Chinese and US enterprises are upbeat about the future

By Li Xiaoyang
0 Comment(s)Print E-mail Beijing Review, March 2, 2022
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A worker checks production data at a Fuyao Glass America workshop  in Ohio, the U.S., on July 27, 2019. The company is a subsidiary of Chinese auto glass manufacturer Fuyao Group. [Photo/Xinhua]

During his icebreaking visit to China in 1972, U.S. President Richard Nixon was invited by Chinese leaders to recommend the best American enterprises from 10 sectors to drive economic exchanges between the two countries. Honeywell UOP, a supplier and licenser of petroleum refining solutions operated by technology and manufacturing giant Honeywell International Inc., was the only company in its field named by Nixon.

"Thanks to the economic cooperation and exchanges between China and the United States, Honeywell has been participating in China's economic development and promoting technological innovation and industrial upgrading together with our Chinese partners," Steven Lien, President of Honeywell Aerospace Asia Pacific, told Beijing Review.

According to Lien, Honeywell moved its Asia-Pacific headquarters to Shanghai in 2003, subsequently established the company's largest research and development (R&D) center in Asia there, and has been continuously expanding its investment in China ever since. In 2016, the company invested an additional $100 million to expand its Asia-Pacific headquarters and the R&D center in Shanghai's Pudong New Area. It later launched its emerging market headquarters and innovation center in Wuhan, Hubei Province, in early 2020, to explore the potential of central China, becoming the first Fortune 500 company to set up a subsidiary in the city that year.

"Nowadays, China has developed into Honeywell's second largest single market and the company's largest growth market. The country's opening-up efforts and its focus on sustainability and digitalization have created a favorable investment environment and business opportunities," Lien said.

Like Honeywell, many U.S. enterprises that have developed businesses in China maintain their confidence in the market despite trade tensions between the two countries and the COVID-19 pandemic.

In a 2021 survey of 107 U.S. enterprises doing business in China, conducted by the U.S.-China Business Council (USCBC), 95 percent of respondents reported they were profitable.

While U.S. businesses continue to expand their investment in China, a growing number of Chinese enterprises have also entered the American market, such as auto glass manufacturer Fuyao Group, which rose to prominence through the 2019 documentary American Factory.

According to a report released in mid-2021 by the American Chamber of Commerce in China (AmCham China) and global financial services provider Ernst & Young (EY), up to 65 percent of the roughly 180 Chinese-funded companies they interviewed in the U.S. will still invest in the local market with profits made there, up 15 percentage points from the previous year.

On the bright side

More than 70,000 U.S. multinationals have had a presence in the Chinese market, with their combined annual sales reaching approximately $700 billion, according to Liao Qun, chief economist with the Chongyang Institute for Financial Studies at Renmin University of China. Many U.S. enterprises, including Intel and Qualcomm, conduct the majority of their research and development within their China-based subsidiaries.

The 2021 American Business in China white paper, released by AmCham China, showed that 75 percent of its member enterprises surveyed, totaling around 1,000, proved optimistic about China's economic recovery in the next two years. More than 50 percent said the growth of domestic consumption and the rise of Chinese middle-income group present great business opportunities.

Given their strong commercial gains and positive growth prospects, the majority of U.S. companies in China remain committed to the Chinese market and very few have plans to divest, according to the USCBC survey.

Among the respondents, 64 percent saw revenue growth in 2020. Also, 78 percent viewed China's growth prospects as better than those in other emerging markets. In line with their strong performance and favorable growth prospects, 43 percent of the firms said they would increase resource commitments in the Chinese market in 2021. Only 6 percent planned to reduce investment.

Agriculture and food company Cargill is one of the U.S. companies that have increased investment and presence in China. This year, it will open its first global innovation center for animal nutrition and health in Asia, in Shanxi Province, and build a new factory for pet food in Zhejiang Province in east China. The company said it would enhance its input in the Chinese market as the country pushes ahead with rural vitalization.

The survey also showed 87 percent of the U.S. companies did not shift any segments of their supply chains out of China in 2020. That percentage has remained unchanged for three years since 2019. Among those that made adjustments, only 2 percent backshored one or more segments to the United States, while 12 percent moved elsewhere.

The small number of companies shifting supply chains can speak to the strength of China's supply chain ecosystems and to the difficulty of relocating, although the case may be indefinite, according to the survey report.

Nevertheless, challenges remain. The report cited increased costs and uncertainties resulting from China-U.S. frictions as top reasons for the small number of American businesses moving their operations to other locations. Other challenges include the pandemic, competition with Chinese companies and data flow.

The National Development and Reform Commission (NDRC), China's top economic planner, held several roundtable meetings with representatives of U.S. multinationals in China last year. According to NDRC officials, U.S. enterprises do not need to worry about being treated unfairly despite China-U.S. trade tensions. They said the Chinese Government would continue to enhance intellectual property right protection, open up sectors like telecommunications, culture and healthcare, and ease market access restrictions for foreign investors to ensure a more level playing field.

Prudent but confident

Eyeing a larger platform and increased access to financing, a growing number of Chinese firms have been listed on U.S. stock exchanges in recent years. Many have also entered the U.S. market and are improving their brand reputation, boosting innovation, and enhancing compliance management for stronger competitiveness. Data from U.S.-based research provider Rhodium Group showed that China's direct investment in the U.S. rose by nearly $1 billion year on year to $7.2 billion in 2020.

In addition to state-owned enterprises such as COSCO Shipping Corp. Ltd. and Air China, private Chinese firms have also gained a footing in the U.S. market. Fuyao Glass America, the U.S. branch of Fuyao Group began production in 2016. It is Ohio's largest Chinese company, employing more than 2,000 workers.

Chinese car manufacturer BYD opened a plant in Lancaster, California, in 2013. As the California Air Resources Board ruled in 2018 that all buses used in the state's airport facilities must be carbon-free by 2029, BYD has been focusing on the production of electric buses and creating jobs for local people. According to the company, it has grown to become the largest battery-operated electric bus manufacturer in North America, with around 1,000 employees as of 2021.

The pandemic has most affected Chinese-funded businesses in the consumer services and property sectors in the U.S., while financial and telecommunication enterprises were only slightly affected, and healthcare companies have made progress. Around 40 percent of the surveyed Chinese enterprises believe China-U.S. relations will thaw, the report by AmCham China and EY said.

In addition to the external impacts, Chinese businesses in the U.S. are facing increasing risks from the politicization of economic issues that make their business more difficult to run.

Most recently, the Office of U.S. Trade Representative on February 17 labeled AliExpress, an online retail service owned by Alibaba, and all-purpose social media platform WeChat, owned by Tencent, as "notorious markets." The list had already included Chinese e-commerce platforms DHGate, Pinduoduo and Taobao. Earlier, the U.S. Federal Communications Commission announced it would revoke its Authorization to Operate for the U.S. unit of China Unicom, one of China's major telecommunication carriers, in January.

According to Liao, China and the U.S. have developed close economic and trade ties. Were a decoupling to occur, nearly 200,000 staff of Chinese enterprises in the U.S. would lose their jobs, and the American access to the Chinese market would further narrow. In order to obtain the most mutual benefit, the two sides must put an end to trade and technological frictions, enhance cooperation on energy and infrastructure, and promote trade and economic exchanges between local governments and private enterprises, he concluded.

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