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Bank Chief writes about “the myths and misunderstandings of the US-China trade relationship”

Dominic Ng 吳建民, chairman and chief executive officer of East West Bank 華美銀行 and a USC trustee, shares his views. 

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Dominic Ng 吳建民, chairman and chief executive officer of East West Bank 華美銀行 and a USC trustee, shares his views. 

Earlier this year, Dominic Ng published these three essays on U.S.-China trade on the East West Bank website. We reprint them here with permission from the bank.

Dominic Ng joined in East West Bank in 1991. He is the bank’s chairman and CEO. Mr. Ng transformed East West from a small savings and loan association with $600 million in assets into a full-service commercial bank with more than $36 billion in assets. East West Bank is ranked in the top 15 of the 100 Best Banks in America by Forbes since 2010.

Prior to taking the helm of East West Bank, he was president of Seyen Investment, after having spent ten years as a CPA with Deloitte & Touche, LLP in Houston and Los Angeles. Mr. Ng serves as an independent director on the board of Mattel, Inc. and he is also a member of the University of Southern California Board of Trustees. As former Chairman of the Committee of 100, Mr. Ng promotes mutual understanding between the U.S. and China, advocating a collaborative partnership between the two countries. He also served on the board of directors of the Federal Reserve Bank of San Francisco, Los Angeles Branch.

Mr. Ng is also known for his business and community leadership.  The Sino-US Times named Mr. Ng as one of the top 20 U.S. and China Economic Trade leaders in 2013.  Mr. Ng was also named by Forbes as one of the 25 most notable Chinese Americans and by the Los Angeles Times as one of the 100 most influential people in Los Angeles.  He was the first Asian American campaign chair for United Way of Greater Los Angeles and remains as a director.  He was named by the Los Angeles Business Journal as the Business Person of the Year and received the Chinese CEO of the Year Award from the Chinese CEO Organization.

1. Busting US-China Trade Deficit Myths

2. Preventing a US-China Trade War

3. Realistic Steps to Get US-China Trade Back on Track

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Busting US-China Trade Deficit Myths

July 6, 2017
 
Public opinion in the United States has turned against free trade. Donald Trump’s election win was tied to an aggressive campaign promising to address trade imbalances, with a particular focus on Chinese trade practices. On the campaign trail, Trump remarked that “China is responsible for nearly half of our entire trade deficit. They break the rules in every way imaginable.”
 
Without doubt, there are problems in the U.S.-China trade relationship. However, the current officially reported U.S.-China trade numbers are grossly inaccurate. They are based on outdated methods of data collection and calculation that were agreed to in the aftermath of World War II, and they have not been properly updated to reflect today’s global economy. It is concerning that world leaders are primarily relying on these misleading trade figures to make major decisions that have the potential to damage economies and create ill will among nations that heavily depend on each other for their prosperity.
 
 
Traditional trade data are outdated and tell a distorted story
 
Let me explain why the trade data our leaders are using is problematic. Statistics traditionally used to measure trade flows do not fully reflect the globalization of production chains. Currently, statistical agencies pin the entire trade value of a product to the last place it was exported from, even though the parts in the product come from many other countries. This method of data collection is based on the International Monetary Fund’s Balance of Payments Manual, which was first released in 1948, and never appropriately overhauled to reflect the new complexities of global value chains.
 
In the case of China, this means that commonly cited trade figures are distorted by the fact that China has become a final assembly point for many goods that contain a significant number of parts from other nations. The classic example is the Apple iPhone. Apple takes care of design, development, marketing, and software creation for its phones in the U.S. High-value components of the iPhone come from different countries: Among the myriad iPhone 6 parts, displays are manufactured in South Korea, Japan, and elsewhere; processors come from the United States; touch ID sensors are made in Taiwan; and barometric pressure sensors come from Germany. Final assembly takes place in China. Because of this, even though the assembly and parts cost of the iPhone in China is only a tiny fraction of the total manufacturing cost, the entire import cost of the iPhone is attributed to China in U.S. trade statistics. These distortions add up—assuming 35 percent of the 215 million iPhones sold globally in 2016 were imported for sale in the United States at a cost of $230 each, the iPhone alone added $17 billion to the 2016 trade deficit with China, even though the vast majority of its inputs came from elsewhere.
 
