China-bashing nothing new

October 19, 2011

In this early stage of the U.S. presidential campaign, China seems to be on all the candidates’ minds and in their messages — and in ways that make many Chinese cringe.

Republican candidate Mitt Romney has been the most outspoken, pledging, if he is elected, to label China a currency manipulator on his first day in office and to take several punitive steps targeting China’s trade with the United States. In an opinion piece in The Washington Post last week, Romney bluntly accused China of stealing American intellectual property, blocking access by U.S. companies and hacking into foreign computers.

In the GOP, Romney is not alone. Jon Huntsman Jr., the former U.S. ambassador in Beijing, has vowed to open China’s markets to U.S. products, working through local officials. Former senator Rick Santorum, referring to the economic challenge, declared, “I want to beat China.” And Rep. Michele Bachmann (Minn.) accused China of blinding U.S. satellites with lasers and aiding America’s enemies in Iran, North Korea and Afghanistan.

Many Chinese — or those paying attention to the constant China talk — call these complaints a normal part of the U.S. election cycle, and they expect the white-hot rhetoric to cool down once the campaign is over, regardless of who wins the White House.

But economists, business people and others here also said that while some of the accusations against China hold some truth, others are unproven, and most involve complex issues that have been the subject of years of often tedious U.S.-China negotiations.

“Yes, the problems they talk about all exist, but none of them are new,” said Sun Zhe, director of the Center for U.S.-China Relations at Tsinghua University in Beijing. “These are old problems, and they’ve been negotiating these for years.”

Yuan-to-dollar exchange

First is the issue of currency. While it is widely accepted that China controls the value of its renminbi, also called the yuan, Chinese and foreign economists note that the currency has been appreciating steadily since 2005, by about 25 percent. That is generally in line with a pledge by Beijing’s leaders in 2005 to allow the yuan to appreciate about 5 percent a year. That strengthening of the yuan was stopped in 2008, when the global economic crisis hit, but resumed last year.

Many U.S. economists say the yuan is still undervalued, perhaps by as much as 40 percent. But Chinese officials and outside experts say China has its own domestic worry that too rapid an appreciation would disrupt hundreds of thousands of businesses that rely on exports. China will appreciate its currency on its own timetable, they say. In any event, they said, the yuan-to-dollar exchange rate did not cause America’s recession.

“The renminbi exchange rate is relatively low for now and is not the major cause for the economic downturn in the U.S.,” said Shi Yinhong, director of the Center on American Studies at Beijing’s Renmin University.

“The problem for the U.S. is they owe China so much debt,” he said, referring to the Chinese government’s vast holdings of U.S. Treasury bonds, estimated at about $1.5 trillion.

Opening China’s markets

The currency issue touches on the broader question often heard on the U.S. campaign trail: Is China’s cheap currency responsible for the “hollowing out” of American manufacturing and the loss of jobs? Many economists here dispute the premise.

The loss of American manufacturing jobs is a natural progression, many economists said. As China becomes more expensive — because of inflation, wage increases and the higher value of the yuan — they say, it also is losing out to cheaper countries such as Vietnam and Bangladesh.

“In a global economy, your competitive edge is changing all the time,” said Xu Xiaonian, a professor of economics and finance at the China Europe International Business School in Shanghai. “We are losing jobs to Vietnam and other Asian countries. Even in China, we have to keep moving up the value chain.”

The issue of further opening China’s markets to U.S. products and services is also a long-standing one, particularly for the American business community here. Several areas — such as financial services and insurance — remain largely closed to American and other foreign players. American car companies here must partner with a Chinese automaker. The government imposes a quota of 20 foreign films a year that can be shown here, a restriction Hollywood has long battled.

“U.S. businesses seeking to penetrate the China market face unwelcoming policies and regulatory hurdles at several levels,” AmCham-China, the American Chamber of Commerce in China, said in its 2011 white paper. “U.S. businesses face obstacles to entering the China market and to expanding their operations in competition with favored domestic and state-owned enterprises.”

Some Western economists said opening China’s markets is a far more important issue than the value of the currency — essentially the point Huntsman made in a recent debate.

Many Chinese officials, academic experts and journalists, however, point out that Chinese companies are often barred from investing in U.S. sectors considered sensitive because of national security concerns. Political opposition and mandatory U.S. national security reviews have led some Chinese companies to withdraw their bids for struggling American companies.

Trade cases

The United States has a formidable new platform for pressing China on its markets — the World Trade Organization. According to the U.S.-China Business Council, the United States has brought 11 cases against China to the WTO and won eight of those. China settled four cases before a decision, and the WTO ruled in America’s favor four other times. Three cases are pending, including one that would open China’s credit card market to foreign players such as Visa, MasterCard and American Express, which now must be co-branded with China UnionPay.

The question of market access is intertwined with the complaint about intellectual property. About 70 percent of member companies responding to the American chamber’s business climate survey this year called China’s enforcement of intellectual property rights either “ineffective or totally ineffective.” The concern has been heightened by China’s new policy of “indigenous innovation,” requiring that U.S. companies register their intellectual property and original trademarks in China — and prompting fears that Chinese companies will steal the technology and then squeeze out their American partners.

China is well known as the home of counterfeit products — from imitation iPads and iPhones to fake software to pirated CDs and DVDs — and successive U.S. administrations have engaged in lengthy negotiations with Chinese officials, who constantly promise to crack down. The question is always whether the government could be doing more to enforce its own laws.

The issue of computer hacking is also complex. A series of high-profile cyberattacks, including against Google in 2010 and against computers at the International Monetary Fund this year, are believed by many experts to have originated from computers in China. But there is no evidence suggesting that the Chinese government was involved.

China as a ‘scarecrow’

President Obama, campaigning for reelection, has also regularly mentioned China in speeches, usually to warn that China is out-building, out-investing and out-educating the United States.

“Building a world-class transportation system is part of what made us an economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads?” Obama told a joint session of Congress in September. At the University of Richmond last month, Obama told the students, “You’re competing now against kids in Bangalore and kids in Beijing. . . . Everybody’s got to up their game.”

But most Chinese still see theirs as a developing country, not a superpower on a par with the United States. “I don’t know why Obama takes China as a benchmark,” said Xu, the professor in Shanghai. “In research and development, I think we are under-spending.”

Sun, the center director in Beijing, agreed. “It’s just Obama’s chicken soup for the American soul,” Sun said. “He just wants to use China as a scarecrow.”

Staff writer David Nakamura in Washington and researcher Liu Liu in Beijing contributed to this report.

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