{"id":24641,"date":"2023-06-10T11:39:11","date_gmt":"2023-06-10T11:39:11","guid":{"rendered":"https:\/\/news24feed.com\/?p=24641"},"modified":"2023-06-10T11:39:20","modified_gmt":"2023-06-10T11:39:20","slug":"american-companies-face-obstacles-in-relations-with-china-and-growing-political-risk","status":"publish","type":"post","link":"https:\/\/news24feed.com\/?p=24641","title":{"rendered":"American companies face obstacles in relations with China and growing political risk"},"content":{"rendered":"

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Major US companies are scrambling to devise new strategies for the Chinese market as government policies in both Washington and Beijing drive the two nations apart and economic growth in China slows from its usual torrid pace.<\/p>\n

The latest boardroom action came this week, when Sequoia Capital, a Silicon Valley firm that was among early investors in TikTok parent ByteDance, said it would split its China operations and in the United States in separate companies.<\/p>\n

The move, which analysts said was partly a response to trans-Pacific tensions, came as investment giants BlackRock and Goldman Sachs said US investors were wary of political risks surrounding doing business in China and that the two-way trade flows continue to decrease.<\/p>\n

While President Biden last month predicted an imminent “thaw” in relations with Beijing, U.S. companies that sell to Chinese customers use China as a manufacturing base or invest there see both capitals as a threat to your benefits<\/p>\n

In China, the government in recent months launched investigations into two US consulting firms and banned Chinese companies from buying computer chips made by another US company, Micron, saying they threaten national security.<\/p>\n

The Chinese action followed the Biden administration’s decision last fall to ban the sale of the most advanced US semiconductors to China, also on national security grounds. The administration is expected to issue new restrictions within weeks on US investments in Chinese technology companies.<\/p>\n

Some on Capitol Hill want to speed up the trade divorce.<\/p>\n

“American companies need to take off their gold blinders and open their eyes to the strategic risk inherent in doing business in China,” said Rep. Mike Gallagher (R-Wis.), chairman of the Select Committee on the Chamber of China, in an interview. “Business leaders, if they think they can carry on with business as usual, they’re ignoring the political reality on the Hill, but they’re also ignoring the geopolitical reality that their business will grind to a halt when [Chinese President] Xi Jinping decides he’s going to stop… I don’t know how anyone thinks business as usual is sustainable.”<\/p>\n

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Determining which deals might affect government officials in one or both countries is increasingly difficult, especially for companies involved in sensitive technologies such as semiconductors or those conducting corporate research in China. The political landscape is becoming more complex as China’s economy, after decades of rapid growth, is slowing from an annual pace of 5.2% this year to just over 3% in five years, according to the forecasts of the International Monetary Fund.<\/p>\n

“If the risk is higher and the growth is lower, that will change your competitive strategy,” said Myron Brilliant, senior advisor at Dentons Global Advisors-ASG. “That’s why companies are isolating themselves a little bit more.”<\/p>\n

Companies are adopting different strategies based on their industry and specific tax and regulatory considerations, analysts said.<\/p>\n

Some that rely on Chinese factories, like Apple, are adding security suppliers in countries like Vietnam and India to protect against unexpected headaches. Others, like sequoia<\/a>, are localizing their corporate structure to limit the financial damage from shifting geopolitical winds. The prominent Silicon Valley firm plans to split into three separate companies, covering the US and Europe; China; and India and Southeast Asia.<\/p>\n

The Chinese branches of the consulting and due diligence firms that Beijing security officials raided starting in late March \u2014 the Mintz Group and Bain & Co. \u2014 are frozen while investigations continue, prompting other executives wonder if they could be next.<\/p>\n

“There’s not a single company in China that hasn’t had to do a top-to-bottom assessment of everything,” said Scott Kennedy, senior adviser at the Center for Strategic and International Studies. “Most companies are in some kind of de-risking strategy, trying to stay in China and do business globally.”<\/p>\n

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Of course, dozens of US-based companies, including household names like Procter & Gamble and General Motors, remain committed to China’s market of 1.4 billion people. Tesla CEO Elon Musk visited China last month and told Foreign Minister Qin Gang that the two countries are like “conjoined twins” that cannot be separated.<\/p>\n

JPMorgan Chase CEO Jamie Dimon also ruled out a full “decoupling” of the United States and China in a recent visit to Shanghai.<\/p>\n

“There will be less trade over time,” Dimon told Bloomberg Television. “It will take years for that to happen, but it won’t be a decoupling and the world will go on.”<\/p>\n

