.S. life insurer Fidelity & Guaranty Life <FGL.N> for $1.6 billion.

"CHINA HAS OVERREACHED"

The same imbalances can be seen in sectors such as automotives, payment cards and technology.

China's Geely Holding Group [GEELY.UL] bought Volvo from Ford Motor Co. <F.N> in 2010, but foreign companies are required to set up joint ventures to assemble vehicles in China, often transferring technology in the process.

While China's UnionPay has grown to become the world's largest payment card, according to the number of cards issued, U.S. credit card operators Visa <V.N> and MasterCard <MA.N> have yet to be independently licensed to clear transactions in China, despite a 2012 WTO ruling mandating that Beijing open the sector.

Foreign technology hardware and service providers are bristling at requirements to meet the restrictive terms of newly minted cyber security regulations. Beijing's "Made in China 2025" plan also calls for a progressive increase in domestic parts used in priority sectors, such as advanced information technology and robotics to 70 percent by 2025.

James McGregor, Chairman of APCO Worldwide, Greater China, said the idea of some form of reciprocity is gaining traction, particularly in combating "techno-nationalism". "You've got Chinese companies that have protected markets and make loads of money and then they are going out and doing international acquisitions that could destroy other companies," McGregor said. "Now China has overreached so much they have alienated much of the business community."

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An attendant cleans the carpet next to U.S. and Chinese national flags before a news conference for the 6th round of U.S.-China Strategic and Economic Dialogue at the Great Hall of the People in Beijing, July 10, 2014. REUTERS/Jason Lee/File Photo

McGregor said U.S. policy makers had to figure out how to use America's openness and rule of law to deal with China, instead of allowing them to become vulnerabilities. The question is how to craft a reciprocity policy without destabilizing bilateral relations or triggering a retaliatory backlash against U.S. businesses in China.

Chinese state media has warned that U.S. businesses could be targets in any trade war that Trump may unleash - he has threatened to label China a currency manipulator and slap heavy tariffs on Chinese goods.

China's Ministry of Commerce did not respond to a request for comment on the issue of reciprocity.

But Tu Xinquan, a trade expert at Beijing's University of International Business and Economics, said Trump's options would be limited by his promises to create jobs.

"If you close the door to Chinese investments, that's not good for American employment," Tu said.

BAD POLICY

One way to achieve reciprocity would be to use the Committee on Foreign Investment in the United States (CFIUS) security review process to wall off industries where U.S. businesses face discrimination in China. But most experts see that as straying too far from the free market orthodoxy that has drawn investment and jobs to the United States for decades.

James Zimmerman, a Beijing-based lawyer with Sheppard Mullin and a former chairman of the American Chamber of Commerce in China, said strict reciprocity would be bad policy and against the U.S. system of open investment.

"We need to be very careful what we ask for," Zimmerman said.

Proponents argue reciprocity does not violate free market principles, but is a needed intervention due to a market failure, much as the government uses antitrust policy to crack down on cartels.

Thilo Hanemann, in a Rhodium Group report to the U.S.-China Economic and Security Review Commission, said simple calls for reciprocity are "misguided". But, he added, if China's "commingling of commercial and political motives is not resolved, then a new chapter in U.S. – and global – competition policy activism may be required."

(Reporting by Michael Martina and Matthew Miller in BEIJING; Editing by Bill Tarrant)

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