Trade summits come and trade summits go, but this week鈥檚 meeting of the US-China Joint Commission on Commerce and Trade or JCCT in Chicago, could be unique. It might be the first time the United States government directly confronts China on its unprecedented assault on foreign-owned private sector businesses, including American companies, and forces some important concessions in exchange for what China desperately needs: more direct investment from America鈥檚 most successful and innovative companies.
Sadly, don鈥檛 hold your breath. Commerce Secretary Penny Pritzker may be one of President Obama鈥檚 best appointments; and US Trade Representative Mike Fromen one of our most skilled negotiators. But even they will have difficulty getting their Chinese counterparts to admit that their growing war on American firms doing business in China represents a major stumbling block to further economic ties between our two countries.
Most people are aware of the epic battle between Chinese authorities and Google that鈥檚 been grinding on since 2010, and similar quarrels with Apple over allegations of price gouging on iPhones鈥搉ot to mention American entrepreneur Chip Starnes who was literally held prisoner in his factory by his workers, with government connivance. But in the last six months Chinese authorities have stepped up the bullying, intimidating, and outright blackmailing of companies they鈥檝e decided are too successful, and our trade representatives need to explain it must stop.
Indeed, a survey in September by the American Chamber of Commerce in China found that 60% of American businesses feel less welcome on the mainland, and 49% say that foreign鈥搊wned firms are being singled out by the Chinese government for adverse treatment.
Because it鈥檚 not just US firms. German auto makers BMW, Daimler, and Audi along with 12 Japanese auto companies, have been hit with investigations of price gouging, and foreign pharmaceutical firms routinely get charged with bribery of Chinese officials, as part of the government鈥檚 鈥渁nti-corruption鈥� campaign.
Most give in and drop their prices or otherwise submit to the charges and pay the fine. They are all too aware that state-run regulatory agencies can trigger an avalanche of bad publicity that can wreck a foreign-owned business in a matter of days. But some courageous American firms have been fighting back even though it puts their future business in doubt; and they deserve all the help their government can give them at the JCCT summit in Chicago.
A good example is America-based Qualcomm, one of the world鈥檚 biggest chipmakers. Qualcomm has invested nearly $30 billion in developing its Chinese market, which accounts for half its yearly revenue. Then Beijing decided Qualcomm was getting too big and needed to be taught a lesson. So in July China鈥檚 anti-trust regulators slapped Qualcomm with charges of operating a monopoly and abusing its market position in wireless communication.
Qualcomm stock tanked on the news; and the company鈥檚 future has hovered in the balance ever since. Even though CEO Steve Mollenkopf has tried since September to work with Chinese authorities to resolve the issue, its case remains on hold鈥揳s does the company鈥檚 future.
An even more egregious case is OSI, a food-processing firm that鈥檚 spent two decades and millions of dollars building up its Husi Food subsidiary to serve clients such as McDonalds, Burger King, and Starbucks in China. In August six OSI workers at its Shanghai plant were arrested and the plant shuttered. Sparking the action was a video on government-owned Dragon TV showing workers in the plant making chicken nuggets and patties from expired meat.
But what the video didn鈥檛 reveal is that the 鈥渨orkers鈥� were in fact Dragon TV employees. Yet this video became the basis of charges on which the arrested employees are still being held, while hundreds of workers have been laid off even as OSI stock has taken a severe hit, just like Qualcomm鈥檚-along with Husi Food鈥檚 reputation.
In virtually every case, the procedure is the same. The sudden announcement of high-profile charges against an American firm with splashy publicity; followed by a shadowy investigation that drags on for months with no disclosure of what鈥檚 being found or who鈥檚 under suspicion; then finally representatives of the company under fire backing down by either dropping their prices as Daimler, BMW, and Audi did, or paying a hefty fine rather than face being driven out of business, as British pharma giant GlaxoSmithKline did with a record $489 million payment to the Chinese government.
It鈥檚 the kind of shakedown racket Al Capone would have been proud of鈥搚et in the end it鈥檚 hurting China more than the United States. From 2002 to 2012 China was the country where most international business executives wanted to do direct foreign investment, according to the A.T. Kearney annual survey. In 2013 it lost top place to the United States; this year confidence has slid further.
If China intends to grow out of its enormous debt problems, it鈥檚 going to need foreign investment to do it. Yet by biting the hand that feeds it, in OSI鈥檚 case almost literally, it鈥檚 only hurting its chances to revive its lackluster economy. Someone in Chicago needs to pass on that message, firmly and clearly.