Within 24 hours of Treasury Secretary Jacob Lew’s speech on China at the American Enterprise Institute on June 16, two noteworthy developments had already occurred, each representing a different future for foreign companies in China. Good news for Disney, bad news for Apple.
Disney’s new resort in Shanghai, which includes ride areas, hotels, a shopping district, and a castle, is the culmination of five years and $5.5 billion in investment. The project’s success is an auspicious sign to companies hoping to increase operations in China in the future.
Due to the magnitude of the event, both President Obama and President Xi Jinping drafted statements that were delivered to the hordes of people gathered at the theme park for the opening ceremony.
President Obama’s letter, read by Chairman and CEO of Disney Bob Iger, framed the theme park as a symbol of future possibilities, stating “[This resort] underscores the importance of China continuing to make itself more attractive to investment from around the world.”
President Xi Jinping refrained from mentioning the future except to express his well-wishes to Shanghai Disney going forward, saying that the construction of the theme park “demonstrates our commitment to close cultural cooperation.” That commitment, however, is regularly thrown into doubt by China’s hostility toward other multinational corporations.
The contents of the presidents’ messages reflect different approaches to the U.S.-China economic relationship by the two countries – the U.S. push for increased investment and openness in Chinese markets and China’s focus on present accomplishments in order to avoid promising future collaboration outright.
Ironically, later the same day, tech giant Apple lost a lawsuit to a small smartphone producer in Beijing called Shenzhen Baili. The suit could potentially block sales of the iPhone 6 and 6 Plus, Apple’s latest smartphone models, in the Beijing area.
The Beijing Intellectual Property Office said that the exterior of the iPhone 6 and 6 Plus too closely mimicked that of Shenzhen Baili’s 100C smartphone. Despite many smartphones sharing a similar exterior design, this is the first case of its kind that Apple has lost. These are trumped-up charges designed to shake Apple down. Apple will appeal the decision and in the meantime continue to sell the iPhone 6 and 6 Plus.
This case of blatant protectionism is a serious setback, even more so because it relies on spontaneous legal procedures with little precedent. To multinational companies in China, it validates fears of uncertainty regarding intellectual property rights and dissuades industry leaders from investing in Chinese markets. Not to mention that U.S. foreign direct investment (FDI) in China is already weak. From 2000 to 2012, U.S. FDI decreased 5 percent per year on average, while total FDI grew 8 percent during the same period.
How can the United States improve the situation for American businesses? Lew spoke of negotiations over China’s National Security Review and a high-standards bilateral investment treaty (BIT) as “barometers” to gauge the administration’s success in the next 7 months.
Though China’s National Security Review is meant to specify guidelines for foreign acquisitions of Chinese domestic companies, its vagueness creates ambiguity for foreign businesses attempting to gain a foothold in China. Reaching mutually understood interpretations on its precise intentions would be a welcome improvement.
A high-standards BIT establishes guidelines and protections for businesses of the two participating countries and could provide much needed clarity for American companies. If unaddressed, uncertainty spawned by China’s unpredictable behavior toward foreign companies will damage both economies. A BIT, if enforced, could foster trust on both sides and point the way forward for American and Chinese businesses.
Lew regards a high-standards BIT as a primary objective during the concluding months of his tenure. But ultimately it will be up to the United States to administer the law and prevent American companies from being brought to court on fabricated charges.
Sammy Kunitz-Levy is an E21 contributor.
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