January 20th, 2011
06:32 AM GMT
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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.



soundoff (12 Responses)
  1. Manuel Vilhena

    Even thinking slowly I cannot remember any Chinese brand.

    January 20, 2011 at 9:41 am |
  2. Sagar

    Bossini, Giordano, Lenovo, Haier, TCL.

    January 20, 2011 at 11:53 am |
  3. alex

    Kentucky Fried Chinese?

    January 20, 2011 at 12:24 pm |
  4. Ken Spud

    There is one area of economic power which comes to mind when thinking of USA/China relations: Boeing and GE. Yet, even though USA companies have willingly given up technological superiority to China in the belief that they will benefit over time from the increased access to the worlds largest 'potential' consumer market, the reality is just the opposite of those expectations. China has clearly stated that it iintends to build its own commercial aircraft to compete with Boeing, Yet, with no assurance of access to the Chinese market, Boeing has willingly given up much of its technology to Chinese manufacturers in producing components for its 'dreamliner, and in yesterdays news from the 'Times', even GE is granting licensing agreements to China for the production of China's own line of aricraft.

    In short, China is holding out the proverbial carrot while demanding direct access to advanced technology, and the worlds companies are biteing. I believe that the evidence is in, and the plaintiff's caswe has rested, what the USA, Japan and Europe will get is not the proverbial you know what but the Confucian proverbial 豆腐杂。 Maybe we deserve it for causing the Chinese to lose face through foreign occupation; a situation similar to the foreign occupation of Tibet and Xinjiang. Whatever goes around comes around, they always say.

    January 20, 2011 at 12:59 pm |
  5. hachimada

    You are really slow. Let me remind you: Le - no - vo.

    January 20, 2011 at 3:02 pm |
  6. Tim

    The brand means nothing.
    All the parts for your iPad or your Sony, Toshiba, Logitech, and every single piece of electronics is made in China.
    The only thing NOT done there is is painting the company name on the piece of machinery.
    Your comment implies that Chinese goods are terrible.
    Honestly, most of the things that you wear and use every day are made in China.
    Perhaps you need to 'think slower'.

    January 20, 2011 at 3:52 pm |
  7. sk

    US should allow more chinese brands
    Chna has too many US brands in china

    January 20, 2011 at 6:03 pm |
  8. Rachel Chicklys

    I tend to differ, if the chinese currency rise, the price of the chinese products will rise and the made in USA products will have a better chance to compete.
    That means more works for Americans and less need for illegal workers.
    Companies can pay more becuase they can sell their products at higher prices and they don´t need to hire illegals to achieve the actual chinese prices.
    The USA manufacturers will see a real benefit from the Chinese currency rise and americna people too.

    January 20, 2011 at 6:46 pm |
  9. kiagara, benjamin

    It is true that China and US are giant economies today, working together can bring about mutual benefit to these economies and the rest of the world.Also with co-operation between these countries the world's peace is guaranteed. Looking at the recent deal of 200 Boeing it is benefiting both countries' economies.

    January 21, 2011 at 11:42 am |
  10. ko

    @Tim

    Actually, you are completely mistaken about the content of eletronic products made in China; overwhelmingly, most of the value is in parts imported into China and re-exported as finished products with the added value mainly in low cost Chinese labor.

    Let me help you with a few facts: http://www.adbi.org/files/2010.12.14.wp257.iphone.widens.us.trade.deficit.prc.pdf

    Suggest you read it cover to cover.

    January 21, 2011 at 4:47 pm |
  11. G. R.R.

    Actually, all that the west gained was some short-term economic gains. However, that was at the loss of not just jobs, but more importantly, tech. That later is what is more important.
    America has tried to work with China for several decades. We gave them perm. MFN and then pushed to get them into the WTO. As part of that, they were to free their money, drop trade barriers, quit subsidizing, and quit dumping.
    Yet, they have fixed their yuan to the dollar. They have more trade barriers then ever before. And they subsidize and dump more than any other nation.
    By all definitions, this is a cold war on CHina's action.

    January 22, 2011 at 5:57 am |
  12. burberry

    It is an excellent novel in every way.What does she like? I beg your pardon? It seemed as if there was no way out.Plenty of sleep is healthful.I have a lot in common with my sister.I have a lot in common with my sister.She had a bad cold.I am busy.It really depends on who is in charge
    burberry http://burberry2012.qiangwai.co/burberry-developer-burberry-on-sale-creative-handbag-with-the-personal-preference/

    October 29, 2012 at 8:21 am |

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