What China Has and Hasn’t Done to Address U.S. Trade Gripes

LAGOS (Capital Markets in Africa) – Deep differences separate Chinese and U.S. negotiators on everything from market access to industrial subsidies as the two sides prepare to meet next month in Washington.

As their trade talks unraveled in acrimony in May, the U.S. blamed China for walking back alleged commitments on issues including forced technology transfers. China responded in a White Paper, accusing the U.S. of unreasonable demands and argued that it had made “remarkable progress” in improving its business environment.

So just how much has China done since the two began locking horns last year over trade and technology? China analysts say the pace of market-driven change has quickened a tad as a result of Donald Trump’s trade war.

Here’s the state of play in four crucial areas where the two sides remain at odds:

Market Access
Forty percent of European companies say China has improved market access, according to a business confidence survey by the European Chamber of Commerce in China published in May. A revision of the negative list for foreign investment in June 2018 was the biggest step forward, reducing the number of sectors that were restricted or prohibited, along with timelines for removing ownership caps in the financial services and car industries, the EU Chamber said.

The most recent progress came in July, when Premier Li Keqiang said China will bring forward by a year to 2020 plans to remove foreign ownership limits on financial companies from securities to futures and life insurance firms.

Still, the American Chamber of Commerce in China said in a paper this year that market access restrictions still affect more than half of its members, with challenges particularly acute in technology and research and development-intensive sectors, where over 75% of its members report issues.

Intellectual Property
While many U.S. companies acknowledge China’s efforts to improve intellectual property protection laws and their enforcement in recent years, especially with respect to trademark and brand protection, they still feel China’s safeguards come up short, said AmCham.

An amendment to the Trademark Law in April that increased compensation for infringements “got at specific issues of concern for foreign companies,’’ said Parker. An intellectual property appeals mechanism introduced at the Supreme People’s Court level was also positive, he said.

Still, China points to surging royalty payments for intellectual property rights as evidence it’s heading in the right direction.

China was ranked 52nd out of 125 countries last year by the International Property Rights Index, unchanged from the previous year but up from 55th in 2016.

Forced Technology Transfers
The Chinese government denies allegations that it strong-arms foreign companies into parting with their technologies as “utterly unfounded.” Still, there’s been a rapid-fire series of legal changes that appear designed to help it reach a trade deal with the U.S.

A new foreign investment law scheduled to take effect next year will ban administrative agencies from forcing technology transfers. It also includes the possibility of criminal penalties for officials who disclose or leak trade secrets gleaned from regulatory approvals. The law was approved in March after just a matter of months, a process that usually takes years. A revision to the Administrative Licensing Law approved in April also prohibits officials from disclosing trade secrets and confidential information.

That still isn’t enough for U.S. officials, who say China has committed to changes before but not followed through. The EU Chamber reported in May that the new foreign investment law “contains broad terms and vague language throughout” that create “uncertainty that damages business confidence.”

Industrial Policies
This is arguably the thorniest issue of all because China’s ambition to catch up and challenge the world in high-technology industries is founded in its state-led and state-financed industrial policies.

The government’s policy tone has shifted as attitudes of some foreign nations toward China harden. In his March work report, Premier Li promised “competitive neutrality’’ so that state and private companies would be “treated on an equal footing’’ and given equal market access.

Policy makers also are finessing the way they present their plans to the world. As a result, the Made in China 2025 blueprint, a subsidy-driven plan to turn the country into a global powerhouse of advanced technologies that riled the Trump administration, has disappeared from public view.

So far though, there’s scant evidence that China’s changed its subsidy-driven approach to industrial advancement. On the contrary, Xi has urged China to double down on efforts to promote self reliance.

“In the wake of China’s tremendous growth in size, global reach and competitiveness, it must increasingly meet the levels of economic openness of other advanced economies,’’ said Daniel Rosen, a partner at Rhodium Group LLC, a New York-based economic-research firm that specializes in China. “That has simply not been happening.’’

Source: Bloomberg Business News