U.S.-China Economic and Security Review Commission, "Hearing on the Foreign Investment Climate in China: Present Challenges and Potential Reform," January 28, 2015

Wednesday, January 28, 2015
G50 Dirksen Senate Office Building
Washington, DC

Hearing Co-Chairs: Commissioners William A. Reinsch and Daniel Slane

Opening Statement of Chairman William A. Reinsch

Good morning, and welcome to the first hearing of the U.S.-China Economic and Security Review Commission’s 2015 Annual Report cycle. As this year's Chairman, I want to thank you all for joining us today. We appreciate your attendance and we encourage you to attend our other hearings throughout the year.

Our next hearing on February 18 will examine China’s space and counterspace programs. Future hearing topics this year include China-Central Asia relations, China’s offensive missile forces, and China’s 13th Five-Year Plan. More information about the Commission, its annual report, and its hearings is available on the Commission's website at www.USCC.gov.

Today’s hearing will seek to assess the most recent and pressing challenges facing foreign firms operating in China with a spotlight on China’s Anti-Monopoly Law enforcement. This hearing will also seek to evaluate the potential for China’s planned reforms to create a more transparent, cooperative, and fair environment for foreign investors.

Throughout 2014, foreign companies across the United States, Europe, and Asia have issued a growing number of complaints with regard to the operating environment in China. Some of their concerns, like stiffer competition from Chinese companies and rising labor costs, are rooted in China’s slowing economic growth.

Perhaps more distressing are recent complaints from foreign businesses with regard to their treatment by Chinese regulators. As reported by numerous business groups this year, their concerns range from increased scrutiny and regulatory enforcement to procedural and due process shortcomings. Some foreign companies worry that increased Chinese regulatory activities have seemed to focus disproportionately on foreign investors, putting them at a disadvantage compared to domestic firms.

However, we note there are differing views to be considered in evaluating China’s implementation and enforcement of rules governing foreign investment, some of which we look forward to hearing today.

To help us better understand the complexities of this issue, we are joined by a number of experts from the Administration, industry, legal, and academic fields. We look forward to hearing from each of you.

Let me now turn to hearing co-chair Commissioner Dan Slane for his opening remarks.

Opening Statement of Commissioner Daniel Slane

Thank you, Chairman Reinsch, and good morning, everyone. I would like to begin by thanking Senator Deb Fischer and the Senate Rules Committee for securing this room for us today.

One of our panels this morning will seek to evaluate China’s implementation and enforcement of its Anti-Monopoly Law. By international standards, antitrust law should protect competition by preventing undue concentrations of market power and abuse of market dominance. While China has indeed used its Anti-Monopoly Law to achieve this goal, foreign firms and business groups have complained that China’s recent enforcement activities appear to promote the country’s industrial policy goals at the expense of foreign firms.

Over the last year or so, foreign companies have been forced to cut prices or cap technology licensing fees without conclusive evidence of anticompetitive conduct under threat of investigations to the benefit of Chinese national champions in strategic industries. The resulting environment does not protect competition, but rather promotes protectionism and discrimination.

Today, our expert witnesses will help shed light on the role of industrial policy and other non-competition factors in China’s enforcement and implementation of the Anti-Monopoly Law and other laws affecting foreign investors. We’ll also discuss how U.S. and Chinese regulatory authorities are working together to bring China’s antitrust enforcement closer in line with international legal standards.

We will hear from experts on the first three panels before adjourning for a lunch break at 12:45. After lunch, we will reconvene in this room at 1:45 for the final panel, which will focus on the impact of China’s recent and planned reforms on the foreign investment regime.

Finally, I’d like to thank members of our staff, Lauren Gloudeman and Paul Magnusson, for their hard work on pulling this hearing together. I’ll turn now to the Chairman to introduce the Administration panel.

Administration Panel: Assessing the Interface between China’s Competition and Technology Licensing Policies
Maureen K. Ohlhausen, Commissioner, Federal Trade Commission, Washington, DC
Mark A. Cohen, Special Counsel, U.S. Patent and Trademark Office, Washington, DC

Panel I: Industry Perspectives on the Foreign Investment Climate in China
Written statement from Dr. Oded Shenkar, Ford Motor Company Chair in Global Business Management, The Ohio State University, Columbus, OH
Dr. Robert D. Atkinson, President, Information Technology and Innovation Foundation, Washington, DC
Dan Harris, Founder/Partner, Harris Moure, Seattle, WA

Panel II: The Legal and Regulatory Context for China’s Antitrust Enforcement
Abbott (Tad) Lipsky, Jr., Partner, Latham & Watkins, Washington, DC
Dr. Elizabeth Xiao-Ru Wang, Principal, Charles River Associates, Boston, MA
William Kovacic, Global Competition Professor of Law and Policy; Director, Competition Law Center, George Washington University Law School, Washington, DC
Written statement from Gil Kaplan, Partner, King & Spalding, Washington, DC

Panel III: Evaluating the Impact of China’s Reforms on the Foreign Investment Climate
Lucille Barale, Visiting Professor, Georgetown University School of Law, Washington, DC
Dr. Joshua Eisenman, Assistant Professor, University of Texas at Austin, Lyndon Johnson School of Public Affairs, Austin, TX; Senior Fellow for China Studies, American Foreign Policy Council, Washington, DC
Dr. Scott Kennedy, Deputy Director, Freeman Chair in China Studies; Director, Project on Chinese Business and Political Economy, Center for Strategic and International Studies, Washington, DC