Commentary: What China Wants from Obama

By November 19, 2009 No Comments

Pres. Obama’s speeches in China highlighted the need for a cooperative Sino-U.S. relationship. What does the Chinese leadership see as most critical for healthy ties?

In the run up to President Barack Obama’s China visit, U.S. media coverage was focused on what the U.S. wants out of China. Whether it’s human rights, the environment, global security, reassurances about the U.S. dollar, it is always the same. What can China provide the United States?

How about this: What does China want from the U.S.?

Chinese President Hu Jintao has stressed, both at the recent Asian Pacific Economic Cooperation forum and inside his own country, that trade protectionism must be avoided. The recent series of trade spats – from tires to steel pipe – are the worst since China’s accession to the WTO in 2001.

But for the People’s Republic, two other issues will be important to get out on the table while Obama is in the country: the ability for China to continue increasing its investments in the United States, and for the U.S. to continue exporting aircraft and aerospace technologies to the PRC.

According to the U.S. Department of Commerce’s “Asia-Pacific Foreign Direct Investment in the United States” report, while China has only mildly increased its FDI into the U.S. over the past decade — less than 20 percent growth compared to India, which has doubled its investments to the U.S. — it is going to play a crucial role over the coming decade both in terms of trade and to keep pace with India.

Anyone who has ever read Pete Engardio’s Chindia: How China and India are Revolutionizing Global Business, knows that India is succeeding in an aspect of growth where China is not, and that is directly tapping into the U.S. market. The U.S. is the largest direct investor to India out of any country in the world.  Additionally, India invested more than 270 million USD in FDI for manufacturing in the United States, which according to the Economic Times, was better for Indian companies who took advantage of the economic crisis in the United States. Overall, Indian FDI to the United States is more than 400 million USD.

According to the U.S.-China Business Council, China has seen slim growth in non-financial sectors of FDI to the United States over the past decade, indicating a more one-sided approach of Chinese-American relations. There is a deluge of statistics relating to U.S. FDI in China, and that more than 50 percent of exports from China are still coming from FDI affiliated companies.

Some observers see Chinese firms beginning to move overseas. Xinhua News Agency reported in August that even as account surpluses were falling, China established more than 900 companies in overseas markets over the previous six months, estimated to be worth about 10 billion USD. “The outbound investments appear to be on track for fast growth with a flurry of deals announced in recent weeks,” said Stephen Green, an economist at Standard Chartered Bank, in an interview with Xinhua. “We expect outbound investments may exceed FDI this year.”

A second Xinhua article in November noted that Chinese FDI to foreign countries rose one percent in the first three-quarters of 2009, seeing total investments of 33 billion USD, despite a global dip in investments.

FDI is clearly an issue that needs to be kept in mind given that India is a country with an amply cheap labor force — also comparable to China in terms of size — that could easily usurp China if given the opportunity. Additionally, India holds a “trump card” China has yet to get its hands around: the issue of research and development. Given that the United States now has 80 percent of its population using the Internet, according to the Center for the Digital Future clearly the technology sector is going to be a major driving factor of the United States economy going forward.

This leads into the second point about what China needs to focus on with Obama, which ties into technology. One of the more important aspects of China’s economic development going forward will be its involvement in the aerospace industry, which accounts for more than 11 percent of U.S. exports to China, according to the U.S. government’s Top Exports Markets study. As a country that wants to be a world leader in airplane manufacturing and a country keen on luring more companies for production to the PRC, China needs the technology to compete, both with India and in the aerospace industry.

Asia, in particular China, is one of the world’s fastest growing regions for air transportation, with growing demand for aircraft and related equipment and services, said John Tsang, the Financial Secretary of Hong Kong Special Administrative Region government, at the opening ceremony of the 2009 Asian Aerospace Expo in Hong Kong.

At the same conference, designers unveiled a scale model of the C919 jetliner, one of China’s first airplanes that will be produced in the coming years. “It’s the first time that China has put a face in front of the global aviation industry,” Richard Thiele, global head of sales for Reed Exhibitions and organizer of the show, told Xinhua.

Homegrown production is going to be a priority for Chinese manufacturing in the coming decades, and airplanes represent a specific industry that will see phenomenal growth in China over the coming 20 years, but an industry that will need U.S. support if it wants any international success. China needs to ensure the U.S. will continue exporting technologies to the PRC in the field of aerospace development. In turn, China has to take that technology and get its foot into the U.S. market. A U.S. citizen might go to Wal-Mart and see products that were probably made in China on the shelves, but Wal-Mart is an American company, not Chinese. And that is the difference. India is gaining a physical presence in the United States. China has yet to go that far.

China needs to figure out where the money is going to go over the coming years, and two areas of importance might just be FDI to the U.S. and aerospace technologies. It will be noteworthy if President Hu can get those two issues on the table when he is with Obama.

Zachary Franklin studies Chinese economics at Fudan University in Shanghai. A graduate of the University of Southern California, he also writes for City Weekend Magazine and Sports Illustrated online.