US and China Are on a Perpetually Bad Date

Friday, 18 Jul 2014 11:04 AM

By Neal Asbury

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These days, America competing with China is like an American runner competing against a Chinese runner, except that the American runner has to carry an anvil. It may be against the rules, but there's little anyone can do about it. The Chinese have the advantage.

Let's not delude ourselves about China's aims. They want to surpass the United States as the world's leading economy. And they want to replace the dollar with the yuan as the world's preferred currency. They are making progress in both areas.

So it's not surprising that during the recent annual U.S.-China Strategic & Economic Dialogue, China was not in the mood to compromise on anything. Although they did agree with passing something against wildlife trafficking, which is a nice idea, but it was hardly a game changer.

The goal was to create a bilateral investment treaty, but as American manufacturers know too well, China wants American companies to play by their rules. That means wading through Chinese laws that welcome American investments as long as it is based on joint ventures with Chinese companies and that its mission is to export Chinese manufactured products.

Through experience, American companies have learned that by giving Chinese companies access to an American company' s operations, it won't take long for the technology to be stolen and the American company supplanted, leaving it a broken shell.

The Organization for Economic Co-Operation and Development has estimated that counterfeiting and piracy costs companies as much as $638 billion a year, which is greater than the total GDP of all but 12 countries. Around the world, between 35 and 40 percent of all commercial, packaged software and musical recordings sold every year are thought to be counterfeit. And China is at the top of the list of offenders.

Cyber security is another big problem. On the very day that the summit was held, it was reported that Chinese hackers had gotten into American government sites. This doesn't sound like a country anxious to adopt a code of ethics.

China is only interested in what is good for China. They welcome the opportunity to sell to American consumers in an open market, but they don't afford that same opportunity for American exporters who face high tariffs, corruption, a manipulated currency and byzantine laws that are nearly impossible to overcome.

China wants to become the world's leading economy, and they will stop at nothing to get there.

Their citizens yearn for American products, but the Chinese government makes it nearly impossible to profitably establish a presence in the country so foreign companies can create their own sales network, logistics and warehouses. They seem to have little desire for a bilateral investment treaty. In fact, the rosiest outlook for an agreement is at least two years away.

American manufacturers aren't looking for special treatment. They just want to operate on a level playing with China so that there are legal safeguards that protect a company's assets from lawsuits and from the government itself. They also want their intellectual property to be respected.

China doesn't see bilateral investment the same way we do. According to Forbes, China's direct investment in the United States was less than $2 billion in 2008, but rose to more than $10 billion by 2012.

Sounds impressive until you discover that U.S. investment in China is approximately $50 billion, and has been for some time. And for that, American manufacturers and investors get little in appreciation.

Last summer, President Obama met China president Xi Jinping in Sunnylands, Calif., for a mini-summit. Nothing was settled. People who witnesses the meeting described China as playing chess, while the United States played checkers.

As I mentioned at the outset of this column, China wants to see the dollar become a second-class currency, and sadly, they are enlisting American companies to help.

According to the Society of Worldwide Interbank Financial Telecommunications, payments made in yuan by U.S. companies have quadrupled in the past year to 2.6 percent of the global yuan total. That's an ominous sign, but reflects China's ability to undermine the dollar by encouraging Chinese suppliers to give discounts to American importers who pay in yuan.

This nation and its leaders must get serious about setting policies that give American manufacturers the global advantages they need to expand markets and create U.S. jobs. And that requires having a well-defined working relationship with China.

Bill Gates sums it up nicely: "China and the U.S. need each other very badly. Yes, we should argue about some things, but it's not an 'us versus them,' it's an 'us and them' type scenario."

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