Despite the clear benefits of foreign direct investment, access to China’s markets remains relatively restricted, and many of the deals that bring Chinese investment into the US could not happen in reverse, the American Chamber of Commerce in China said in its newly released 2017 American Business in China White Paper.
With uncertainty stemming from political and economic transitions in both the US and China, perceptions of a deteriorating investment environment for foreign companies in China, and a slowing economy, 2017 will likely be one of the most challenging years in decades for US companies in China, it said.
“We are experiencing a clear increase in uncertainty as the US-China relationship enters a new era, and multinational companies spanning this relationship, both American and Chinese, are paying close attention to developments as they make their plans,” said William Zarit, Chairman of the American Chamber of Commerce in China. “Nevertheless, it is becoming apparent that many things need to change in the bilateral relationship. We hope that the recent meeting between the presidents of the two countries will mark the start of tangible progress toward a healthier, more balanced relationship.”
The White Paper argues that foreign-invested enterprises face many regulatory challenges in China, and this is a crucial year to push forward reforms to rectify some of these imbalances in the US-China investment environment. It identifies three areas of focus:
Building Trust Through Transparency
The 2017 Business Climate Survey lists “inconsistent regulatory interpretation and unclear laws” as the top business challenge for AmCham China members for the second year in a row. Survey results also indicate that, for over 85 percent of member companies, the realization of greater transparency, predictability, and fairness of the regulatory environment would have a significant impact on their plans to increase investment levels in China. To improve transparency and equal enforcement of laws and regulations, AmCham China recommends that the Chinese government:
- Continue progress in providing 30-day notice and comment periods for all draft laws and regulations across the board, as specified in multiple commitments.
- End the use of “window guidance” and release public directives instead.
- Improve comprehensiveness in the online publishing of all court cases within seven working days of a ruling as required by 2016 regulations.
- Improve transparency by releasing formal findings and case histories of anti-monopoly related investigations.
- Clarify customs and tax regulations so that foreign companies can fully comply and make more informed investment decisions.
- Provide written explanations whenever administrative agencies deny or provide conditional approvals for license applications or other approval applications, and adhere to decision deadlines specified in laws and regulations.
Promoting Development Through Open Investment
All parties thrive when trade flows freely, business operates on market principles, and there are few market access restrictions. AmCham China is encouraged by the Chinese government’s recent commitments to increase openness and create a better environment for foreign investment, and looks forward to concrete action on the following:
- Implement market opening in more sectors to achieve a more balanced investment relationship. In sectors in which Chinese businesses can invest in the US, American companies should be able to do so in China.
- Ensure that national security reviews and “secure and controllable” technology requirements are narrowly applied and are not used for economic protectionism or to implement industrial policy.
- Actively work with the US to negotiate a robust US-China BIT with a short negative list, narrowly crafted exceptions, and text that ensures the full benefits of the treaty can be effectively reached within China’s unique market.
- Make bold reforms in FTZs and accelerate their implementation nationwide.
- Ensure equal participation for foreign and domestic firms in the “Made in China 2025” initiative and curtail subsidies.
Stimulating Innovation Through Global Cooperation
Innovation is a top three priority for 50 percent of our members, up from 44 percent last year. However, despite recent improvements in patent, copyright, and trademark protection, the lack of sufficient intellectual property protection remains the top barrier to increasing innovation in China, with 45 percent of respondents identifying it as an issue, especially regarding trade secrets protection, indicating that much improvement is still needed. A policy trend hampering innovation is China’s restriction of cross-border data flows and drive for internet sovereignty. The White Paper recommends that the Chinese government:
- Enact a comprehensive trade secrets law.
- Continue the successful development of intellectual property courts and limit administrative enforcement in patent disputes.
- Open all standards development organizations to FIEs so that they can participate on an equal basis with domestic companies.
- Promote the Internet as a platform for global interaction and limit restrictions on cross-border data flows to encourage international collaboration and innovation.