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US Investment in China 2021 (Transcript)

With Ker Gibbs, President of American Chamber of Commerce Shanghai

ART:  Welcome everybody to another episode of Ganbei. I'm your host Art Dicker. And today we have the pleasure of being joined by Ker Gibbs. Ker, many of you know is the President of the American Chamber of Commerce in Shanghai. Welcome Ker. 

KER: Thank you, Art. It's a pleasure to be here. 

 ART: Yeah, we are really, it's a thrill to have you here and I'm not going to give you too much of a break and I'm going to jump right into some difficult questions. So you said it recently on an interview at CGTN that we need to accept China as it is. I'm going to paraphrase it. We need to accept China as it is. Not how we want it to be on trade policy. And I may be taking that a bit out of context. Does that suggest in any way that for US businesses, they should not expect more market access in the future? 

KER:  I hope not. I hope not. I did say that. I did say that and I think what I was getting at. No, I think. We would like to keep pushing for more market access. We do think there's, there are additional opportunities here and we'd like to see China continue to open. And we we think that's actually the best thing for China. It's good for the United States and more importantly it's good for the relationship itself. The more we can. Interact and exchange business opportunities. That's a good thing. I think my comment in that context was more in a broader sense. Looking more kind of historically all the way back to, to don't you helping and the direction that he put China on which has. Been wildly successful for the Chinese people. The direction that he put China on has created great wealth and opportunity for Chinese people. And it's led to a terrific relationship with the West where we have great market opportunities here for our businesses. 

But I think what I was referring to more of was. The assumptions that many of us had back then was that and you've heard this, but more art many times, that the market liberalization would naturally. B followed by a political liberalization. And  I think that kind of engagement policy kind of engagement policy, and there were a lot of assumptions in there and in a fair bit of arrogance, frankly in in, in those assumptions which, which have turned out to be incorrect. So that, that is not the path that China, maybe it never was. So I think we do need to accept that as the reality of the direction that the China is heading. And I think we need to plot our course and the members need to either adjust their expectations or plan their investment strategy or become more competitive if they need to be. 

And I actually think that, that the members here in China are way ahead of the game. In other words, I think our members, which the overwhelming majority of them are highly successful here in China. And I think it's because they've done exactly that they've accepted. Did China, the way it is, there may be things that drive us completely crazy. We're good. We're not going to stop complaining about, IP getting ripped off or this or that happening. We're not going to stop whining and complaining about that but on the whole we accept China. The way it is. I think the disconnect here is is expectations from policy makers and in Washington DC. And, there are our sense is that they're still holding out there or some within government are still holding out this hope that the China would or should, or could it be persuaded to become more like the United States. 

 ART:  And because other countries have, but that's no grounds to assume that the next person, the next country will. Right. 

 KER:  That's right. That's right. Other countries have, and they've been successful doing that. China is going to take its own path. Yeah. And it always has. So the idea that the United States can somehow, change China either through a trade war or tariffs or just, or some other method is not correct. Others have tried and again, this goes deep into Chinese history and others have tried and it has always failed. The reality is that Would outsiders interact with China? China changes the outsiders adoption is their own anxiety.  ART: And similarly, what you talked to the Mongols about this, talked to the Manchurians about this dynasty was Chinese. 

 KER:  There you go. This is the model that goes back thousands of years, can the United States alter that trajectory? I doubt it. 

 ART:  So that's that you were a student of Chinese economic history. 

KER:  In general, not really economic history in general. Cause my family background, as my mother is from China. And so it was always in, in the background and discussed at the dinner table, in terms of China history of China culture, those kinds of things, every year Amcham surveys its members on whether it's top five or 10 issues that it's a list of complaints or list of the areas where the members would like to see improvement policy improvements here in China. And oftentimes they're more or less the same issues. Maybe the priority changes a bit IP protection. Yeah. Just generally regulatory transparency national treatment China versus foreign company is getting the same access. What is one change policy change here in China that could take place, let's say today it would have an immediate and the biggest impact on bringing an increasing US companies’ presence here. 

