China Expands Globally Amid Concerns Over its Mercantilist Policies 

Just as President Xi Jinping was launching the One Belt, One Road initiative to expand China’s geo-economic footprint, a former high-level U.S. trade official raised concerns that Beijing has been reversing its policies of reform and keeping the market to itself.

Charlene Barshefsky, who worked as the U.S. Trade Representative under President Bill Clinton and witnessed China’s accession to the World Trade Organization, told a group of corporate executives gathered in Tokyo that “China has stopped the process of economic reform and opening, and instead has put in place a spate of measures that are zero-sum, highly mercantilist, and discriminate against U.S. and foreign companies.”

Sinicizing the Chinese economy

Barshefsky accuses Beijing of “Sinicizing” the Chinese economy, all the while taking advantage of other countries’ open markets.

The former U.S. trade representative’s remarks echo sentiments revealed in the latest Business Climate Survey put out by the American Chamber of Commerce in China, which represents nearly 1,000 companies doing business there.

Respondents to the survey said it seems “China has gone backwards … more regulations, taxes and local company market share protectionism.” Others noted that “despite a long track record of employing and training locals and investing in the local community, when the economy gets tough, the foreign firm is always seen as somehow not friendly to China.”

Golden days over?

William Zarit, head of AmCham China, tells VOA that “25 percent of our companies are either reducing investment or not increasing investment — that’s one out of four companies. Some companies are looking elsewhere in Asia, and some companies are looking back to North America.”

In another sign of how China is losing its luster in the eyes of foreign investors, the latest Business Climate Survey shows the percentage of companies that consider China a high priority investment destination has dropped below 60 percent. Zarit points out that nearly 60 percent “would seem to be good except that three or four years earlier, it was over 80 percent.”


Watch: William Zarit, president of the American Chamber of Commerce in China

Dangers despite continued presence

“Every company has to be in China, to a certain extent,” says Georgetown University’s Ted Moran, professor of business and economics.

While a majority of companies may choose to maintain a presence, their decisions to expand less rapidly “are also a danger,” Moran says. 

“They may be there, but they’re not going to have as strong value-added, they’re not going to expand as rapidly, they’re not going to introduce their best technology,” which in turn will confine China to a work bench economy, instead of one where companies feel comfortable bringing in operations with higher technology components.

Watch: Ted Moran, Georgetown professor of business and economics

‘A lot of things we have to consider’

Barshefsky, the former trade official, calls on President Donald Trump to either renegotiate the trade relationship with China or to revive the Trans-Pacific Partnership led by the United States. 

A Chinese trade official, speaking at the same forum, defended Beijing’s policies, saying the reform, although having slowed down, is still going on, and “there are a lot of things we have to consider.” The official, Long Yongtu, who now presides over the Boao Forum for Asia, also warned foreign companies to buckle up for stiff competition coming from Chinese domestic companies.

Resurgence of the state in the Chinese economy

Ever since China started accumulating more and more capital and demonstrating less and less hesitancy to use that capital to advance its interests abroad, many have voiced the concern that as Beijing’s investment spreads, so will its politics. Lately, concern over expansion of the state sector in the Chinese economy as well as the government-guided overseas investment strategy and potential consequences have grown louder.

In a report issued earlier this year by the Washington-based Peterson Institute for International Economics, Nicholas Lardy, a senior fellow, pointed to official figures released by the People’s Bank of China that corporate loans issued to government-backed firms rose from 35 percent in 2013 to 60 percent in 2014, the latest year official figures were available.

While one negative of pumping money into state-owned enterprises is that less capital and less market share would be available to smaller, private firms, other concerns have to do with both the financial viability of this approach and how it could impact not only China but the United States and other countries.

In a sign of both the ballooning footprint of Chinese state-owned companies in the world economy as well as the uncertainties of their fates, three Chinese state-owned companies made Fortune Magazine’s Global 500 list in 2016, but two of the three, China National Petroleum Corporation and Sinopec (a producer of chemical products) saw significant reductions in revenue in 2016 (more than 30 percent from the previous year), and a loss of profit of 56.7 percent and 30.6 percent, respectively.

Rory MacFarquhar, a former White House economics and finance official, warns that if the Chinese government continues to prop up state firms that he says are “more indebted, less profitable and less productive than private firms,” and use them to channel China’s plans and objectives abroad, it could have serious spillovers for other countries, including the United States, because the presence of these companies could potentially “distort the competitive playing field, and their outward investment may raise national security concerns.”

One Belt, One Road

President Xi promised that China would add billions of dollars’ worth of investment to the One Belt, One Road initiative. Asked if it is true that American companies are giving the initiative the “cold shoulder,” as some media reports have suggested, Zarit, the president of AmCham China, replied: “A number of AmCham China members are closely following OBOR developments to gauge progress and substantive opportunities for their respective companies, although some members still view the project with a bit of skepticism.

“Despite OBOR still being a fledgling initiative, the Chinese have rolled out this Xi Jinping presidential priority through an oversized summit with undersized substance. Having said that, American companies are interested in OBOR if it makes business sense.”

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