Starting five years ago, President Donald Trump’s tariffs on Chinese imports began to redraw the trade relationship between the US and China. U.S. anger over China’s lack of transparency about the origins of the coronavirus, and supply chain disruptions during the pandemic, further reduced those links.<\/p>\n

In the first four months of this year, the inflation-adjusted value of trade between the United States and China fell 21 percent from the same period last year, according to Alfredo Carrillo Obregon, research associate at the Cato Institute. If cargo continues to move at its current rate for the rest of the year, the annual figure would be about 26 percent below its 2018 peak.<\/p>\n

The drop illustrates moves by manufacturers to shift production from China to countries such as Vietnam and Malaysia, as well as a post-pandemic shift in US consumer spending from goods to in-person services such as restaurant meals , movies and sporting events.<\/p>\n

Biden has maintained most of Trump’s tariffs, disappointing those in the business community who had hoped his predecessor would reverse them.<\/p>\n

In recent weeks, the president has sought to re-engage with the Chinese government. National Security Adviser Jake Sullivan met in Vienna with Wang Yi, a member of China’s Politburo, in a productive two-day session that revived White House hopes for progress with Beijing. Commerce Secretary Gina Raimondo and Katherine Tai, the top U.S. trade negotiator, held separate meetings on economic issues with Commerce Minister Wang Wentao.<\/p>\n

Secretary of State Antony Blinken is expected to visit Beijing soon, followed by Treasury Secretary Janet L. Yellen.<\/p>\n

US officials have spoken of erecting “guardrails” through dialogue to prevent the relationship from drifting into open conflict. But the results of any near-term warming are likely to be modest.<\/p>\n

Xi is making his own effort to limit China’s dependence on foreign markets while increasing other countries’ dependence on China under what he calls a “dual circulation” policy.<\/p>\n

In Washington, there is bipartisan skepticism about China’s intentions, amid complaints about Beijing’s mercantilist trade practices and stance toward Taiwan, the self-governing island that China claims as territory. Gallagher mocks Biden’s diplomatic efforts as “commitment zombies.”<\/p>\n

American business executives deny Xi’s goals, including his desire to disengage China from the United States and gain control of Taiwan, Gallagher said. The former Navy officer is pushing American companies to rethink their ties to China.<\/p>\n

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“We need to stop fueling our own destruction,” Gallagher said. “We are, to paraphrase Lenin, competing for the rope with which we will finally be hanged.”<\/p>\n

Last month, Gallagher and 10 members of the House China committee traveled to California to meet with Silicon Valley investors and Hollywood executives about their business dealings with China. The talks were cordial, but Gallagher’s actions have sparked unease in the business community.<\/p>\n

Created by the House Republican majority this year, the committee has already opened investigations into what it called allegations of the use of forced labor in Xinjiang province by four companies: Nike, Adidas, Shein and Temu, an app shopping<\/p>\n

In a statement, Shein said it had “zero tolerance” for forced labor and had no suppliers in Xinjiang. The company said it is cooperating with the committee. In response to emailed requests, Nike, Adidas and Temu did not offer any comment.<\/p>\n

Political clouds over US-China trade ties have discouraged many institutional investors from expanding their Chinese activities. Canada’s Caisse de d\u00e9p\u00f4t et placement du Quebec, one of the country’s largest pension funds, stopped making private investments in China and closed its Shanghai office. Public employee retirement plans in Florida and Texas last year reduced or eliminated their Chinese holdings.<\/p>\n

“Most large Western funds believe that China is now ‘uninvestable’ because of geopolitical risks and economic growth,” said Andrew Collier, an economist at GlobalSource Partners in Hong Kong.<\/p>\n

Over the past three months, investors have pulled more than $25 billion out of China’s bond market while adding less than $1 billion to their holdings in Chinese stocks, according to the Institute of International Finance.<\/p>\n

Stephanie Hui, head of Goldman Sachs’ private equity business in Asia, told an investor conference in Hong Kong last month that it was no longer raising money from US investors for new Chinese deals. Amid chilly relations between the United States and China, and the prospect of new restrictions from the Biden administration on outbound investment, institutions are reluctant to bet on stakes in Chinese companies.<\/p>\n

“We are seeing an increase in investor preference to focus closer to home. This is certainly the case in China, which is attracting more interest in relative terms from capital groups in Asia,” he said a spokesman for Goldman Sachs.<\/p>\n