2023 International Finance Forum
Theme: Geopolitical Developments and Impacts on Trade, Supply Chains and Industrial Policies
Remarks - As Prepared
Craig Allen, President, US-China Business Council
October 28, 2023
Thank you for this opportunity to speak at today’s forum on geopolitical developments and their impacts on trade, supply chains, and industrial policy. These are critical subjects for the American business community.
This year, USCBC celebrates our 50th anniversary in pursuit of our mission—growing the bilateral commercial relationship by advocating for American companies doing business in China.
We are proud of our legacy supporting China’s ongoing reform and opening process, recognizing that China’s reform agenda has contributed to becoming the world’s second-largest economy and largest trading country in the world today—much to the benefit of exporters, farmers, ranchers, and workers in the United States. We are confident that introducing deeper reforms, now, will strengthen business community confidence and contribute to a more sustainable economic recovery in China.
Of course, over the last few years, the world has grown more complicated.
Discussions about supply chains have moved from far-flung corners of companies’ logistics departments to corporate strategy teams and board rooms. At the same time, governments are also focused on supply chain resiliency amid heightened economic and national security concerns.
This shift became particularly evident as the global pandemic painfully highlighted supply chain vulnerabilities, making even the average consumer aware of sourcing challenges and their downstream impacts. We learned that one never wishes to be reliant on a single point of failure.
Geopolitical issues threaten the long-term ability of international firms to rely on China. Our recent member survey showed that one-third of our companies reported the impact of US-China tensions resulted in delayed or canceled investments in China with 34 percent changing their own suppliers to mitigate uncertainty around continued supply.
Nonetheless, from a bilateral perspective, US-China trade in goods and services reached approximately $758 billion last year, contributing greatly to corporate profitability, shareholder returns, and consumer choice.
This two-way trade and investment have contributed to the economic prosperity of both our countries and our peoples. But there is plenty of room to do better on both sides.
We implore both the US and Chinese governments to consult with industry and take steps to lower trade and investment barriers and create a more predictable policy and regulatory environment.
In 2022, the pandemic brought to the fore the significance of supply chain resilience. Now, in both countries, we are faced with a possible over-emphasis on national security, which could unnecessarily darken the business landscape for Chinese and foreign companies.
For effective commerce, both governments should fine-tune their risk assessments and better define what constitutes "national security-related industries." Greater clarity will aid businesses in adhering to regulations and avoiding a conflict of laws. It will also provide the certainty that is necessary for companies’ long-term planning of supply chains.
While China's post-COVID economic recovery is commendable, there is more work to do.
The IMF released its Article IV Consultation Report on China in February this year, which recommended China pivot towards stimulating household spending to achieve a more sustainable growth pattern. Tax relief and stimulus programs can support expanding household demand and foster quality economic growth. Not only does this align with global trends of emphasizing consumer-centric recoveries, but it also offers a dual advantage: empowering citizens, thereby boosting domestic consumption, and fostering a resilient economy less dependent on external fluctuations.
Additionally, the IMF recommends reforms to State-Owned Enterprises. All written and unwritten preferential treatment given to SOEs should be amended to ensure competitive neutrality and a level playing field for all firms in China. This will lead to a more productive allocation of capital across sectors and let the market play a more decisive role on winners and losers.
The economic distortions that the IMF highlights are very large. In general terms, China has 18 percent of the world's population, and 17 percent of the world GDP, but only 12 percent of world consumption, and a whopping 30 percent of world investment.
These distortions suggest that increasing household consumption and decreasing investment are urgent tasks. Correcting these fundamental domestic economic imbalances will be a key factor in global economic stability and suggest that urgent reform and opening are still very much required.
Amid the current geopolitical challenges and given the importance of maintaining economic stability, it's essential for China to prioritize further reform. That is why USCBC continues to encourage the US and Chinese governments to work together on a bilateral agenda that prioritizes commercial issues and preserves the benefits of our economic relationship.
The IMF recommends that China move further away from local protectionism and amplify reliance on market forces. We couldn’t agree more.
Further opening the market would allow the business community to maximize its stabilizing role and serve as a foundation to build the trust necessary to tackle even more difficult issues in the relationship, and to work together on global challenges like climate change and global food security, which no one country can tackle alone. Without these reforms, trade diversion and regionalized and de-globalized supply chains may move from a near-term trend to long-term permanence.
We share the concerns of the IMF that bifurcating the global trade regime will have a dramatic impact on global economic growth and longer-term peace and stability.
Therefore, I am encouraged by the restart of high-level visits from US officials to China this year and hope to see continued engagements in the coming months. The visits from Secretaries Blinken, Yellen, and Raimondo have helped provide stability in the bilateral relationship while also charting the course for greater mutual understanding and future dialogue.
The US and China have benefited considerably through the economic integration that has developed since reform and opening. At the US-China Business Council, we remain committed to expanding the US-China commercial relationship by advocating for American companies doing business in China and look forward to continuing to support that growth for the next 50 years.
American businesses remain hopeful about the size and dynamism of China’s markets. In an evolving world, we need to work together to safeguard strong, stable, and resilient global industrial supply chains for the future.
Thank you very much.
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