There is a growing contradiction about China among the American people. On the one hand, China is chic again. News of a rapidly growing economy and increasing income has rekindled thoughts of a huge market for a wide variety of goods and services. The development of non-state owned enter-prises, Americans believe, is creating what appears to be countless business opportunities for those with know-how and savvy to market in China. The successful inroads into its domestic market by such consumer products giants as Procter & Gamble and Avon has engendered an interest in doing business in China that has not been seen since the early 1980s. Firms such as AT&T and Sprint are lining up to create joint ventures for modernising the telephone system and other communications infrastructure, high priorities of the Chinese government.
The growth of China's nascent securities markets in Shanghai and Shenzhen, and the successful placement of Brilliance Company stock on the New York Stock Exchange, has many in the American financial community exuberant. Add to that China's opening door for such financial services as banking, insurance, and accounting, it is easy to understand the new fashion China has attained for the American business community. The evidence for this is obvious in New York: programs featuring Chinese financial and securities market representatives, which went begging for audiences just six months or so ago, are now overbooked.
Tiananmen is rarely mentioned now by business executives, except in reference to the other side of this rosy picture. US government policies ? more to the point, the current lack thereof ? has commercial interests nervous about near-term prospects for American participation in China's development. President Clinton's China policies remain unknown. Congressional human rights supporters, who have led the fight to revoke or diminish China's most-favoured-nation (MFN) trade status in the past three years are promising to pursue that goal with renewed vigour now that President Bush is out of office.
The dichotomy is telling: the news media reports multi-million dollar China ventures one day, followed by reports of Congressional efforts to place strict human rights conditions on China's MFN status, the next… President Clinton must state his intentions on China's MFN by June 3, so there is considerable anxiety under the surface of excitement.
US-China trade relations, damaged by Tiananmen and then jeopardised by disagreements in 1991 and 1992 over protectionism of intellectual property and access to China's domestic market, are now on an even keel despite the MFN debate. In two key bilateral agreements in January and October T992, China pledged to protect copyrights and patent on American products (such as computer software and pharmaceuticals) plus eliminate non-tariff barriers to trade over five years. These have done much to rekindle American business interests in China, making the annual MFN debate clearly political, not economic.
Through the fog that surrounds President Clinton's China policy comes hard evidence that America's trade with China is on the upswing. According to the US Department of Commerce, import and export volume between the US and China totalled US$33.15 billion in 1992, up from US$25.26 billion in 1991 and US$20.03 billion in 1990. Though much of the increase is in American imports from China, exports are beginning to go up and are expected to climb higher in the next five years. American imports from China rose US$15.223 billion in 1990 to US$25.676 billion last year. American exports to China went from US$4.807 billion in 1990 to US47.47 billion last year. The American trade deficit with China rose from US$10.417 billion in 1990 to US$12.689 billion in 1991 and US$18.206 billion in 1992.
According to Commercial Department statistics, America's imports from China continue to be comprised of light industrial products, especially textiles, toys and sporting equipment, electrical machinery, and footwear. Principle American exports to China remain commercial aircraft, industrial machinery and computers, fertilizers, electrical machinery, scientific and control instruments, and cereals.
Many complain that China's continued trade surplus with the United States is the result of unfair trade practices, especially those limiting access to China's domestic market. Sources in the Office of United States Trade Representative said that, as access to China's domestic market increases as a result of last October's agreement, the American deficit will diminish. This should be seen first by American lumber exports to China. Further these sources said, China appears to believe that a continuing trade deficit causes more political problems than those that result from human rights considerations. This may well have been a factor in some recent announcements regarding new business for AT&T and major purchases by China from American automobile manufacturers.
Despite the continuing problems of doing business in China (a declining Renminbi value, partial reforms in prices, poor infrastructure, and a burdensome bureaucracy), American business is once again bullish on China. Recent successes, plus China's stated priorities, point to areas where future efforts may pay off. Here are some of them.
American aircraft manufacturers such as Boeing and McDonnell Douglas continue to be successful in China with sales of nearly US$2 billion between them last year. Prospects for continued sales look good as China plans to expand its air transport services in the years ahead. Boeing and McDonnell Douglas may also benefit from the rowing competition between 12 CAAC affiliated airlines and the 16 new private airlines that have cropped up across the country.
Plans also call for improving China's airports, big and small, so companies engaged in manufacturing a host of airport equipment, plus smaller commercial aircraft, should be on the outlook for opportunities.
