Forecast 2012: Experts Discuss Economic Developments, Political Transitions, and the Asia Pivot

At the US-China Business Council Forecast conference, Rep. Rick Larsen (D-WA) outlined the Obama administration’s new “Asia pivot” strategy, calling it a “natural evolution” of the US-China relationship. Larsen—founder of the US-China Working Group in the US House of Representatives—advocated for more constructive dialogue between the United States and China, heralding the recent passage of the Korea free trade agreement and President Obama’s efforts on establishing a Trans-Pacific Partnership (TPP) trade agreement. To spur economic growth, he advocated for more Chinese foreign direct investment in the United States and suggested the two countries enter into a bilateral investment treaty. Looking forward, Larsen said he expects the Chinese leadership to shift its focus to domestic issues such as a slowing economy and rising inflation.

In addition, Forecast featured experts discussing key topics for US businesses in China, including the Chinese economy, Chinese business environment, and US-China relations. Nicholas Lardy of the Peterson Institute for International Economics detailed the prospects for China’s economy in 2012, including growth risks from a surge of investment in China’s residential real estate market. He expressed concerns that a slowdown in the real estate market could spell trouble for Chinese economic growth. He does not foresee another large stimulus package in the works like the one that was launched in 2008 as a way to support lagging growth. As for what this means for US companies doing business in China, Lardy said it depends on the business. A slowdown in construction could impact the price of raw materials and the commodities market. But if the Chinese consumer emerges as China’s next growth engine, Lardy said it could have profound effects on consumption sectors such as retail sales.

On Chinese domestic politics in the new year, Douglas Paal of the Carnegie Endowment for International Peace described a host of potential hurdles, including the leadership transition in North Korea, elections in countries like Taiwan, Russia, and South Korea as well as the pending political transition in China from current President Hu Jintao to likely incoming President Xi Jinping, who will be visiting the United States in a few weeks. Paal expressed his concerns with some of the anti-China rhetoric voiced by some Republican presidential contenders, and said he expects some sort of catch-all legislation to be introduced in Congress that incorporates currency appreciation, intellectual property rights (IPR), and indigenous innovation concerns.
Bob Poole, vice president for China operations at the US-China Business Council, elaborated on USCBC members’ concerns related to doing business in China, including the top 10 issues in USCBC’s 2011 member company survey. Poole said that US companies remain committed to China as a top market and important source of growth globally, but that companies face important issues that need to be addressed. For example, he expects labor costs to continue to rise in China and that collective bargaining rights will become a larger issue for companies there in the future. On IPR enforcement, Poole says members have expressed some satisfaction with the Chinese government’s recent special campaign efforts, but repeated that a lot more must be done to protect US companies’ interests in China.

A panel with Richard Wike of the Pew Global Attitudes Project and Chris Cillizza of the Washington Post revealed Americans’ changing views towards China’s economic growth. Behind the growing national deficit, Americans see economic growth from China as the biggest economic threat. According to Wike, Americans generally remain supportive of free trade, but they are divided on which countries are best to trade with as most Americans are comfortable trading with neighbors like Canada and Europe but cautious about trading with China. Pew’s research reveals that most Americans want to get tough on trade, but also strengthen relations with other countries throughout the world. Cillizza discussed the state of play in the Republican primaries and the 2012 presidential election. He noted that most Americans feel anxious over what it means to be an American as Americans’ faith in institutions like Congress has collapsed and they are facing near-record high unemployment.