The American Chamber of Commerce (AmCham) issued its annual white paper for 2021 in May.
The annual AmCham white paper is prepared based on a survey of members about their business environment in China for the current year, in the context of current China-U.S. business relations, assessing China’s policies and practices in all aspects of the economy and society, and forwarding recommendations and work priorities.
General Setting
The 2021 white paper includes four parts, with each part covering the following main content:
Part One: Business Climate Survey
— Business Climate Overview: Challenges Old and New
— 2021 White Paper Recommendation Scorecard
A list of recommendations 2020 and 2021 to both the Chinese and U.S. governments on all business-related issues. It includes 35 aspects, including agriculture, automotive industry, banking and capital market, civil aircraft and others.
Then the white paper allocates the 35 aspects to three categories: industrial policy and market access, industry-specific issues and regional issues.
Concluding Part One, the white paper presents three AmCham work priorities for 2021.
Part Two: Industrial Policy and Market Access
Elaboration of the existing situation and problems, with recommendations on 12 of the above-mentioned 35 aspects:
Civil society, competition law, compliance, customs and trade, government procurement, high-tech trade promotion and export controls, human resources, intellectual property rights, investment policy, standards, certification and conformity assessment, tax policy,visa policy.
Part Three: Industry-Specific Issues
Elaboration on existing situation and problems, and recommendations on 19 of the above-mentioned 35 aspects:
— Agriculture, Automotive, Banking and Capital Markets, Civil Aviation, Direct Sales, Environment. Express Delivery, Food and Beverage, Healthcare, Information and Communications Technology, Insurance, Legal Services, Machinery/Manufacturing, Media and Entertainment. Oil & Gas, Energy, Real Estate, Retail & E-Commerce, Sports, and Work Safety and Emergency Management.
Part Four: Regional Issues
Elaboration of existing situation and problems, and recommendations on four of the above-mentioned aspects：
Shanghai, Tianjin, Southwest China, Central China/Wuhan
Basic Highlights
1. U.S.-China trade is still growing and the majority of AmCham members are optimistic about the Chinese economy and remain committed to it.
U.S.-China economic relations remain deeply intertwined. Two-way bilateral trade in goods totaled $560 billion in 2020, despite the COVID-19 pandemic. China is among the largest and fastest-growing markets in the world and constitutes an important market for U.S. products and services.
In a market with the size and growth potential of China’s, there are significant opportunities. Its economy could account for as much as one-third of global GDP growth over the next decade.
Our members remain committed to the China market; 85 percent report they are not considering relocating manufacturing or sourcing outside of China. Nearly two-thirds of members report they are planning to increase investment in China in 2021, with the majority expecting to increase investment by between 1 and 10 percent.
Among members who expect to increase investment, the most frequently cited justifications for doing so are a strategic reprioritization of the China market and an expectation of faster growth in the China market. Nearly 61 percent remain confident that China will continue to open its markets to foreign investment, driven by slowing domestic growth rates and shrinking external demand. Members note that policy commitments like those around the Hainan FTZ/Free Trade Port are a useful example of China’s commitment to further opening, but that a lot of work remains to be done to achieve a truly level playing field.
2. “Rising tensions in U.S.-China relations” was the No. 1 reported challenge facing the business community, with 78 percent of members reporting it as a top challenge.
The impact of rising bilateral tensions was particularly acute in the services industry, where 95 percent of members reported it as a top challenge. Indeed, the deteriorating relationship has placed the American business community in the crosshairs, as economic and trade issues have become deeply intertwined with national security and other law enforcement issues. The U.S. entity list and the Chinese unreliable entities list have caused high uncertainty in trade and investment.
The top 10 challenges AmCham members faced in 2021 have changed from those of 2020.
2021 BCS Rank 2021 BCS Challenge 2020 BCS Rank
1 Rising tensions in U.S.-China relations 78% 2
2 Rising labor costs 40% 1
3 Inconsistent/ unclear laws and/or regulations
and enforcement 37% 3
4 Increasing competition from privately
owned Chinese companies 33% 10
5 Concerns about data security 26% Not in the 2020 top 10
6 Regulatory compliance risks 20% 4
7 Increasing Chinese protectionism 19% Not in the 2020 top 10
8 Internet access quality and/or censorship 18% Not in the 2020 top 10
9 Difficulty obtaining required licenses 16% 6
10 Intellectual property rights infringement 15% Not in the 2020 top 10
It is worth noting that AmCham members are increasingly concerned about data security and censorship, increasing Chinese protectionism and IPR infringement, though China made big strides in the new foreign investment law.
3. Mixed Assessments on China business environment improvement
The AmCham recommendation scoreboard shows that over the past year, China has made obvious improvements in market access for commercial banking, credit rating, custody services, automotive financing and insurance.
Moderate progress in securities and bonds, competition law, compliance, high-tech promotion and export control, IP protection, investment law, derivatives, customs and trade, express delivery, food and beverages, health and medical services, licensing, oil and gas, real estate, retail and e-commerce, and work safety and emergency management.
