January 20th, 2011
06:32 AM GMT
Hong Kong (CNN) – Behind the pomp and pageantry of Wednesday night’s state dinner in Washington for Chinese President Hu Jintao was the undercurrent of rancor foaming in the U.S. over China’s economic rise.
There is a perception of a zero-sum relationship between the world’s two largest economic powers – that China’s rise comes at the expense of the U.S. economy. That perception was heightened right about the time the apple pie was being served at the White House, when back in Beijing, China released data that showed the economy grew 10.3% in 2010. Meanwhile, the latest unemployment figures in the U.S. show nearly one in 10 Americans are out of work.
China’s ascent stands in stark contrast to the anemic economic recovery in the U.S., and has ratcheted pressure from Washington for Beijing to let the value of its currency rise, saying it is being kept far below its actual worth, thereby giving Chinese exports an unfair cost advantage. Beijing has argued that everyone – especially U.S. consumers – would be hurt if the value of yuan suddenly skyrocketed, sending up prices of the vast amount of Chinese goods sold in the U.S.
But for American business interests in China, the current currency battle is a short-term sideshow to the real issue that threatens to dog U.S.-Sino relations in the years to come: Access.
“That has really moved to the forefront, the issue of market access,” Patrick Chovanec, a professor at Tsinghua University, told CNN. “You’ve seen a shift in the emphasis of American negotiators away from exclusive focus on currency – which really dominated discussions over the past year. Changing the exchange rate won’t really have an impact unless American companies have access to the China market.”
China is attempting to shift gears from exports to a consumer-driven economy. The newly enriched population of China creates a tantalizing market opportunity for western businesses. Many U.S. companies already reap bumper profits from China – Yum! Brands, owner of KFC, Pizza Hut and Taco Bell chains, generates more sales in China than in the U.S., CNNMoney reports.
But the real opportunities for doing business in China is with the state-owned entities, which account for 40% of the economy. State regulations favor “indigenous innovation” (read: homegrown companies) in its government purchases.
That puts the hurt on foreign companies in China, where a survey by the U.S. Chamber of Commerce in China found that 28% of its members lost business due to the “indigenous innovation” clause.
For China, the motivation is to help nurture its domestic companies to become global leaders (think fast – can you name one Chinese global brand?). If China is to create its own Toyota, Sony or Samsung, Beijing wants to make sure its not edged out by – well, Toyota, Sony, Samsung or another foreign competitor.
Technology companies especially are feeling squeezed out of the China market. “We did talk about areas for improvement, one would be leveling the playing field … making sure that U.S. companies like Motorola Solutions and others have equal access to Chinese government contracts against indigenous competitors,” Greg Brown, co-CEO of Motorola, told CNN after meeting with the Chinese delegation.
Most economists would agree that the U.S. has reaped huge economic benefits from the rise of China as a center of low-cost production. That was underlined during this week’s U.S.-China summit, with Washington announcing $45 billion in new deals with Beijing. The U.S. also remains the largest export market for China.
Both nations say their desired goal is to shift the relationship – a China less dependent on U.S. exports, an America that sells more products to China than it buys. But it’s clear from this week’s summit that the tilt toward a new economic balance will be accompanied by tumbles and tumult.
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