 
Clearly, the U.S. trade deficit with China is overstated. Official trade statistics compiled by the U.S. Bureau of Economic Analysis record a U.S. net trade deficit with China of $309 billion in 2016, or 1.7 percent of U.S. gross domestic product (GDP). In reality, it is much lower than that. The Organization for Economic Co-operation and Development (OECD) has pioneered value-added methods for tabulating trade that paint a more accurate picture based on country of origin for each of an export’s components. This dataset shows that in 2011, the U.S. net trade deficit with China, based on the actual Chinese and American value added to final goods and services traded between the two nations, was more than 40 percent lower than the traditional trade statistics suggest.
 
While data for recent years is not available, if we assume a stable ratio between traditional and value-added data, then the adjusted U.S. trade deficit in 2016 with China would come down from $309 billion to $169 billion. This is still a high number, but a much more sensible and useful starting point for discussions about policies to reduce U.S. trade imbalances with China.
 
 
Public debate largely ignores the U.S. services trade surplus with China
 
Another problem in the current public debate is the sole focus on the trade of goods, while ignoring trade in services. While still small compared to the goods trade deficit, the United States runs a significant and rapidly growing surplus with China in trade of services including tourism, education, financial and other professional services. The U.S. services trade surplus with China increased from an annual average of less than $2 billion from 2000-2008 to $37.4 billion in 2016 (0.2 percent of U.S. GDP).
 
 
While there are also problems with accurately measuring services trade flows, these numbers show that the deck is not unilaterally stacked against the United States. American companies are strongly competitive in high value-added services like banking, software and education, and can capitalize on market opportunities in China arising from the growing number of Chinese middle-class consumers. The U.S. services trade surplus has increased every year for the past 10 years; policies that encourage China to reduce market barriers for U.S. companies in banking, film, and other sectors should go a long way in further boosting U.S. services exports and shrinking the overall U.S. trade deficit with China.
 
The challenge of measuring national welfare impacts
 
The third challenge that distorts the public debate on U.S.-China trade relations is that some of the negative impacts are easier to track than the benefits. There’s no question that trade integration with China has had negative impacts for specific demographics and regions in the U.S., particularly for workers in low value-added manufacturing sectors. However, it is important to keep in mind that the goods trade deficit with China has also yielded tangible benefits to the United States.
 
For example, trade with China has generated substantial savings for American consumers. Cheaper overseas imports from China have helped to lower overall inflation. U.S. consumers enjoy prices lower today than they would otherwise be, thanks to trade with China. A family making close to the median U.S. income has benefited from annual savings of approximately $500 to $1,000.
 
In addition to consumer benefits, trade with China has also hugely benefited the U.S. from an environmental and quality-of-life perspective. Lower-end manufacturing operations often generate substantial waste and pollute the local air and water, particularly in heavy industries. As that manufacturing activity has migrated to China, the U.S. has effectively exported much of the pollution associated with these operations. Americans today breathe cleaner air and fish in cleaner waters, thanks to China.
 
Finally, and perhaps most importantly, trade integration with China has helped the United States to focus efforts toward higher value-added activities. By outsourcing the production of low value-added goods to China, the U.S. has been able to specialize in the production of high-tech goods and services, and increase productivity in those areas. Many Americans would not have the standard of living and employment they currently enjoy without foreign markets like China for U.S. services and other higher value-added exports. These benefits are often more difficult to measure and thus do not receive significant attention.
 
Issues to tackle next
 
The U.S. government should explore policies that help reduce the perceived unfairness of the bilateral trade relationship. At the same time, it is critical that those debates are objective and based on facts. Statistical offices should update their methodologies so that the public and political decision makers have access to the full picture of what’s really going on in the U.S.-China trade relationship.
 