KER: Sure. Yeah. Yeah. You're right. There's a lot of tactical things that, that American companies are always happy. And you listed, the big ones, IP and these kinds of things. So there's a lot of discussion right now about dual circulation and what it means. And what's the impact when it but to answer your question directly, it clearly though the one thing that's gonna, that's gonna have the biggest impact. Is reducing the tension itself. It's this, the feeling that that the United States and China are just not getting along that, that has had a very specific impact on on our businesses, just their optimism level and their willingness to invest. That's been major, and when are, and you're right to point out, our business survey showed that very specifically is our last China business report show that 71% of our members identified the tension as the number one issue. 

So not any of those other things that you mentioned, not IP, not even, unlevel playing field or any of these traditional things that, that people are accustomed to complaining about. 71% have said it's the tension itself. So our members would just really like to see the temperature come down. I think most people here do understand the issues that are outside the commercial lane, if you will, that there's national security issues, geopolitical issues. That's real. Yeah, that's real. And, we wake up every morning and you don't read the papers about that kind of stuff. We would like to see those things managed. And we would like to see those issues not bleed into the commercial lane and their the American chamber has been quite vocal about that. 

ART:  So then would it be fair to say maybe in the past where you had these issues that were more, were pretty, pretty similar to year on transparency, IP, et cetera. They were always there and at least businesses the members knew they were there and could plan for them right. Planned for that kind of a downside risk on IP or something like that. But it was a known kind of people. And I guess, imagine for these big companies who have to plan their invest capital investments out far out into the relatively far out of the future, the tension, if I can narrow in on that a bit is creating uncertainty and that uncertainty affects their planning cycles, which. Cause them just basically to retract a bit. Is that a fair kind of assessment? That 

 KER:  That's exactly right. invest. You need certainty. You need stability. You need a view to the future. And that's really what's been missing. And again it's, I think both sides are contributing to it. The Trump administration has set a certain unique approach to, to, to policy here. And he's transparent about it. He’s been, he's been consistently inconsistent. Exactly. He's very straight forward that, that he wants to be unpredictable. He's been unpredictable and and that's, so that has had its impact on our businesses here and willingness to invest. Having said that I think our members. Do you recognize that where the Trump administration is coming from, in terms of of, taking a more firm approach, a different approach that Obama took and just changing the game. So that's been recognized in our membership and and it's a difficult equation because it's there's two distinct aspects to it. 

One is how the business community is treated here in China, the ones that the businesses that are here. And then there's a question of what about the businesses that aren't here. They're American businesses, American champions, if you will, that are not allowed to come into the China market. They're not represented in our membership. So there's that then there's also. Just looking at the U S economy, writ large and employment. And w how do, how does this trade relationship translate into American jobs and American benefits? And that's a part of the equation that, that here at the American chamber we wrestle with that a lot. 

There, there are studies to show that. Revenue and profit and employment here does generate employment in the U S and it's not a one-to-one. It's about to about a 10 to four. So $10 in in, in revenue here generates about $4 of business in the U S in terms of. Additional employment that's needed for R and D design headquarters functions, those kinds of things. And we're constantly asking our members for those kinds of examples. And we did get one when we were in the midst of this whole Weechat thing, which we could talk about we were we really needed to get. An example of an American consumer facing business in this case that if they were restricted in using Weechat payments what would that mean to their business and how many jobs would be lost in the US. 

 ART:  So you mentioned Obama a bit and Trump as well. Of course we haven't mentioned Biden yet because the president elect starting to pick his staff as we're recording this Where on a scale of one to 10, one being the Obama engagement policy, traditional policy, 10 being the more recent America first Trump policy, where do you see Biden falling on that scale? 

KER:  And how fast does he get there? I understand what you're asking. I would look at it a little bit differently. And here I'm going to go all fortune cookie on you here and, pull out a Chinese priority and they say, you never put your foot into the same river twice. Okay. Okay. I'll you know, Confucius and I'm not sure who said that, but I'm sure it was some Chinese philosopher. But no, I it's a different, the point being, it's a different situation. It's a different China. It's a different situation. I don't think. I don't think Biden is going to, and Tony Blinken the secretary of state nominee that Biden's put forward, even though those people certainly Used an Obama playbook. But I don't think it's the situation that, we have a fixed number of playbooks. And it's a question of pulling which one off the shelf. It's a different China today and partly as a result of the Trump experience I hope that. 

