US-China Business Relations From the Perspective of the American Heartland
Is it too late to invest in China? Have tariffs and rising political tensions ended future opportunities for US business interests in China? These are the questions that business leaders have pondered since the onset of the US-China trade war in 2018. Some American business professionals would answer a resounding ‘yes,’ particularly as troves of foreign businesses have begun the process of decoupling from China amid a growing pessimism regarding the state of bilateral relations. On the other hand, some statistics have boldly declared that trade relations are better than ever. In fact, US trade in goods with China is up 36% through the first eight months of 2021 from the pre-pandemic environment in 2019.
In order to obtain a clearer understanding of the current state and future outlook of US-China business relations on a local level, we spoke with the directors of two different US-based China business organizations. Both Pat McAloon, the Executive Director of the Greater Columbus Chinese Chamber of Commerce, and Colin Renk, Executive Director of the America China Society of Indiana, oversee the operations of their respective non-profit organizations that specialize in assisting local small- and medium-sized enterprises (SMEs) to do business in China. Leveraging their member networks of SMEs and their own day-to-day experience, both Pat and Colin provided unique perspectives on US-China business relations from the point-of-view of the American heartland.
Q&A with Pat McAloon of the Greater Columbus Chinese Chamber of Commerce; Colin Renk of the America China Society of Indiana
Has your organization remained successful in fostering business between the US and China despite rising trade tensions?
McAloon: At the grassroots level, US-China trade relations are still important to both countries. Americans consume too much for any one country to replace China, and it is not practical for many US companies to manufacture in multiple countries. That is happening, and larger companies are investing in multi-country sourcing, but for SMEs, it’s still easier to find what you need at a reasonable price in China, even with the current challenges. From the China side, the US still offers many things that are attractive to different sectors in Chinese society, from advanced technology, to world-class education, to investment opportunities, and a relatively stable economy and society.
We have working relationships with two Chinese provinces: Zhejiang and Sichuan. They aren’t official agreements, but rather established relationships with opportunities for connection between Indiana companies and Chinese companies. Typically, when we sign these memorandums of understanding, it’s more about friendly dialogue than trade deals. Nevertheless, these dialogues help American companies find more opportunities in China. The Indiana-Zhejiang relationship is quite strong, thanks to the sister state relationship between the two.
Regarding the aspects that have contributed to the organization’s success, the America China Society of Indiana is more focused on trying to be an objective catalyst for US-China business relations within Indiana. One of the things that is quite prevalent is that there are many sides to the friction and various misnomers that can be confusing for companies, so we try to provide a plethora of detailed objective information and guidance, rather than having any sort of political lean. We want to make sure that Indiana companies and Chinese companies will be successful first and foremost, and not be subject to “propaganda.”
Ohio has maintained sister state relations with Hubei, and Columbus has maintained Sister City relations with Hefei. How beneficial have these partnerships been in securing bilateral business opportunities?
The sister province and sister city relationships have been most active in the areas of educational and cultural exchange. These exchanges are critical for maintaining apolitical conversations during good times and bad, and these exchanges can lead to personal relationships that further lead to business opportunities. It would be great if a student of public policy were to compile a list of everything that has resulted from these sister relationships. It could take some sleuthing to follow up on the layers of connections that have resulted from, say, all the marathon runners that have traveled between Columbus and Hefei, but this kind of list could provide some very interesting data to economic development people, as well as people-to-people ambassadors.
The ACSI has secured partnerships with Chinese organizations such as the Sichuan China Council for the Promotion of International Trade and the Zhejiang International Investment Promotion Center. How beneficial have these partnerships been in securing business opportunities?
Renk: These partnerships have been beneficial by acting as a sounding board for Indiana businesses interested in going to China. For example, you have a local company that reaches out and says they are looking for a distributor in China. We’re able to tap into the relationships and resources that we have in both Zhejiang and Sichuan to do some of that groundwork.
It is also important for the organization to utilize these relationships in planning the future of Indiana-China business relations. Indiana’s connections with both Zhejiang and Sichuan are invaluable to not only the ACSI, but the entire state of Indiana, as well. Having concrete partners in China that can facilitate business on that end is extremely helpful. Maintaining positive relations with these provinces will ensure that Indiana companies will continue to have resources to aid them in adjusting to the China market.
What are your corporate members’ level of optimism regarding future business in China?
McAloon: The companies with whom I have talked about this are holding steady, with some “China +1” tactics being put in play: they still work with China but are exploring or using connections elsewhere as well. I am not aware of any members leaving China.
Renk: We did a survey with some of our members a few weeks ago. I was surprised to hear that a lot of them are still committed to the China market, and they don’t see a reason to completely abandon that. Do I think that there’s going to be a complete decoupling? No. But I think that there could be some incremental challenges for businesses that operate in the space.