Better statistics would go a long way to help us overcome myths and political gamesmanship, and instead identify and tackle the real problems in the U.S.-China trade relationship, which clearly exist. Market access is lopsided; U.S. firms face a host of tariff, regulatory, and Foreign Direct Investment barriers that Chinese firms do not face in the United States. In addition, Chinese industrial policy has created overcapacity in steel and other sectors that threaten to spill over into U.S. and global markets, and new plans such as Made in China 2025 reveal intentions to support Chinese producers at the expense of foreign firms. China has also not lived up to U.S. expectations related to China’s World Trade Organization accession, and it is dragging its feet on joining international agreements such as the Government Procurement Agreement and an expanded Information Technology Agreement.
 
In next month’s editorial, I will explore these issues more fully. In the final editorial of this series, I will suggest effective strategies for addressing those problems. Stay tuned.
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Preventing a US-China Trade War

Aug. 21, 2017
 
The escalated tensions between the U.S. and China are raising concerns about a potential trade war. In my last editorial, I talked about how our official trade deficit figures with China are grossly inaccurate, and yet those same numbers were cited by officials during bilateral trade talks in July, which resulted in few agreements. Now President Donald Trump has instructed his top trade advisor to launch an investigation into Chinese intellectual property (IP) violations that could result in severe penalties. China says it will defend its interests if the U.S. hurts trade ties. Should the situation come to a head and descend into a trade war, the Peterson Institute predicted that it would ripple through the American economy, lowering private-sector employment by nearly 4 percent by 2019.
 
All of this bellicose posturing is not only unnecessary, but dangerous for both economies. The fact is that the business relationship between the U.S. and China is vibrant and mutually beneficial, for the most part. American companies are reporting strong second-quarter earnings and revenues from their Chinese operations. Trade with China has created millions of jobs in the U.S. and provided savings for American consumers.
 
That said, there are real issues of contention in the relationship, and those have to be addressed in a clear, persistent and reasoned fashion. To bring the entire relationship to the brink is not only irresponsible, but self-destructive.
 
Theft has no boundaries
 
Ironically, Trump’s calls for an investigation into intellectual property come at a time when President Xi Jinping is in the midst of strengthening laws on patents, copyrights, and trademarks, because China increasingly recognizes that someday it could become a leader in those technologies and become victims of IP theft. In 2015, more than a million patent applications were filed in China, and the government has created three specialized courts to handle IP disputes in Beijing, Shanghai and Guangzhou. Since their creation, these courts alone have heard more than 30,000 cases. In a landmark case in April, New Balance successfully sued Chinese companies for using its logo. In another high profile case, China’s highest court granted Michael Jordan the rights to Chinese characters of his name.
 
China is more motivated than ever to crack down on piracy, and there’s no better time for the Trump administration to negotiate proactively with the Chinese government on IP issues to secure benefits for U.S. companies without throwing the whole relationship into chaos.
 
Ignore the headline deficit, focus on the real problems
 
In my last editorial, I argued that the obsession with our headline trade balance with China is problematic. The bilateral trade deficit with China is overstated because the full value of products assembled in China for export to the U.S. is pinned to China, even though most products contain parts made in other countries. The iPhone is a great example. Also, the distorted deficit figures ignore the trade in services, in which the U.S. runs a significant and growing surplus.
 
Much of China’s trade prowess over the past decades has been rooted in comparative advantage, including low-cost labor and economies of scale in manufacturing. However, in recent years, trade patterns have been shaped by interventions that tilt the balance by boosting Chinese exports and hampering U.S. imports in ways efficient markets would not. Policymakers should focus their efforts on addressing these substantive non-market interventions.
 
Chinese manufacturing overcapacity
 
Policies that fuel the build-up of massive overcapacity in the Chinese manufacturing sector are more concerning. Some of these do not impinge on U.S. interests because the U.S. is not competitive in them, but some do, impacting U.S. exports to China and to third world countries, or even the market shares of U.S. firms at home.
 
The most prominent example is steel. China does not have a comparative advantage in the production of steel, but government-driven policies have incentivized producers to build up massive production capacity. China’s steel production has grown from 129 million metric tons in 2000 to 808 million metric tons in 2016. China’s trade balance in iron and steel moved from a deficit of $6 billion in 2000 to a surplus of $26 billion in 2016, and these products are offloaded in global markets.
 
