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A grinding trade war and growing geopolitical competition haven’t completely locked U.S. companies out of China’s massive consumer market, though it has closed off some industry sectors and necessitated shifts in strategy, speakers said at a U.S.-China business forum in Atlanta last week.
The annual Chinese New Year Business Forum hosted by Georgia State University‘s Office of International Initiatives struck an optimistic note on potential economic collaboration, even as panelists acknowledged that bilateral ties have descended to one of the lowest points since normalization in 1979.
In an example of how sour things have turned, Frank Lavin, the keynote speaker who formerly served as U.S. undersecretary for international trade, noted that while neither side has much political room for improving the relationship, at least neither is “actively trying to make things worse.”
Companies, Mr. Lavin said, should be heartened by the fact that “China is still China” — the world’s most populous country with a tech-savvy middle class and a considerable amount of affinity with Americans and American products at the grassroots level.
Brands like Coca-Cola Co. and Nike continue to post solid growth in China, and American farmers have seen buoyant sales, despite being on the front line of the tit-for-tat trade war.
“It’s easy to get pessimistic because of the bad news,” said Mr. Lavin, who now runs the trade consultancy Export Now. He ventured that “decoupling” — the buzzword used to described moves to reduce U.S. dependency on Chinese manufacturing — would be much easier said than done.
He suggested that companies build up the “navigational skills” needed to succeed in the market, learning to differentiate their products and “court the customer” with product customization and contextualized messaging, especially on China’s vibrant social media platforms.
“The most frequent sin is the sin of nothing,” he said, noting that many foreign companies decide that their product needs no localization, only to find that the branding and scale that made them successful at home have evaporated. “That’s a presumptuousness that can get you in trouble.”
Iconic guitar company Fender, he said, got around the differences in disposable income by putting in place a payment plan, a bit of business-model innovation that exemplifies the nimble approach necessary to win market share in one of the world’s most competitive markets.
“The need for flexibility means that you must develop a culture of constant experimentation,” Mr. Lavin said — with patience as a guiding factor. “Don’t go to China with a stopwatch.”
Left unsaid was the fact that for many companies, exploring the market has been impossible during the past two years, as China has maintained strict travel restrictions to contain COVID-19.
Mr. Lavin and other panelists were also mum on the fact that Western brands have been squeezed on both sides of the growing rift over China’s human rights record.
The U.S. is currently engaged in a diplomatic boycott of the Beijing Winter Olympic Games over what it has labeled China’s “genocide” against the predominately Muslim Uyghurs in its northwestern Xinjiang province. President Biden in December signed the Uyghur Forced Labor Prevention Act, which effectively bans the import of Xinjiang-made products. The assumption is that with an estimated 1 million Uyghurs placed into internment camps that the Chinese government calls training centers, pretty much anything made in the province is likely to have relied on some kind of forced labor.
At the same time, brands like Sweden-based H&M have faced consumer boycotts in China over their governments’ stances on the Uyghur issue, and Walmart’s Sam’s Club was criticized by the Chinese government for supposedly removing Xinjiang-sourced products from store shelves in China — an assertion it has denied.
Diversifying, Not Decoupling
Steven Lustig, vice president for global supply chain at Atlanta-based East West Manufacturing, said customers are showing a desire not necessarily to decouple, but to diversify their sourcing.
A contract manufacturer with an office in Shenzhen sourcing from its own joint-venture factories and a multitude of suppliers in China for decades, East West has continued to grow within China even as it sees greater growth at its wholly-owned factory in Vietnam and expands rapidly in the Western Hemisphere.
While Mr. Lustig said China has scale on labor and technology that in some cases is difficult to replace, many customers are demanding the shorter lead times, better freight rates and hedge against geopolitical risk that “nearshore” sourcing provides. In a supply-chain crunch, the standard lead times have been upended.
“In the last year or two, when you’ve seen skyrocketing freight rates, a shortage of containers and a shortage of shipping capacity, where you may have your products at port — whether it’s in China or Vietnam or elsewhere, and then they sit there for a couple of weeks on boats — suddenly that predictability is no longer there,” Mr. Lustig said.
Shaquana Teasley, a trade compliance specialist known as “Shaq,” said “savvy importers” have been able to navigate the trade war and in some cases capitalize on it. Certain products, she noted, are eligible for duty drawbacks upon export from the country or destruction if they can’t be sold in the market. She also pointed to the use of foreign trade zones, where imported components are not tariffed because they technically don’t hit U.S. soil until a product is assembled fully and sold in the U.S. Those that are re-exported do not incur any duties.
Tech Trade
The panel discussion, moderated by The Carter Center’s Yawei Liu, also touched on themes like the growth of the financial technology sector in China, where giants like WeChat and Alibaba have created super-apps that have become all-encompassing e-commerce and payments portals.
Loyal Trust Bank’s Yimin Yang, however, said pointed to the Chinese government’s initiative to rein in fintech giants as the local Internet matures, giving the example of the government’s blocking of Alibaba-owned Ant Financial’s public listing. He also noted that the example of app-enabled P2P lending, which faced a reckoning after breakneck growth that led to their proliferation as what he called “predatory lending” platforms that took advantage of gaps in China’s financial system.
Samuel Sun, who heads up mobile manufacturer ZTE’s U.S. and Canada business from Atlanta, said that the company continues to innovate and make inroads in the North American market, seeing modest growth in the handset business, particularly with specialized products catering to senior citizens.
ZTE, once a major global player in the handset sector, in 2016-18 found itself in the crosshairs of the Trump administration for allegedly breaching sanctions on Iran and North Korea. The Commerce Department banned the export of U.S. components like semiconductors to ZTE, paralyzing its ability to manufacturer. The issue was eventually resolved after the company paid a $1.4 billion penalty.
Despite tensions in the bilateral relationship, mobile devices and other technologies have been somewhat immune to the worst of the trade war, Mr. Sun said, noting that Apple’s iPhone is still made in China and that companies like Hisense, the television maker with a base in metro Atlanta, continue to see success in the U.S. Motorola, he added, is owned by China’s Lenovo, which has seen dramatic success in the U.S. market since acquiring IBM’s PC business.
Still, Mr. Lavin, who holds extensive experience in government, including taking part in trade negotiations with China and India, noted that despite his optimistic outlook, the telecommunications sector was unlikely to see any positive momentum any time soon, given how entrenched it is in the two countries’ growing rivalry and the issues that remain over companies like Huawei.
“I think there’s a special set of issues and complications — privacy issues, national security issues — that just create almost a hostile environment for the telecoms firms, so I do not see that moving in the near term,:
The in-person event with a hybrid virtual component was co-hosted by the World Trade Center Atlanta and the Chinese Business Association of Atlanta at the Buckhead Club.
Disclosure: The GSU Office of International Initiatives is the sponsor of Global Atlanta’s China Channel.