Meanwhile, American auto manufacturers have become quite active. Ford Motor Company sold 3,010 vehicles and parts for US$32 million in 1992 while General Motors sold 2,708 vehicles and parts for US$49 million. Chrysler sold vehicles and components for L+S$68 million last year. Each of the Big Three are active in China, with Chrysler and GM engaged in auto manufacturing and Ford focusing on parts. With China's auto industry in its infancy, there are many opportunities for firms that manufacture machinery for the automobile industry.
Everything from soup to nuts, Americans are beginning to believe, can be sold to Chinese consumers hungry for new products and foreign labels. This notice is lead by the clear success Procter & Gamble is having selling shampoo and soaps in China and Avon's success in marketing cosmetics to a newly-fashionable Chinese clientele. Other consumer successes include McCall Pattern Company, which is selling sewing patterns; Mars Candy selling M&Ms; and Coca Cola, which announced in February a US$150 million Flan to build 10 bottling plants in China s interior to tap into a hopefully thirsty 1.2 billion customers. Coca Cola currently operates 13 bottling plants in China.
And McDonald's, whose largest restaurant is in Beijing, is heading off currency exchange problems by creating joint ventures to. supply its beef and potatoes.
As China develops, other areas are presenting clear business opportunities, especially for the service sector. Americans are looking closely at the following:
Competition in this area is fierce. AT&T's newly announced joint venture in China to supply advanced equipment, technology, research and training for rapid expansion of China's telecommunications system signals a turn around for the American giant, which had been losing out in earlier China contracts to a variety of European companies. The new venture puts AT&T in a prime position to reap much of the US$2 billion China plans to invest in its telecommunications system by 1996.
The new venture comes on top of previous sales AT&T has made through its Shanghai venture, including equipment for a 1,484 kilometre fibre-optics network linking Beijing, Tianjin, Jinan and Nanjing valued at US$7.9 million.
Sprint, another American firm, also sold railway telecommunications equipment to China worth US$8.37 million last year.
Along with the rise in consumer spending is the new interest in health and health care among the Chinese. American pharmaceutical companies see China as an untapped market for a variety of drugs, from single pain relievers to more sophisticated drugs used in treatment of disease. Last year's intellectual property agreement between China and the United States unleashed a flurry of activity among American pharmaceutical companies, including Pfizer, Merck, Johnson & Johnson, and Bristol Myers/Squibb.
In addition to the obvious potential for increased sales, each company sees China as an outlet for mature drugs, allowing them to continue selling existing pharmaceuticals while research moves ahead to develop new items for their tradition markets in the west. This is especially so for agriculture and animal health, areas China has singled out for increased production to meet the needs of a population whose diets are changing.
China is increasingly aware of the damage being done to its environment by rapid industrialisation. It has in place a fairly sophisticated environmental protection apparatus, but is clearly lacking in equipment and technology needed to prevent air and water pollution among other degradations. American firms manufacturing relatively simple equipment such as coal scrubbers and bag houses, or waste water treatment technology, have excellent opportunities in China, but few have yet to pursue them.
China's slight opening to banks, accounting firms, and insurance companies represents a big step for the American financial community. For example, several American accounting firms, such as Arthur Andersen and Coopers Lybrand, have new joint ventures with Chinese firms and are finding work assisting the Chinese develop international accounting standards for stock placement and public disclosure of company financial performance.
American International Group has a licence to sell insurance in China, the first foreign license since 1949, leaving other American companies racing to get into the picture. Major brokerage firms are hoping to follow suit soon and are planning offices in Beijing and Shanghai.
"China is the next big market for us," one insurance executive said. "We can't wait to get in there. Our entire thinking on China has changed."
America's service sector in other areas, for example health care, engineering, information, publishing, and advertising, also have good prospects in China. Each of the above areas also reveals additional opportunities downstream, including food processing, paper-making, packaging, transport, and construction.
The key, for any service or manufacturing company, is reining in the exuberance and carefully identifying appropriate, trustworthy Chinese partners.
American companies are only beginning to realise the opportunities in China. While politics in Eastern Europe are more to American liking, that region's economy is increasingly seen as too sickly for much investment. And though China's politics are not to American liking (in other words it remains Communist), its economy is robust.
A high level Chinese diplomat who recently visited the United States to assess American views toward China, noted Americans' contradictory feelings.
"I can't see how it can be in America's best long-term interest to deny MFN," he said. "There are many opportunities in China and Americans can get their fair share if they get in and compete. Denying (MFN) won't hurt China as much as it would hurt the United States. Playing that card is double-edged."
This logic is becoming clear to American business executives. The immediate question is whether such economic logic plays well in American politics. *
Dr. Paul E. Schroeder is associate for corporate programs, National Committee on US-China Relations Inc, New York.