This is problematic and must be addressed. China’s leadership is well aware of this challenge and has been dealing with overcapacity issues as part of the country’s structural reform. Even though Chinese export of steel products is down 25.7 percent from a year ago, progress has been much lower than expectations, and the pace needs to accelerate.
 
More importantly, steel is not an isolated case. The same overcapacity extends to other sectors in China. In certain industries, Chinese production of goods are below a normal utilization rate of around 80 percent, including products in which U.S. companies have an interest in the Chinese and global market, such as motor vehicles and refrigerators. The U.S. and other trade partners are rightly concerned about spillover impacts from Chinese overcapacity, and should continue to push this issue as a high-priority item in the U.S.-China Comprehensive Economic Dialogue going forward.
 
 
Lifting barriers to U.S. exporters
 
I am pleased to see substantive results from negotiations and the export of U.S. beef and rice into China, and both sides should build on these successes. China has shown that it can work with the U.S. to lower trade barriers, and this is an opportunity to move forward, not backward.
 
The U.S. should also lower some of its barriers that prevent U.S. firms from exporting goods to China. The United States strictly controls the export of goods to China that are determined to have military dual-use. However, this export control system has not been updated to reflect modern developments in global trade and technology. Present regulations are so all-encompassing that even items that have only peripheral military application or that are easily obtainable from other sources—like aircraft toilets, SIM cards, and industrial engines—require special export licenses to sell to Chinese buyers. Given the realities of Chinese technological development and the ready access to many goods from other nations, the U.S. administration should review whether these restrictions are meaningful, and whether they end up hurting U.S. businesses. Chinese Vice Premier Wang Yang says China imported $227 billion worth of semi-conductor chips from around the world, but only 4 percent came from the United States because of U.S. export barriers. The Carnegie Endowment for International Peace estimated that if the United States were to liberalize its export barriers against China to the same level that it applies to Brazil or France, the U.S. trade deficit with China would drop dramatically.
 
Security dilemmas
 
In addition, new policies restricting market access on the grounds of national security exacerbate the problem. In the United States, Congress is currently working on reforming the Committee on Foreign Investment in the United States (CFIUS), which reviews inbound investments for security concerns. Lawmakers intend to broaden the scope of security-relevant transactions requiring CFIUS approval, particularly those involving Chinese buyers. Currently, Alibaba’s acquisition of MoneyGram, which allows people to send money to each other in more than 200 countries, is on hold, pending CFIUS review.
 
China has likewise had a formal security screening process for foreign acquisitions since 2011, and recent Chinese policies suggest greater restrictions on imported foreign goods and services in security-relevant areas. For example, China’s 2017 Cyber Security Law requires information and communications technology (ICT) infrastructure to be “secure and controllable.” In other words, made or located in China.
 
The lack of transparency of these security processes in both countries is frustrating for companies trying to do business. While security concerns are a legitimate reason to restrict free trade, it is critical that officials find ways to minimize the negative impacts of security-related policies and prevent the loss of substantial benefits that stem from cross-border trade and collaboration.
 
Conclusions
 
The United States and China are closer to each other than they think, and they are missing out on an opportunity to reform the bilateral trade relationship by focusing on productive solutions to real problems. The first order of business is to correct the distorted trade numbers so we can assess the real issues behind the trade imbalance. Measured actions must be taken to pressure China into increasing IP enforcement and reducing overcapacity in Chinese manufacturing sectors. Also, the U.S. must remove outdated or illogical barriers that hinder U.S. companies from exporting products to China. Both governments must also increase transparency in national security screening processes. In the final editorial of this series, I will explore in more detail the most productive ways that policymakers in the U.S. and China can move forward together to create win-win scenarios and avoid an unnecessary trade war.
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Realistic Steps to Get US-China Trade Back on Track

September 11, 2017

We stand at a crossroads. The U.S. and China can either enter a costly and damaging trade war, or they can negotiate a better alternative. Getting trade relations back on track does not mean resolving every point of tension; there are fundamental areas where both nations will likely never agree. Other issues will require complex legislative changes or multilateral negotiations to resolve, but there are also areas of mutual interest where progress can be made quickly.
 