That the Biden administration will not as tempting as it might be to just come in and just say whatever they did under Trump, let's do the exact opposite. And unrelative to unravel with Trump, starting with, phase one and the tariffs into that would be a mistake. That would be a mistake. I think what they should do is. Is take as a, given the last 40 years, which it is it take that as a starting point and say, okay, what did we learn from this whole experience? And let's build on that. As far as the Obama approach yeah, it's been widely criticized by the Trump people and the frankly, some of the Obama people I think to their credit have been. Self-critical about the approach they took the lack of outcomes or the disappointment with the outcomes. I don't think that was necessarily that I don't think that necessarily means it was wrong for them to try that. 

The strategic and economic dialogues. Sure. Disappointing results. But was it wrong to to do that? I think it would be wrong to, to simply go back to that same playbook. Try it again. And I don't think that's what Tony Blinken president elect habit, mind. So I think they'll take a different approach. We have yet to see what that approach will be. The team that he's assembled is very impressive. So we're looking forward to working with this group. Some of the people that have been identified and we certainly Tony Blinken himself as deep experience, he's the right guy. Catherine Ty at USTR tough lady 

 ART: I met her a few times. She is quite a tough? Yeah. Yeah. You would never guess by looking at her, right? 

KER: Yeah. As video, which the other tough cookie that you wouldn't know by looking at her Janet yell at, sh I think she'll have her hands on China policy, for sure. She knows. She knows her counterparts and PVOC, she has a lot of experience working with them, both from her position at the fed. But also to me, she's she comes across as. Your grandmother. I mean she's but when you sit down with her and talk about policy, She's got a lot of horsepower. And so that's the right group, and just on Janet Yellen. Again, she, these arts ideological people not, they don't have some ideological goal that they need to achieve. 

They're very practical people, very technical people. I think they'll take that kind of approach to China, which again you know, and I don't want to be too critical, Mike Pompeo and Munis secretary of state took a certain approach, but I think it's fair to say it was a fairly ideological approach. And I think it's fair to say that he did have does. And he's still secretary of state. He is. He's just had to, just to try and change him.  It's not a lot of room for compromise when you're fighting on ideology. It's hard. Yeah. It's hard. So yeah, and again, I. Yeah, I don't think that approach was necessarily going to have a lot of success in changing China ideologically. Right. 

 ART:  But the members have expressed in the recent survey that did have expressed optimism. Maybe it's all relative, but optimism for Biden in administration. And I guess that's probably at least on the issue of ratcheting down tensions. Even if the policies themselves don't change overnight, the rhetoric maybe cooled off. 

 KER: I think that's the right way to, to think about it. We put out a survey immediately after the election and yeah, there was a little bit of, euphoria or honeymoon bounce, I guess you could say. So yeah. Members did express a lot of optimism about, and yeah, I think it was probably focused more on the idea that that Biden administration might be less combative. And my be able to bring the tension down right. As things settle in and we as things settle in and yeah, and we get past the honeymoon phase reality is going to sit in, I think Biden has got some challenges for sure. And it's, and again, back to the many dimensions of this relationship that have gotta be managed. I think Biden is going to care about. Some of the dimensions to the relationship that Trump put aside. I I think trade is still trade. But the national security or mental environmental, that's probably going to be a little easier part to work gone with with John Kerry and that in that position. But it's the human rights side. And that's, and yeah. And again, it comes back to philosophically, where is Washington DC on these kinds of things? And to what extent are we are, are, is our policy going to be geared towards changing China versus 

 ART:  Dealing with it as it is 

 KER:  Dealing with, as it is pop and adjusting. Our position, accordingly expectations and willingness to engage in certain areas. So just to focus on the human rights, things is like what the reality is. Both countries have got work to do around their human rights. Let's talk about the us, the way we. And the way African-Americans are dealt with in the United States. It's there's issues. And I think it's fair to say called the human rights issue. I don't know what else to call it. African-Americans are like 10 times more likely to be incarcerated in the United States, much more likely to lose their jobs. Far more likely to have, issues with the police, that's just statistics. So in some of the things that, that we've seen on video, I don't know what else to call them human rights problems, right? 

