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The American Chamber of Congress (AMCHAM) recently held an update meeting in Shanghai, providing a unique opportunity to mix with like-minded entrepreneurs in Asia and hear their take on current events. Given colourful political landscapes in both countries, we had much to discuss. As US-China relations continue trending in a positive direction, companies seeking to expand business in China have much to look forward to in 2018.
Four drivers are fueling our optimism:
- Continual opening of China and increased rule of law
- Momentum fuelled by the 19th Party Congress
- Recent orders on the heels of the presidential visit
- China’s overall value proposition
Momentum has been building for months, long before the 19th Party Congress and the recent presidential visit. Here are the data-driven facts.
Rule of Law
China for centuries has been governed not by the rule of law, but by the rule of men. This cultural maxim was turned on its head starting two years ago, as massive crackdowns on corruption ensued. To date, over 300 senior officials have been dismissed and over a million people have been charged. As noted in our blog about heightened enforcement, China’s manufacturers are being scrutinized like never before to comply with existing environmental laws. The 19th Party Congress fuelled momentum by declaring practices that inhibit the beautification of China are also anti-party and subject to prosecution. Times have changed.
187 Tariff Reductions
The 19th Party Congress solidified President Xi’s lead role in opening up China to American goods. Following the meeting, the Chinese government announced tariff reductions as well as an opening of markets for imports that were previously closed, not previously exploited, or under-managed. Food, pharmaceuticals, and oil & gas companies are the big winners. Losers include cosmetics, due to China’s continuing requirement for products to be tested on animals. In all 187 categories of consumer goods will see tariffs see up to an average of 10 point reductions in tariffs from 17.3% to 7.7%.The changes will go into effect in December of 2017. See the list of 187.
250 Billion in Orders
Even before the US President’s November visit to China, pressure was mounting for easier access to China’s markets for American Goods. China is keen to sustain friendly foreign relations. China intends not to close the trade gap by reducing $480 billion USD in exports but instead increase imports from their current level of $120 billion USD. During the presidential visit, $250 billion USD in new orders were announced, signalling China’s intention to close the gap. Key word is “intention.” Will all these orders come to fruition? Time will tell.
The takeaways? Even when candidates are negative on China during election cycle, the two country’s common interests take over once a new president takes office, faces reality, and is pressured to negotiate. Blaming predecessors for the trade gap is election rhetoric. We’ve observed that current presidents do not determine long term outcomes. Both countries are on a path of increased economic ties regardless of who is in charge.
China’s Golden Value Proposition
China has solidified its position as Asia’s top growth market in which to business. The upshot for American companies? There’s never been a better time for doing business in China. Combine China’s strengths:
- Skilled workforce
- Reliable infrastructure
- Eroding trade barriers
- Regional incentives
- Increased rule of law
Very few markets in Asia offer as much for as little risk.
There’s never been a better time to sell in China.
For American businesses, regardless of who is serving as American President, the relationship is indicative of the trend of both countries working closely together.
Time to review your strategy? If yesterday your product was subject to high tariffs – it’s worth digging into the details today to see if changes apply to you. You’ll need details on the differences in tariffs by category, actual tax rates, and specific tactics for how to capitalize on them.
For the magic 187, it will be a mini gold rush.