In recent years, high-level interventions cleared the way for U.S. credit card companies, U.S. beef and biotech soybeans to enter the Chinese market. Meanwhile, the U.S. agreed to lift an existing ban on Chinese poultry imports. Similar progress is possible in the future if both sides can focus on strategic areas to make beneficial terms. Here are my recommendations for realistic steps our leaders can take now to reverse the downward spiral and rebuild trust.
 
Step 1: Start with the right numbers
 
First we need to get the numbers right. Politicians need to understand and utilize more nuanced data in their dialogue with China instead of blindly relying on outdated, politically opportune figures. The iPhone alone added an estimated $17 billion to China’s trade balance with the U.S. in 2016. However, as I talked about in my first editorial of this series, Chinese inputs actually account for only 5 percent of the total iPhone value.
 
These distorted figures must be fixed immediately. Commerce Secretary Wilbur Ross is a savvy investor and would never make decisions based on erroneous figures. Why should he settle for anything other than the most accurate financial information now that he is in government making critical decisions affecting every business in this country? Distorted data has become a big liability and cannot be ignored any longer. We must have correct accounting.
 
Over the next 90 days, I urge Ross to order a reexamination of the methods used by Commerce Department’s Bureau for Economic Analysis to calculate trade figures. An independent task force should review the current statistical toolbox and recommend changes to bring trade figures more in line with reality. Value-added trade data compiled by the Organization for Economic Cooperation and Development is a useful starting point. It is crucial that policymakers have a true picture of the trade deficit’s size and components, if they are to address its real issues in a skillful way.
 
Step 2: Reduce trade barriers by focusing on low-hanging fruits
 
To generate goodwill through immediate results, China’s leaders should consider moving fast in areas where it has already signaled its intent to liberalize and allow more domestic competition.
 
Movies and entertainment services are one example. The summer blockbuster “Wolf Warrior 2” broke China’s box office record and became the second film in history to pass the $800 million mark in a single territory, just behind 2015’s “Star Wars: The Force Awakens.” This shows that Chinese movie makers are now finally able to pull their own weight domestically and ready to compete against American films. Now is a good time to increase China’s annual foreign screening quota to produce quick results.
 
Agricultural goods and biotechnology are two other areas high up on the U.S. priority list. Accelerating approvals for seed products grown in the U.S. would be a powerful signal of China’s commitment to a transparent and efficient regulatory approval process. Similarly, continuing to streamline the approval process for pharmaceuticals would go a long way. In March, China announced it would allow foreign companies to file for new drug approvals using data from international, multicenter trials, so long as those trials include China as a study site. This is a significant step forward, and I recommend China adopt the proposed rules as soon as possible to give the Chinese people access to the most advanced drugs and therapies.
 
 
In the United States, the Trump administration should continue and accelerate reforms of the U.S. export controls regime. As I discussed in my previous editorial, China is now the fastest-growing market for many high-tech products, but the U.S. export controls regime has long put American exporters at a disadvantage. Designed in the 1970s, the system imposes onerous licensing requirements for innocuous products such as aircraft toilets, brakes and bolts.
 
The Obama administration has made good progress in recent years to reform the U.S. export controls regime. I urge the Trump administration to continue this path instead of putting up additional barriers. An inter-agency task force should work with Congress and industry to implement the next steps of reform: creating a single list of controlled items, creating a singular federal agency, and mandating regular reviews of controlled items to keep up with technological change. Such reforms would help ensure that U.S. companies stay competitive with their counterparts in other Western countries and export non-sensitive high-tech products to China without harming security interests.
 
Step 3: Find non-tariff solutions to limit Chinese overcapacity impacts
 
Overcapacity in steel and other manufacturing sectors contribute to China’s trade surpluses with the U.S. and other countries, as Chinese producers offload excess inventories abroad. It is in China’s self-interest to address this misallocation of resources. For the transition period, we should not react with tariffs but work with China to find solutions that limit the negative impacts on the U.S.
 
