Working With, Not Against, China

McDonald's.

There’s a lot of negative rhetoric being spouted about China around the world these days. Frustrated European policymakers, for example, complain because Beijing has been unwilling to jump in and bail out the debt-laden European Union without some assurances.

In Washington, lawmakers in Congress are concerned the Chinese are deliberately holding down the value of the yuan in an attempt to maintain low Chinese wages and cheaper exports that are more attractive in foreign markets.

A growing cadre of economists claim the fast-growing Chinese economy soon will overheat and implode.

And, finally, a host of executives contends the Beijing government has stacked the deck against U.S. companies seeking to do business in China.

I’m not here to debate these assertions; instead, I’d like to point out that in each case it is in China’s economic interest — and the United States’ — to work together to resolve these issues.

For example, the 17 nations in the eurozone now represent China's largest trading partner. China would suffer significant economic consequences if the countries that received 20 percent of their exports failed to survive this crisis. And, if lawmakers take action to force a change in currency policy, China risks losing its second-largest trading partner: the United States.

Third-Largest U.S. Export Market

Tay YoshitaniWith a population that’s four times larger than that of the U.S., China represents a potentially huge market for U.S. products. It’s already the United States’ third-largest export market — behind Canada and Mexico — after purchasing nearly $100 billion worth of U.S. goods and services in 2010. And, with hundreds of Chinese cities boasting more than 1 million consumers each, the U.S. needs to find ways to develop these opportunities, rather than confronting the Chinese.

These actions are actually counterproductive, I believe, because they’re directed at a trading partner that’s currently responsible for hundreds of thousands of jobs right here in our own country.

China isn’t perfect, and some of its trade policies must be addressed. But the Port of Seattle has been doing business with the Chinese for the past 30 years, and we’ve established close and mutually beneficial ties that have generated prosperity for both sides. In fact, when it comes to waterborne trade through the Port of Seattle, China is now our largest import and export trade partner, representing 53 percent of our total seaport trade.

What we’ve found during the past three decades is that China recognizes commercial excellence, and wants to do business with companies, organizations and countries that have something significant and special to add to the transactional mix. That’s why, after surveying a number of domestic industries and sectors, it’s clear to me that the U.S. has plenty to offer the Chinese. Looking forward, I believe our economy will be better off if we leverage these real market strengths.

China Focuses on Patents

For starters, let’s look at innovation. China is trying to boost its number of patent filings, especially in important areas such as solar and wind energy, information technology and telecommunications, and battery and manufacturing technologies for automobiles. To lift its patent count, the Chinese have introduced an array of incentives, including cash bonuses, better housing for individual filers, and tax breaks for companies that are prolific patent producers.

In addition, spending on research and development as a percentage of China’s GDP has tripled over the past 15 years, 0.5 percent to 1.5 percent. By 2020, about 2.5 percent of China’s vast GDP will likely go to R&D.

That said, there are serious questions about Chinese patents, and whether China can really become a force in the imaginative side of computing that includes writing next-generation software.

China’s innovation system also has shortcomings. The government maintains a strong influence over research agendas and the careers of researchers, and many budding Chinese entrepreneurs are holding back because they question whether Beijing’s intellectual property laws are protective enough.

China’s indigenous innovation policy, specifically its approach to intellectual property, rubs many U.S. companies the wrong way, too, and the upshot is that a number of firms believe they will lose business because of it. To guard against this, I believe we need to make sure we protect our interests, enforce existing trade laws and continue working toward better intellectual property protection in China.

Still, the U.S. has an absolute advantage in the innovation arena because it’s the country that’s most open to new concepts, fresh talent and brash innovation. When it comes to creating breakthroughs, we permit failure, embrace risk and accept uncertainty. We also have an uncanny ability to recognize new consumer demands while building fresh, cutting-edge industries. And, finally, we have established social, political, cultural and educational institutions that steadily move the best ideas from labs to the marketplace.

U.S. Must Advance Programs

Despite these positives, we must never take our advantage for granted. To stay ahead, we must roll up our sleeves and enhance educational enrichment, bolster R&D programs, and find ways to fund necessary infrastructure and transportation systems for the 21st century global economy.

Looking forward, even though many innovative technologies will be made in China, we have the opportunity to work with the Chinese to develop state-of-the-art interdisciplinary research programs that could lead to a new world of 21st century products and services. Such an irreplaceable, high-value role would produce a sustained flow of jobs for our knowledge workers over the coming decades.

We’ll also see positive job gains if we continue to leverage our strong portfolio of unique, coveted and world-class brands.

China’s expanding middle class is gaining traction, and it has an increasing amount of disposable income, which is being spent on highly visible U.S. brands such as Coca-Cola, McDonald’s, Disney and Procter & Gamble. These brands already have demonstrated their “star-power” demand throughout China. McDonald’s, for example, is opening a new restaurant every day in China, and it plans to continue to do so for the next several years. By 2013, the company expects to have added 700 new outlets in China, on top of its current base of 1,300 restaurants there.

China’s burgeoning middle class also is starting to spend money in the U.S., where we have a one-of-a-kind tourism and recreation infrastructure that affords visitors a plethora of memorable lifetime experiences.

Last year, for instance, some 800,000 Chinese visited the U.S. and spent more than $5 billion while they were on this side of the Pacific Ocean. That’s an annual increase of more than 50 percent. More specifically, China has become the fourth-largest source of tourism for California, generating approximately $650 million for the Golden State in 2010.

These numbers, and the jobs they produce, should keep increasing if we make a concerted effort to promote U.S. tourism in China. Tourism is a profitable, beneficial and worthwhile U.S. export product, and it doesn’t require the building of factories, or the infusion of immense amounts of capital spending.

Zero In on Strengths

There are many other ways we can flourish in our economic relationship with China if we keep emphasizing America’s commercial exceptionalism. But the most important thing is to remember our inherent strengths in the marketplace, and to lead with them today, and over the next few decades. If we zero in on those strengths, I believe we may actually surprise ourselves, and the world at large.

Take manufacturing, for example. China is now the world’s largest manufacturer, overtaking the U.S. after a 20-year climb to the top. But the Chinese are slowly losing their cost edge, and there is a sense among economists that the U.S. could experience a manufacturing renaissance and begin attracting capital investment from places such as Europe. A good case in point: Germany’s Siemens recently announced a $170 million investment that will enable it to build gas turbines less expensively in Charlotte, N.C., than in Shanghai.

So, even though it’s beneficial for us to cooperate with the Chinese wherever and whenever possible, we must have the confidence and will to compete with them in markets where we can press our advantage and fortify our own economy. Respecting China doesn’t mean backing down. But taking China on doesn’t require more rules, regulations and retaliation.

Tay Yoshitani is CEO of the Port of Seattle. 

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