US corporate enthusiasm for the Chinese market has not been dampened by the war in Ukraine – at least so far

Russia’s invasion of Ukraine has been widely condemned in the United States, but that has so far not dampened corporate American enthusiasm for China, whose government remains friendly with Moscow.

So thinks Craig Allen, president of the US-China Business Council, a non-profit organization representing 260 companies doing business in China, including GM, Honeywell, McDonald’s, Microsoft and the Carlyle Group. China’s support for Russia has not extended to weapons or lethal aid, and Beijing acknowledges that it would face US sanctions if it breached US sanctions, Allen said in an interview from Washington. , DC on Monday.

As a result, “most of our businesses remain optimistic,” he noted. “There is a huge gap between perceptions on the ground in China and perceptions in the United States. On the ground in China, most country managers are: ‘Go, go, go!’ In the United States, there is a greater sensitivity to geopolitical complexity.

Allen can follow these American trade-savvy long after a long career in the U.S. Foreign Service with postings in China, Japan, and Taiwan, before joining the U.S.-China Business Council in 2018. Board members include Pfizer, Microsoft , GM, Honeywell and the Carly Group. Companies are optimistic about China, the world’s second largest economy after the United States, because of its prospects for economic growth and its large consumer market.

In the same way that American companies are optimistic about doing business in China, their Chinese counterparts would be happy to invest more in the United States if there was an overall improvement in relations between the two parties. “I suspect a lot of Chinese companies would like to invest in the United States if they could find a safe way to do so,” he said.

Interview excerpts follow.

Flannery: What is the impact of Russia’s invasion of Ukraine on American companies doing business in China?

Allen: After the sanctions announcement, there were a number of briefings from the US government to our group about how we are supposed to comply with US law no matter where we are. We are pleased that the Chinese government recognizes this as a requirement and has stated that it has no intention of violating the sanctions. And so I don’t think that, at least so far, the Chinese government is pressuring American companies to violate these sanctions. Now, over time, it might get harder. But what we have seen is that the Chinese are respecting the sanctions, because they recognize that they would also be subject to the sanctions if they did not.

That said, China’s ambassador to Russia reportedly said it was a good time for Chinese companies to fill a void in Russia. So I think there are cross-currents here that American companies have to be careful of. But at least so far, I don’t know of any American company that has been disadvantaged in China. What I read from the position of the US government is that the red line is the Chinese selling arms or lethal aid to the Russians. I don’t think the Chinese have crossed that line to my knowledge. I hope they will not and that they will recognize that this invasion is a flagrant violation of the principles of the UN, their own principles, and that they are not complicit in the death of innocent Ukrainians. I think that’s where we are now.

Flannery: Aside from this conflict, what do you see as the major trends in US-China affairs this year?

Allen: The numbers in 2021 were actually pretty good. U.S. exports were up about 22% year-over-year, on top of a solid increase last year. So, despite the tariffs, companies are doing very well. This is not true in all areas, but agriculture, energy, consumer goods and financial services have all seen huge success over the past 24 months. Industrialists are mixed. Some — for example — the chemical industry or the petrochemical industry are very strong. Others are reasonably strong, notably automotive, and others are not, notably aerospace. And then you get to the high-tech realm, and it’s very mixed. The expansion of government export controls has certainly made this much more complicated. I would say that life sciences is also very complicated due to price pressure and government management of public health in China, trying to reduce system costs.

The picture is therefore mixed, but most of our companies remain optimistic. There is a huge gap between perceptions on the ground in China and perceptions in the United States. On the ground in China, most country managers are: ‘Go, go, go!’ In the United States, the geopolitical complexity is much more sensitive. Both governments are interested in reducing dependence on each other, which could be broader – rather than narrow – decoupling. . Those who have observed Huawei’s situation, for example, recognize that some degree of decoupling is inevitable, but the question of its extent remains undecided. Companies do not want to see it in their region where they have been trading successfully for 10, 20, 30, 40 years.

Flannery: How does the geopolitical sensitivity you just mentioned affect Chinese investments in the United States?

Allen: Chinese investment in the US has fallen to around 15% of peak – based on Rhodium Group figures. But the money keeps pouring in and approvals are given in many areas; less in high tech and sensitive industries, more in general manufacturing, real estate, retail, media, entertainment and education. The nature of investing has changed, but it continues to happen. I tend to think that if the two governments gave a positive signal, (the investments) could be multiplied by 10 overnight. It’s – really – artificially limited by the lack of visas, the lack of ability to travel and the general kind of attitude of the two governments. The market is potentially much bigger than it is. Last year, the best estimates are about $7.5 billion (per year) of Chinese investment in the United States. I suspect that could be multiplied by 10 – say, $70 billion – if the geopolitical environment were more favorable. There is a lot of Chinese money that wants to come.

Also, recently China’s current account surpluses have been good and they need to recycle that money. Where will he go? It’s going to go into something. They don’t want to put it in treasuries. There are a lot of investments in Europe. I suspect that many Chinese companies would like to invest in the United States if they could find a safe way to do so, and probably get a visa so they could monitor their investments. But right now, all of these things seem difficult.

Flannery: $70 billion seems like a lot right now.

Allen: That’s about where we peaked in 2017. We have a huge trade deficit with China. Chinese manufacturers would like to invest in the United States to manufacture these products here. This is the model, not only with Korea, Taiwan, Japan, Hong Kong and Singapore, but also with Germany, the United Kingdom, France and Holland. Investment follows trade. This is not happening here due to government restrictions, but it could happen.

Flannery: Is there still greater enthusiasm at the state government level to attract Chinese investment to the United States compared to DC?

Allen: I think the state, county, and municipal levels would welcome job-creating Chinese investment in their jurisdiction. But that channel, if you will, has become really restricted and there’s a lot less Chinese money coming in than we all would have expected 10 years ago. There should be a much deeper, deeper and wider flow of capital than it actually is.

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