Steel is the most prominent example. China directly supplies only about 1 percent of the steel used in the U.S., so a tariff would do nothing to balance trade with China. Instead, it would raise prices for U.S. consumers, and China will likely respond by slapping tariffs on U.S. products. I pose this question to the administration: does it make sense to hurt numerous U.S. companies that use steel to make their products, as well as other allies like Canada and Mexico who export much more steel to the U.S., over a 1 percent issue?
 
Instead of slapping tariffs on Chinese goods, the U.S. should work with China to explore cooperative alternatives, like voluntary export restrictions. In 1981, Japan agreed to limit the exports of passenger cars to the U.S. to 1.68 million units per year until 1984, and unilaterally imposed similar restrictions in following years. These quotas gave U.S. automakers room to regain market share while encouraging Japanese manufacturers to move some production to the United States. The measures helped to avoid a trade war and restore support for free trade among citizens and businesses.
 
I believe this instrument could achieve the same results today. Unfortunately, President Donald Trump twice rejected Chinese proposals to cut steel overcapacity by 150 metric tons by 2022, even though it was endorsed by Secretary Ross and other top advisors. The President should re-consider his decision. Verifiable capacity cuts and voluntary export restrictions would be a good deal for America.
 
 
I also urge China to move forward with the effort anyway, and go even further to cut overcapacity across other heavy industries, such as cement and aluminum. It is in China’s own interest to cut down overcapacity for the good of its people. Polluting heavy industries continue to siphon capital away from more productive domestic sectors, and are taking a heavy toll on the environment and health of the Chinese people. Air pollution causes 7 million premature deaths every year, 20 percent of China’s agricultural soil is polluted, and 60 percent of underground water cannot be consumed unprocessed. This is not sustainable.
 
China should more frequently allow companies in these industries to exit the market. Chinese courts accepted 5,665 bankruptcy cases in 2016, an increase of 54 percent from the year before, and that number should further increase. China should also allow consolidation through mergers and acquisitions, including foreign takeovers. Finally, China needs to further promote the central Ministry of Environmental Protection so it can take a greater role in the enforcement of environmental compliance rules. From January to July 2017, the Ministry issued fines of $116 million—that’s an increase from previous year, but too small for a $12 trillion economy with severe environmental problems.
 
Step 4: Protect technology and intellectual property rights
 
The protection of intellectual property rights (IPR) has been a long-standing issue in the U.S.-China trade relationship, and recent steps by the Trump administration to launch a section 301 investigation have further escalated tensions.
 
China needs to take steps to more aggressively enforce IPR in the coming years because it is in China’s own interest to do so. China is no longer the world’s lowest-cost producer, so its companies increasingly need to build technologies and brands to thrive. Instead of making low-cost, no-name socks for Walmart, Zhejiang textile producers will soon need to sell premium socks under their own brands to U.S. consumers.
 
If change is not made quickly, Chinese technology leaders with global ambitions like cell phone maker Huawei and the big three technology companies, BAT—Baidu, Alibaba and Tencent—will be forced to take their IP elsewhere to sustain technological edge, for fear of theft in their own country. China’s exploding venture capital scene is now bigger than the United States’, hitting an all-time high of $31 billion last year. Investors are pouring money into robotics, artificial intelligence and big data, as well as education, fintech and healthcare-related startups. Two-thirds of the world’s hardware unicorns come from China. All this valuable IP is at risk if China does not act aggressively now to shore up the laws and crack down on enforcement to ensure that new ideas will be protected.
 
As immediate steps, China should expand its IPR court system nationwide, which has brought measurable improvement for foreign companies in pilot cities. China should also initiate a task force to explore how administrative enforcement of IPR rulings can be improved, especially against vested interests that often shield local companies from IPR-related sanctions. Finally, Beijing should double down on new technologies, such as real-name online registrations, or its new Social Credit system, to support the prosecution of copyright violators and their customers.
 
