China is bent on world domination — but not in the way you think

May 08, 2017

China is bent on world domination — not with its missiles and aircraft carriers, but by controlling solar energy, cloud computing and other industries of the future.

[Fred Hiatt] May 7th, 2017 [The Washington Post]

That is an only slightly exaggerated version of a warning coming from the American chamber of commerce in China. It sent a delegation to Washington last week to warn that “China’s aggressive mercantilist policies are one of the most serious threats facing the future of U.S. advanced technology sectors,” as their policy paper says — and that the U.S. government isn’t doing enough to counter the threat.

The warning is especially startling coming from AmCham China, as it calls itself, which for years flexed its advocacy muscle persuading the United States to let China into the world trading system and rebutting Americans who it felt were too hard on China.

“Now we’re saying that things are really lopsided, and the government needs to wake up and take action,” James McGregor, chairman of APCO Worldwide in China and part of last week’s delegation, told me during a visit to The Post. “This is aimed at domination of the industries of the future. We’re talking about artificial intelligence and all the things that are important to the American economy.”

Given President Trump’s anti-China rhetoric during the campaign, you might expect U.S. executives in Beijing and Shanghai to feel optimistic about the prospects for a U.S. response. They are hopeful — but they are also nervous, for reasons I’ll get to in a minute, that the administration may miss this opportunity to course-correct.

First, though: Why has AmCham changed its tune so dramatically since the upbeat days of China’s entry into the World Trade Organization?

The chamber’s answer: China has changed, not us. Its policy has shifted, McGregor said, from “reform and opening” to “reform and closing.” The Communist regime still wants economic growth and market mechanisms, in other words, but without subjecting its economy to open competition from outside. In fact, a recent survey showed that more than 80 percent of the chamber’s members “feel less welcome than before,” another delegation member, Lester Ross of the WilmerHale law firm, told me.

China has a well-developed, long-term industrial strategy, the chamber says. It limits U.S. firms’ access to its market; demands that American companies share their advanced technology to get even that limited access; buys foreign companies that possess technology it needs while preventing U.S. firms from investing in China; shovels resources to Chinese companies as they ramp up; and then, once those Chinese firms have fattened on the vast and protected Chinese market, sends them out to compete in the world.

“The economic relationship is critical to both the United States and China,” said William M. Zarit, a former U.S. diplomat and now senior counselor at the Cohen Group and chairman of AmCham China. “But as strong as it might be, we have an investment and trade relationship that is out of whack. . . . We need to address this.”

During the campaign, Trump maintained that China was “ripping us left and right.”

“There are people who wish I wouldn’t refer to China as our enemy,” he wrote in 2015. “But that’s exactly what they are.”

But will his earlier skepticism translate into smart policy?

Since meeting Chinese President Xi Jinping, Trump has seemed very taken with the Communist leader and the budding U.S.-China relationship, which he described as “something very special, something very different than we’ve ever had.”

This could be a prelude, U.S. executives worry, to economic concessions designed to win cooperation on North Korea. They also worry that, to the extent the administration remains focused on the economy, it is on iron, steel and other heavy manufacturing sectors rather than technologies that will be crucial in the future.

Most of all they worry, though, because it wouldn’t be easy for anyone to come up with an intelligent response to the uneven relationship.

“Our systems are fundamentally different,” explained Timothy P. Stratford, a delegation member who worked in the U.S. trade representative’s office from 2005 to 2010. “We follow process. . . . China is focused on outcomes.”

If U.S. law allows a Chinese company to buy an American one, in other words, the U.S. government isn’t going to interfere — even if U.S. firms are being blocked in China and the overall situation seems unfair.

The delegation did not come with detailed policy proposals, though several members called for new levels of review for proposed Chinese investments. Mostly they want a recognition that the Chinese economy is not operating as Americans hoped it would during the push to open the global trading system — and that waiting for it to “evolve” is no longer a viable option.

“The solution has to be some combination of offense and defense,” said Randal L. Phillips, Asia managing partner for the Mintz Group. “China has to face some consequence.”

Showing 5 reactions

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  • James Crawford
    Francine and Bruce,

    Unfortunately not even the CPA is actually listening to our point of view. The organization is run by disgruntled experts and industrialists who believe in the Fair Trade doctrine. And, while these are all great people with useful ideas, they nevertheless share an unreasonable fear of government along with an utterly uncritical, ideologically driven, belief in Free Markets. Our Constitution explicitly provides for the development of industrial policy by Congress, which I would prefer over the delusional ranting of all the experts, disgruntled or otherwise.

    It would be nice if the CPA actually organized debates among its members as a means of establishing policies, but this function is reserved for its Board Members, who probably control its funding as well.
  • francine petrucci
    James, Bruce – I have been saying this for years. But when will our own government listen to the findings of their very own studies and act appropriately???? I saw never, as long as the politician’s pockets are being lined by special interests…
  • James Crawford
    Yes, that is the dark side of the politics of the Democrats. Americans want decent jobs not government handouts. There is nothing wrong with public welfare programs, but supporting trade policies that force people to depend on them is a terrible thing to do.

    The great successes of the United States in the 20th century forced other nations to adapt, evolve, and develop new ways of organizing their economies. Now it is the United States that needs to make changes, but our so-called Economic experts are oblivious to the problems at-hand.
  • Bruce Bishop
    James Crawford,

    Well stated. Our greedy, incompetent government has followed the advice of misguided “experts” for decades, which, as you say, has resulted in the torching of our economy. Millions of former middle-class factory workers have been displaced, and consigned to work at BigBoxMart for one third the wages, or, worse, have become wards of the state, where food stamps, subsidized housing and free healthcare have created a new crop of Democrat voters.

    As Thomas Sowell says, the experts pay no penalty for being wrong, even when the policies based on their advice are devastating for millions of Americans.
  • James Crawford
    As I have said repeatedly, China has an industrial policy and we do not. That is our fault not theirs. And, while our disgruntled economists are coming up with clever ways to fiddle with the financial system, the U.S. Economy is being torched. But, then again, what do I know, I am just some foolish romantic with a misguided and radical notion that the Framer’s of our Constitution got it right when they put Congress in charge of our trade policy. Whereas macro economists are mathematicians, know their debits and credits, and can endlessly repeat simplistic truths about how abstract rational people respond to price signals.