Yeah. But I think it's fair to, for any country to, to say I'm uncomfortable with what you're doing. No, w according to what I know comfortable with that, therefore, I'm uncomfortable doing it. Something that would be seen as supporting. Yeah. So I'm dressed to stay home, so I'm not going to do this and that's fair. For any country to to do that. What's what gets difficult is the finger wagging and saying, I, I want to. I want to force you to do this or that, or the other thing. Have you said that if somebody has got some solutions to our problems in the, in how we deal, how we resolve these problems? Let's hear it. We don't have a monopoly on answers. That's for sure and wishes again, this is going to be something that the Biden administration is going to have to deal with head-on. 

 ART:  Switching a bit to if we look at how and I know this is not a perfect analogy, but how there's been criticism of the U S policy the last four years being a little too unilateral and not multilateral in its approach. Yeah. Here on the ground in China, I know obviously Amersham is an independent organization, but it plays a similar role in pushing for change on behalf of it sure is. How does an coordinate with other chambers to coordinate a message coordinate is there any ever any misalignment on what the message should be and the priorities should be on behalf of foreign businesses in China? 

 KER: Generally that, yeah that's an interesting question. W we do interact quite a lot with what the other chambers, the other foreign chambers, particularly, I would say that the European union chamber of commerce the German chamber. These are quite large chambers and represent a large number of businesses and also have leadership that they hear different things than that. We do. So we exchange views with them. We've had joint board meetings with them from time to time. 

Can we coordinate our messages and do we have occasion to be out of alignment? W we don't necessarily coordinate our messages. We do. We are aware of each other's positions on different things. I think as far as alignment goes probably around the social credit system is one where I don't think we're on aligned. But I think we. We may be at slightly different points in, in, in where we are with that. The European union chamber commerce did did a really interesting piece of work in a year and a half, two years ago on, on the social credit system. And did a pretty deep analysis on, on, on how they see it working. Europe in general, I think has very sophisticated approach to personal data, privacy GDPR. Okay. 

So I think they're a bit ahead of the curve and it probably reflects their society and they care more about those kinds of things, us businesses here. We do hear similar sentiments in the membership but, it's early days, first of all, on the social credit system. But there's positives and negatives to it. At this point some of the negative aspects of it have been discussed, in terms of privacy. But the positive aspect is a lot of our businesses. They're doing good things and doing positive things that, that, that impacts society and they want credit for it. So that's part of what the it's both, it's a carrot and a stick, it's designed to, to give the ability to punish, but it also has the capability of reward or companies that, that do certain things that that benefit society, those kinds of things. So there's going to be give and take there. 

ART: The question and all about opportunities going forward still totally agenda generalized question, but not looking at specific industries in general. Do you see more opportunities for multinational companies a year, or do you see more opportunities for SMEs maybe that are more focused on specific niche products and industries? 

KER:  Yeah, that's a good question. Maybe one way to look at it is who's gonna, who's gonna get more tailwind behind them and have more running room, I think in general in general, the Chinese environment here as you well know, art, this is a very good place to start. A business is a very good place that that It supports business. It wants commerce, it needs commerce it's and it's a very entrepreneurial in place. So to, to your point I think yeah there's a lot of running room for small, medium enterprises startups. I'm fascinated with all the different incubators where you walk in and you see it's like United nations. It's people from all over the world that come here to start businesses. And I'm going to pick on France just a little bit, right? You see a lot of French. Totally. Yeah. Anecdotally why China is very supportive of entrepreneurs and France. 

 KER: But China is a great place to start a business. And he said that institutionally I think meaning, meaning the government led initiatives, those tend to focus on the multinationals. They focus on the large investment opportunities, the ones that are going to create thousands of jobs and bring huge tax revenues to, to certain districts and provinces. So that's going to be where the government is going to pull. The multi, so the large companies there, so smaller companies are going to have the opportunities. It's also true that this is a very competitive market. It was the case back in the day where you could bring almost anything over here and. It was needed. 

