US business calls on China to end domestic favouritism

Michael SmithChina correspondent

May 11, 2021 – 3.57pm

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US companies in China are are being denied market access and investment approval in favour of domestic firms, and fear more consumer boycotts as tension between the two countries continues to escalate.

The American Chamber of Commerce (AmCham) in China, which represents 900 companies, on Tuesday called on the world’s second -biggest economy to commit to equal treatment for foreign companies and drop implicit guidelines to replace imported products with domestic alternatives.

H&M items disappeared from major Chinese e-commerce platforms last months. US firms want equal treatment in China. Getty Images

Its latest assessment on the state of play for American and other foreign firms in China also highlighted jitters about a repeat of last month’s consumer backlash against global fashion brand H&M.

In a press briefing, Chamber executives were careful to highlight the importance of China’s huge economy and commended its efforts to contain the coronavirus. However, it also acknowledged rising politic risks for foreign companies operating in China.

“We feel that local officials are reacting to the levels of tension in the relationship and taking the safer path to offer preference to the domestic industry,” said AmCham China chairman Greg Gilligan, pointing to areas such as market access and the speed of investment approvals.

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The latest AmCham report is likely to resonate with Australian companies in China, which have been at the frontline of the country’s pushback against Western criticism. Australian companies are even more vulnerable because their country does not have the economic or military clout of the US.

A consumer boycott against H&M, Nike, Adidas and Puma last month has also alarmed foreign companies operating in China. The brands were banned on some ecommerce sites because they had supported initiatives banning cotton sourced from Xinjiang province, where ethnic Ugihur Muslims are reportedly forced to work in factories.

Australian products have not yet been targeted by the same sort of consumer campaigns, although borders are currently closed to tourists and students so the future impact on those industries is not yet known. China has slapped restrictions or tariffs on billions of dollars worth of Australian exports.

H&M goods have disappeared from major Chinese e-commerce platforms last months. US firms want equal treatment in China. Getty Images

The US chamber said on Tuesday that its members ranked US-China bilateral tensions, which had accelerated during the pandemic, as the top challenge to doing business there. Beijing has long been criticised for supporting unprofitable state-owned firms (SOEs).

China enacted a new foreign investment law in January 2020 which promised equal treatment for foreign firms. In a white paper released on Tuesday, the chamber said its implementation had been uneven in practice.

“Many long-standing economic and commercial issues that plague the foreign business community remain unaddressed, including China’s long-standing support for its SOEs, preferential treatment for domestically-invested enterprises, preferences for domestic technologies and products over foreign technologies and products in the procurement process, strict cybersecurity and data localisation requirements, and cyber intrusions,” the AmCham said.

The white paper called on China to drop “implicit” guidance to replace foreign products with locally-made alternatives. “The government should abandon the use of implicit, unpublished, or internal guidance to replace US or other foreign-made products/services with domestically made equivalent,” it said.

Australian executives operating in China also privately said conditions were becoming more challenging, but that the opportunities for growth and profits in the remained too promising to pack up and leave. Foreign companies were also concerned about new tax provisions which meant expatriate workers in China will pay more tax.

Two-way China-US trade in goods totalled US$560 billion ($715 billion) in 2020.

Chamber executives said they were confident that China wanted to resume talks about a phase-two trade deal with the US, although it was unclear if tariffs imposed by former president Donald Trump would be lifted. US Trade Representative Katherine Tai said last week she hoped to engage with China in the near term.