Slow progress in automotive, cybersecurity, civic society, direct sales, environmental protection and human resources.
No progress in private equity, iron ore pricing, civil aviation, education and Southwest China.
4. Special concerns
A) Dual circulation and technology independence AmCham members are concerned that this policy leads to acquisition of foreign technology instead of voluntary cooperation and competition by foreign companies in the China market.
B) Market access and fair treatment
Many of these challenges stem from a lack of market access, and in 2020, 77% of members reported that market access barriers inhibit their operations in China to some degree, consistent with our data in past years. Two-thirds of members say they would consider increasing their investments in China if markets were open on par with those in the U.S., a slight increase over last year.
Companies continue to report they are treated unfairly in areas important for their business operations, as we discussed in the above section on the FIL. Beyond those areas, 30% of members reported they are treated unfairly with respect to regulatory enforcement, an increase of 6 percentage points from last year. And 28% report they are treated unfairly with respect to licensing, though this has fallen from 35% in 2019.
C) Innovation and Cybersecurity: Concerns around decoupling
Companies are concerned about potential U.S.-China technology decoupling (23%), increased restrictiveness of cybersecurity-related polices (19%) and a lack of sufficient IP protections (17%). Only 17% of members overall report they face no notable barriers to innovation. With respect to specific tenets of China’s far-reaching Cybersecurity Law, which came into effect in June 2017, members report that data localization requirements most negatively affect their competitiveness in China. Other tenets of the Cybersecurity Law that negatively affect member operations include data privacy regulations and compliance concerns.
D）Information and Communication Technology (ICT): Latitude for discrimination
China’s Cybersecurity Law was released on June 1, 2017 and imposes strict cybersecurity restrictions on both ICT industries and ICT users. It leaves considerable latitude for discrimination against international vendors and imposes stringent conditions on the foreign business community. They include, among others, market access barriers on cloud computing, value-added telecom services, public procurement of ICT, cybersecurity law, cryptography law, export control, data localization, big data and AI.
AmCham recommends:
For the Chinese government
• Elements of the Cybersecurity Law need to be defined and clarified. We urge the government to maintain narrowly defined concepts and definitions that do not go beyond fundamental and reasonable definitions of national security.
To the maximum extent feasible, China should eschew data localization policies, or implement them only within a narrow scope of application and subject.
For the U.S. government
• Promote cooperation with Chinese agencies in international forums for the development of frameworks for ethical uses of AI, as well as for standard-setting, and encourage the adoption in China of international standards and ethical frameworks. Continue to promote the APEC Cross-Border Privacy Rules system, the APEC Privacy Framework, and the adoption of these as a consensus standard across the APEC region.
E) Government Procurement: China needs to accede to WTO GPA in 2021
AmCham urges the Chinese government to address the outstanding issues and requests of the GPA parties in order to complete its accession to the GPA in 2021.
AmCham China urges the government to work with the GPA parties to address these deficiencies and other improvements: China should withdraw its proposed one-year transitional thresholds, its reservation to require domestic content requirements, offsets, or transfer of technology and its claim to transitional measures as a developing country given the advanced state of its economy.
AmCham urges the U.S. government to work with the EU and the other GPA parties to identify and present to China the improvements needed for their acceptance of China’s market access coverage with the aim of facilitating China’s accession to the GPA in 2021.
F) High-Tech trade promotion and export control: U.S.-China collaboration to limit restrictions is encouraged.
Export controls on high-tech products in both the U.S. and China has caused confusion and uncertainty. They include in the U.S., military end-user, further expanded foreign produced direct product rules and entity list; and in China, the Export Control Law.
AmCham China encourages both China and the U.S. to collaborate with industry and government experts to address issues of concern on both sides about export controls and high-tech transfers. We urge China and the U.S. to limit restrictions on technology-sharing to those technologies that have a clear national security rationale and can be realistically controlled. We urge that any necessary restrictions on the basis of national security be clearly, appropriately, and narrowly defined.
AmCham China also calls for Hong Kong “normalization,”d hopes that the U.S., in formulating new controls and sanctions, will consider the existing business that multinational companies, including many U.S. companies, have in Hong Kong, and focus on targeted individuals and entities while supporting Hong Kong’s important role in global finance and trade.
G）Phase One trade agreement
AmCham supports the Phase One agreement. China has not met its purchase commitment.
H) Agriculture: China purchase commitment and market access
AmCham acknowledges the progress China has made in implementing the Phase One agreement. Chinese purchasing commitments under the Phase One agreement were unfulfilled in 2020. China pledged to purchase an additional $12.5 billion (above the corresponding 2017 baseline amount) of a series of agricultural goods from the U.S. in 2020 (including oilseeds, meat, cereals, cotton, other agricultural commodities and seafood).
In October 2020 the U.S. Trade Representative and the U.S. Department of Agriculture estimated that China completed 71 percent of its purchase commitments in 2020; separate analysis suggests that China reached approximately 82 percent of the 2020 target. AmCham China recognizes the impact of the COVID-19 pandemic on Chinese import commitments in 2020 and remains hopeful that China will faithfully implement and strive to meet its agricultural commitments under the Phase One agreement in 2021.
