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[Gene GeRue <genegerue AT ruralize.com>]

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© 2007, The US-China Business  
Council 
                                                                                                              1
Seven Myths about US-China Trade and Investment

American companies invest in China to shift jobs there and export back
to the United States.
According to Swiss investment bank UBS AG, more than 50 percent of PRC  
exports by value are
produced by foreign firms in China, “but the vast majority of these  
are Hong Kong, Taiwan and Korean
companies....”1 US-China Business Council (USCBC) survey findings are  
consistent with this data: USCBC
member companies primarily invest in China to serve the Chinese  
domestic market, not export back to the
United States. Fifty-seven percent of the respondents to the 2006  
USCBC Member Priorities Survey said that
their main investment objective was to access the Chinese market.  
Twenty-five percent of USCBC members
invest in China to export to other markets in Asia or around the  
globe. Only 18 percent invest in China as an
export platform to the US market.2

China is causing the decline of American manufacturing.
US manufacturing output is at an all-time high. Real value-added  
manufacturing output has risen
every year since 1987, except for brief declines during the 1990–91  
and 2000–01 recessions.
Manufacturing value-added output has also remained a relatively  
constant share of US GDP.

Manufacturing employment has been declining for four decades—long  
before China was a major trading
partner—as the US economy has shifted from a manufacturing-  to a  
services-based economy.

The United States is still the world’s largest manufacturer, and its  
share of global manufacturing output has
stayed the same over the past decade at about 22 percent (it has been  
hovering around 20 percent since 1982.)3
China’s share is 8 percent, up from 4.2 percent in 1995. China’s gain  
has come not at the expense of American
manufacturing but rather primarily at the expense of Japan, which has  
seen its share of global manufacturing
go from 21.1 percent to 17.8 percent over the past decade.

China’s market is closed to American companies.
In fact, China and Hong Kong combined are our third-largest export  
market, at $73 billion in 2006.
Moreover, China is by far the most rapidly growing market for US  
goods, having grown nearly four-
fold over the last 10 years.4

China’s World Trade Organization (WTO) entry was a bad deal for America.
China’s WTO-mandated market openings have clearly benefited American  
companies. US exports to
China have grown 150 percent since China’s WTO entry in 2001, which is  
more than double the rate
of the second most rapidly growing market over the same period, the  
Netherlands. In addition, as US
companies take advantage of service sector openings mandated by  
China’s WTO entry agreement, the US
services trade surplus is projected to grow from $2 billion to $15  
billion by 2015.5

China doesn’t allow American companies operating there to be profitable.
According to the 2006 survey of USCBC member companies, 81 percent of  
companies say that their
Chinese operations are profitable, a significant increase from a US  
government survey in 1999. And
© 2007, The US-China Business Council
2
more than half say that profitability rates for their China operations  
meet or exceed their company’s global
profit margins.6

The latest statistics from the US Bureau of Economic Analysis indicate  
that in 2006, US affiliates in China
repatriated profits of $4.5 billion back to the United States.7

China’s undervalued currency creates the large US trade deficit and  
prevents
American companies from selling more to China.
China does need to move faster with reforms to allow its exchange rate  
to better reflect market forces.

But Oxford Economics has estimated that even a 25 percent revaluation  
of the renminbi against the dollar
would decrease the total US trade deficit, which was more than $800  
billion in 2006, by only $20 billion after
two years.8

In addition, USCBC member companies generally do not cite the exchange  
rate as a key business issue
affecting their competitiveness in China. Many are concerned, however,  
about potential repercussions that
could impact US exports to China should the political dispute between  
the two countries over the exchange
rate worsen.9

 China forces American companies into joint ventures.
Nearly 75 percent of foreign investment in China now goes into 100  
percent foreign-owned
enterprises, not joint ventures with Chinese partners.10

****
These myths distract us from our real economic and commercial problems  
with China.
The economic and commercial relationship clearly benefits the American  
economy, but problems do exist.
Greater market access, transparency, national treatment, and better  
intellectual property rights protection
would help to level the playing field for US companies. We need to  
focus on those issues, and on enhancing
American competitiveness overall, to ensure we benefit from our trade  
relationship with what will soon be the
second-largest economy in the world.


Notes

1 UBS Investment Research: Asian Focus. As if China Really Needed  
Foreign Investment, November 13, 2006.
2
US Companies Gain in China, Still Face Hurdles: USCBC 2006 Member  
Priorities Survey. August 2006
(www.uschina.org/public/documents/2006/08/member-priorities-survey.pdf).
3 United Nations Industrial Development Organization (UNIDO). See also  
Gresser, Ed. Healthy Factories, Anxious
Workers Or, Why Lou Dobbs is Wrong. Progressive Policy Institute,  
February 9, 2007
(www.ppionline.org/documents/Healthy_Factories_020907.pdf).
4 US International Trade Commission (http://dataweb.usitc.gov/scripts/user_set.asp 
). Remarks by Treasury
Secretary Henry M. Paulson, Jr., before the Economic Club of  
Washington, March 1, 2007
(www.ustreas.gov/press/speeches.html).
5 Oxford Economics. The Prospects for US-China Services Trade and  
Investment, December 2006. Published by the China
Business Forum (www.chinabusinessforum.org/pdf/us-china-services-trade.pdf) 
.
6 USCBC 2006 Member Priorities Survey.
7 US Bureau of Economic Analysis, Table 11. US International  
Transactions, by Area—China
(www.bea.gov/international/bp_web/simple.cfm?anon=242&table_id=10&area_id=35) 
.
8The China Effect: Assessing the Impact on the US Economy of Trade and  
Investment with China, Oxford Economics.
Published by the China Business Forum, January 2006 (www.chinabusinessforum.org/pdf/the-china-effect.pdf) 
.
9 USCBC 2006 Member Priorities Survey.
10 The China Business Review, September–October 2006, from PRC  
Ministry of Commerce data
(www.chinabusinessreview.com/public/0609/ChinaData.pdf).

http://www.uschina.org/public/documents/2007/05/uscbc-7-myths-about-us-china-Trade.pdf