Every March, top corporate and financial executives fly to Beijing for the Chinese Communist party’s premier networking event. The China Development Forum, typically held a week after China’s rubber-stamp parliament has wrapped up its annual meeting, attracts dozens of Fortune 500 executives and international financiers.
When not mixing with vice-premiers and ministers at the forum’s main venue, the exclusive Diaoyutai State Guesthouse, the foreign VIPs fan across the capital for private meetings with their best party and government contacts.
It is normally a relaxed affair. At last year’s session, Chinese officials could point to a strong economic outlook and even stable relations with the US as President Xi Jinping prepared for his first face-to-face meeting with Donald Trump.
But this year’s forum was anything but relaxed. Though China’s economic outlook is still positive, the prospect of a Sino-US trade war clouded conversations.
Most of the forum’s foreign guests want nothing to do with a trade war. They would prefer that the Trump administration used other means to improve the opportunities and operating environment for foreign investors in China. But their frustration is growing.
In some areas, the basic viewpoints on trade of foreign executives and their Chinese hosts are so far apart that they struggle to have mutually intelligible conversations. If this divide is not bridged, and soon, a full-blown trade war between the world’s two largest economies seems inevitable.
In one private conversation on the sidelines of this year’s forum, a senior Chinese official told foreign business executives that Beijing did not have a policy of forcing overseas companies to transfer valuable technologies and other intellectual property to local joint venture partners. The Trump administration disagrees, and has threatened to impose tariffs on $60bn worth of Chinese industrial exports for what it alleges are forced technology transfers.
The official then referred to the rapid expansion of China’s high-speed rail network over the past decade. He noted that the world’s leading manufacturers of railway equipment had all been invited to participate in this lucrative project. In return for choosing to share their technology with Chinese joint venture partners, they would be able to sell equipment into what is now the world’s largest high-speed rail network and thus increase their global market share.
Two of the world’s five leading high-speed train manufacturers agreed to this arrangement, the official noted. He then concluded by saying these companies had not been forced to transfer technologies because they voluntarily agreed to do so in return for access to China’s market.
But to foreign investors and Trump administration officials, the trade-off outlined by the Chinese official is a classic example of forced technology transfer. As one foreign executive said: “It’s not a ‘choice’. Companies cannot afford not to be here because China’s market is so large.”
This fundamental disagreement over what even qualifies as an example of forced technology transfer might not be so worrying if the Chinese government were throwing open the doors to markets — but it is not.
Chinese officials, for example, have made much of their willingness to allow foreign brokers, banks and insurers take majority control of their China joint ventures in the near-term — and full control in three to five years. But what if their joint venture partners do not want to sell?
Even the “early harvest” agreements of last year’s “100-day” Sino-US trade talks have generated more cynicism than good will. Fourteen years after suspending imports of US beef, China agreed to resume them last year in a very narrow manner. It allowed in only “on-the-bone” beef, a relatively small-volume, “super-premium” segment.
China also said last May that it would open its payments market to foreign credit card groups — a full five years after the World Trade Organization found that Beijing’s barriers to MasterCard, Visa and others violated its market access commitments. Almost a year later, China’s central bank has yet to issue a domestic licence to a foreign provider.
Over recent days, global markets have been heartened by the fact that Mr Trump and Mr Xi’s negotiators are still trying to head off a trade war. But given the fundamental disagreements over core issues evident at the China Development Forum — and Beijing’s piecemeal market opening measures over the past year — investors should be worried. These two trains remain on a collision course.
— With assistance by Tom Mitchell