Further market opening to seed production. AmCham also recommend the Chinese government improve the competitiveness and sustainability of Chinese agriculture by further opening the industry up to foreign investment in wheat, maize, soybeans, rice breeding and seed production, agricultural biotechnology and modern agricultural processing.
AmCham Policy Priorities for 2021
AmCham member companies are clear that actions by the Chinese government to ensure a level playing field for FIEs, that open the market to foreign investment under clearly defined timelines, and ensure consistency in policy implementation across central, provincial and local levels would have the greatest impact on their investment decisions.
At the same time, they would like to see the U.S. government refrain from engaging in aggressive rhetoric and tit-for-tat actions (46%), advocate more strongly for a level playing field for U.S. business in China (38%), and engage in results-oriented government dialogues (30%).
A) Priority One: Build a healthy working relationship through results-focused engagement given the deterioration of U.S.-China relations in 2021.
• Both sides commit to reducing the public use of inflammatory and unhelpful rhetoric that has characterized exchanges in recent years.
• Both governments prioritize communication at the working level and with strong business community engagement on both sides, as well as high-level dialogue not only on economic issues but also dialogue in all spheres of the bilateral relationship including national security, law enforcement and diplomacy.
• Both China and the U.S. should negotiate to join the Comprehensive and Progressive Agreement for Transpacific Partnership (CPPTP.)
B) Priority Two: Ensure that rhetorical commitments to national treatment; and a level playing field for FIEs operating in China are met with faithful implementation on the ground.
U.S.-China economic and trade relations have positive benefits for both countries, and the China market is a central component of the global strategies of many American companies.
C) Priority Three: Identify and develop patterns of cooperation on globally shared issues, particularly public healthcare and climate change.
Such negotiations would help both sides to mitigate their differences on national security issues so as not to preclude cooperation on issues of global commons. The U.S. and China have traditionally enjoyed robust scientific and medical collaborations, although the level of this collaboration has declined in recent years.
Unfortunately, the response to COVID-19 thus far has been marked by a lack of cooperation, blame-shifting, and an exchange of accusations by both sides. This has handicapped efforts to foster international cooperation and mobilize a coordinated, multilateral response to the pandemic. Addressing climate change is another area of common interest and global significance.
Observations and Recommendations
The writer’s main observations
A) AmCham and the American business community in China it represents do not share Washington’s strategy and basic policies on China. The latter defines China as an “authoritarian regime” in conflict with American values of human rights and democracy, and thus sees China as its strategic rival and competitor. It consequently sets the U.S.-China policy on a base of confrontation and decoupling.
AmCham, however, sees the China market as a central component of the global strategies of many American companies and thus remains committed to business in China.
B) AmCham and its members have systemic concerns and complaints on China policy focused on market access and fair treatment.
Their concerns and complaints are in general based on facts and relevant WTO rules. They do not share USTR’s basic judgement that China’s trade practices are “coercive” or a “violation of human rights” based solely on its own “rules.”
C) AmCham’s stance represents to a large extent the actual interests and opinions of American businesses, which are fundamentally different from Washington’s basic allegations and trade policies with regard to China.
D) AmCham, however, does have serious concerns and complaints about the investment environment in China and relevant Chinese laws, regulations, government policies and measures.
They focus on three aspects: dual circulation and equal access to China market, fair competition and cybersecurity, supported by extremely articulate interpretation of Chinese legal documents and practices. Meanwhile, AmCham has also expressed in systematic detail the concerns and problems of relevant U.S. laws, regulations and policies creating tensions and handicaps to its China business, and it has forwarded suggestions to the U.S. government.
E) AmCham white paper provides good insights on China-U.S. business that will move forward despite all the difficulties. On the other hand, it appeals strongly for dialogue between the Chinese and U.S. governments to manage differences, as the current tensions pose the greatest challenge.
The Writer’s Recommendations
1. Dual-track business dialogues
A business track and government track, with more dialogues on the business track first, followed by a government track.
2. Details matter
Chinese government and academia need to study the white paper meticulously, register all the main concerns and complaints by category and by specific items and cases. On the basis of concrete discussions, get down to action, either to work out the implementation details of laws and regulations, or to pick up and quickly solve typical cases.
3. More focus should be put on high-tech trade restrictions and cybersecurity
This is the main point of tension in the U.S. policy of confrontation, containment and decoupling with regard to China. AmCham and its high-tech members could be helpful in cushioning restrictive moves in semiconductors and other high-tech by the Biden administration, as well as decoupling. We should work with the administration closely. Meanwhile, hard work should be aimed at specific cybersecurity and national security regulations. Dialogues are recommended with U.S. high-tech companies.
D) Trade dialogue with the U.S. government should be based solely on multilateral rules with the WTO at the center, not on U.S. rules and narrative.
E) Phase One agreement implementation should continue.