 ART: More, if it was a foreign brand, it was higher trust or something like that. 

KER:  And those days are gone. So this is a very competitive place. So the smaller, medium enterprises, I think the large companies understand that very well. They've got to bring their a game and bring their a products, a technologies, so that's the reality, the SMEs. They got to fight it out. They've got to fight it out with all the other SMEs that are domestic Steria move fast and have local knowledge. And so it's a competitive market for sure. 

ART:  So take it home with a final question about China obviously is economy-wise is a bright spot. And as a lot of companies, big and small around the world are looking to China as a place of growth. Right now are places of growth. Related to that, there was a lot of executives from foreign companies stuck outside of China for a long time, for understandable reasons, but I, as I understand, AmChamb, it's pretty instrumental in lobbying at different levels of government, including your Shanghai to get those executives and their families back into the country. Can you talk a little bit about what that process was like, how it works, who you had to talk to? The reception was 

 KER:  Sure, you're right. That's how it was an ongoing process that that we've been working on since March when the borders were closed I think you use we're lobbying. We would probably, you used the word advocate or, something that has connotes more communication, as opposed to when you use the word lobbying, you're implying a little bit of negotiation which would imply leverage. Let's be clear, the leverage. Fair enough. We have no leverage. What we do have is the ability to communicate with government officials and persuade or encourage them to be transparent to be transparent and consistent and remember our interests. And I'll give you one example as we're talking to them our Chinese counterparts. Had a very hard time understanding why it was so important for expats to bring their families back to China. 

This was a hard one for them. Because in the Chinese context, they say they separate from their families for six months or a year at a time. They see their families maybe once a year, a Chinese new year. That's right. And that's how they roll. We don't ex-pats and it was a big issue for us because we had to explain to them that if you don't let the families back. What looks like a temporary decision becomes permanent because they have kids that they may need to decide. Am I going to continue going? To this international school here in Shanghai, or is that not going to be available for quite a long time, in which case I need to make a different decision and put them in a different school system, which then has the follow on effects. 

 ART  And there was a key time deadline, not deadline, but a decision point. I think we made it that's right. That's right. 

 KER:  That's right. And I'm sorry to say, we lost quite a lot of members that way. I was getting calls every week that from people who said, it was, we didn't, weren't planning to leave so early. But and some of our businesses the relocation companies invented came up with a new service, which was this remote move. They were moving people out of apartments and houses remotely. Because the family wasn't back, but they wanted to vacate their apartments. And so it was a tough period. But but to answer your question yeah, we talked to pretty much everybody who would listen. 

The Y bond the foreign affairs office, this is our first point of contact, but then they help us to get to the health Bureau and to scoff calm the Commerce commission and people like that. Also the the Shanghai DRC fog away. It's issue by issue. If you're talking about corn canes, then it's one thing. If you're talking about flights then the Shanghai five highway is more than CAC itself. It got complicated and that was part of the issue is China's management of this, how's it been confusing at times, some policies are top down and nationwide. Others are to your point, the grandmothers they've been grandma that, that leads the way in our neighborhood. She's got the power on certain things. 

And so that's been a complicated equation for us too. To navigate, but but all's that ends well, we're in a good situation now. And we think that the 20, 21 we're not done here, we've still got to deal with the vaccines. There's still going to be travel restrictions for a while. Yeah. But looking at 2021 overall we're optimistic, we think in terms of business growth and opportunities we're optimistic. We think that The economy is quite strong. Certain sectors are still hurt by the restrictions. And the lack of international travel. That's certainly going to continue to to hurt certain parts of our membership. But overall we're looking forward to 20. 

 ART:  Yeah, likewise. It's still, this is a good place to be in economy is doing well. And let's have a little optimism too, that things better next year. Yeah. Thanks for joining us. Really. It was it was a tour de force of so many, a range of issues on the, on market access on the new administration. Et cetera. So thank you only, I think you, you are one of the few people that could give this kind of a full range discussion. So thanks for being on the show. You're very welcome. 

 KER:  I enjoyed our conversation

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