Step 5: Keep investments flowing
 
Foreign direct investment (FDI) is intimately tied to trade flows, and businesses have a lot of appetite to increase investments both ways. Our leaders should immediately return to the negotiating table and conclude a bilateral investment treaty (BIT), which would set clear rules for market access limited only by short negative lists of restricted sectors. In the meantime, both sides should take concrete steps to foster positive momentum to counter fear over security and economic risks.
 
China recognizes that it must accelerate the liberalization of its FDI regime to sustain investments from U.S. and other partners. In the past two years, China has significantly overhauled its inward FDI regime by replacing its three lists with a nation-wide negative list, which names the specific types of investments that are restricted or prohibited. An updated version of China’s Foreign Investment Catalogue went into effect on July 28. However, it only marginally increases market access for U.S. companies. To demonstrate seriousness, China should consider unilaterally removing barriers in sectors that are important for the U.S.
 
The United States must do its part to clarify its own negative list of off-limit sectors and not further complicate its investment screening process. Under the new U.S. administration, the Committee on Foreign Investment in the United States (CFIUS) has become problematically slow and unpredictable. Treasury Secretary Steve Mnuchin needs to ensure that CFIUS remains consistent and efficient, and avoid politicizing the process. The President can help by filling relevant senior government posts that remain vacant, including the undersecretary responsible for investment.
 
Through Select USA, the U.S. should double down on efforts to bring in Chinese greenfield manufacturing facilities to the U.S., which will create new jobs, tax revenue and other benefits for local communities. South Carolina landed three major Chinese greenfield plants in recent years: Geely-owned Volvo is building a $500 million auto factory that will employ more than 2,000 workers; Jushi Group is building a $300 million fiberglass plant that will create 400 jobs; and Giti Tire has built a manufacturing facility and distribution center on a 1,100 acre site and will create 1,700 new jobs.
 
Step 6: Build up “U.S. belt and American road” with Chinese capital
 
The chaos that Hurricane Harvey wreaked upon Houston is the latest wakeup call that America’s infrastructure needs to be upgraded. The city’s inadequate stormwater drainage system, and aging pipes and dams were no match for the deluge, causing deaths and widespread damage. We urgently need to repair the nation’s crumbling roads, bridges, and dams, and the administration should make the financing of large infrastructure projects a top priority.
 
Chinese capital deployment can help. Chinese foreign exchange reserves are still sizable, and institutional investors such as the National Social Security Fund are looking for opportunities to diversify their portfolios. Moreover, Chinese firms have plenty of experience and know-how in global infrastructure construction projects, including high-speed rails, utilities and airports. Federal and local U.S. officials should explore public-private partnerships and other models that allow Chinese funding to build infrastructure and provide jobs, training, and opportunities for American workers for years to come.
 
While I think it’s a sound strategy for China to be focusing on building a modern-day Silk Road in Asia, China should remember that there’s no more important “Belt and Road” than that of the “U.S. Belt and American Road.” China and the U.S. are intimately tied to each other through $650 billion of annual trade and $60 billion of two-way FDI flows—what better to invest in than the most strategic trading and investment partner, and create goodwill in U.S. communities? Moreover, China is trying to curb “irrational” and risky overseas investment. Infrastructure projects that are supported by the U.S. government are a great fit for Chinese investors seeking high-quality projects that offer low risk and stable returns.
 
In conclusion, the U.S. and China must make the choice to avoid a trade war and seek out low-hanging fruit to pick together. While it will take time to iron out serious differences, there are several areas where tangible gains can be accomplished in the short-term. We cannot afford a global protectionist downward spiral. Let’s rebuild trust and put the U.S. and China back on track toward a productive relationship that will benefit the people of both countries.

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Events

October 17, 2017 - 4:00pm
Los Angeles, California

The USC U.S.-China Institute presents a talk by Michael Meyer, whose last book in his China trilogy tells a story both deeply personal and universal as he captures what it feels like to learn a language, culture and history from the ground up. 

 

October 19, 2017 - 4:00pm
Los Angeles, California

Please join the USC U.S.-China Institute for a presentation by Wei Yen (厳序纬), author and veteran businessman, to examine Chinese outbound investment and how American businesses can take advantage of China’s rise to forge win-win partnerships.