One of the things that we’ve seen a lot of is the localization of supply chains. For example, if an Indiana-based company is selling a product in China, it might be easier to just produce the product exclusively for the Chinese market due to the tariff situation. The situation is the same for Chinese companies operating in the US: in order to avoid high tariff costs, their America-based facilities exclusively develop products for the US market.
There is still a demand for American products in China, so it’s not too late for US businesses to consider entering the Chinese market. However, it is a challenging time to be navigating a business in China. In order to ensure success, American companies should develop a solid business plan before entering the market. If the company has done the necessary research and preparation, then then there is not much of a reason why it couldn’t be successful.
In regards to current supply chain disruptions, what major obstacles are corporate members facing?
McAloon: The supply chain disruptions are making everyone wait longer for a product, and pay more for it. We have one member who ate the increasing shipping costs for almost a year before increasing their prices and passing some of the cost along to their customers. This likely indicates that some end consumers had been enjoying a grace period during which businesses had been taking the hit, but that consumers will now start paying higher prices.
Renk: The biggest obstacle for companies right now is the delay in receiving and shipping materials. Given the disruptions associated with the COVID-19 pandemic shutting Chinese facilities in 2020 Q1 and American facilities in 2020 Q2, many of these companies have become better prepared for disruptions like these. Some companies have opted to diversify their suppliers in order to mitigate risk. Others have communicated and/or renegotiated with their customers to remedy delays. Finally, in B2C settings, you’re seeing major companies preemptively come out and explain to consumers that product lines will be delayed to manage expectations.
What is the most common misconception that Americans have regarding doing business in China? What is the most common misconception that Chinese investors have regarding doing business in the US?
McAloon: One common American misconception is that Chinese business people want to put the squeeze on Americans, in particular. However, the reality is that many Chinese business people expect to be squeezed *by* everyone, and thus themselves feel the need to take self-protecting measures that can appear to be anti-American to an American.
A common Chinese misconception is that Americans are unsophisticated business people. However, the reality is that many US business customs that Chinese perceive as unsophisticated (e.g., greater transparency in certain contexts), are ones that Americans have found benefit everyone, if everyone practices it.
Renk: One of the biggest issues that we’ve seen is that folks just don’t do their homework. If we’re looking at Americans going over to China, it’s a completely different legal system, a completely different way of setting up businesses and it can be rather intimidating. As a result, we’ve seen people attempt to deal with the situation by adopting cheap alternatives to setting up businesses, rather than taking the time to learn how to properly do business in China. Thinking back to my early days in ACSI (since I’ve been around for almost 9 years now), people’s eyes would light up when they’d hear how much money they could make in China. Thus, they would try to jump in as quickly as possible, without actually doing their due diligence and making sure that they were following the correct path. Needless to say, those attempts at entering the China market were unsuccessful.
Another issue Americans have regarding doing business in China is that they often ignore opportunities in sub-markets. China has various regions and the consumers in each region have different needs and interests. People in Northeast China are different from people in South China, just like how people on the American West Coast are different from people on the East Coast. Sometimes there’s this broadness that people associate with all of China or all of the US, when they need to look at the situation much more closely at a local level. By developing a better comprehension of the unique needs and interests of consumers in different regions, businesses can take advantage of the opportunities in these markets.
In addition to neglecting the uniqueness of local markets, both American and Chinese businesses often fail to take size into account when entering foreign markets. Americans often underestimate how large Chinese cities and markets are in terms of population, while Chinese don’t often realize how small the population is in certain US markets. In the end, it all comes down to doing your homework, and understanding the regulations, local consumers, and population sizes in the markets that you are trying to enter.
What advice would you give to investors or small business owners interested in doing business in China?
Find multiple local resources that can help you through the process of identifying and qualifying partners. When different resources provide different information/advice, try to figure out why. It is more likely that you are experiencing a 盲人摸象 ( mángrénmōxiàng, blind men touching the elephant) situation than anyone trying to mislead you. Different people have different experiences and impressions of those experiences, which is why you need to triangulate your information.
Renk: Do your homework! Always do that! Every business is going to have a certain amount of risk, and it’s always important for business owners to understand what their risk tolerance is. Always make sure you are comfortable with the decisions that you are making, and that you have thoroughly researched all of the information necessary for successfully entering the Chinese market. You always need to do what’s best for your business and I think the biggest issue right now has been the uncertainty regarding the trade wars. Are tariffs going to stay? Are they going to go? When are we going to be able to travel to China again? Given the current state, there have been a lot of American businesses just hanging back and waiting. The interest in China is still there (just as the Chinese interest in the US is still there); however, the temporary measures have made it difficult for people to accurately plan. It’s hard to establish a business in China, if you don’t know whether or not tariffs will impact your entire business plan.
About the Greater Columbus Chinese Chamber of Commerce
The Greater Columbus Chinese Chamber of Commerce is a non-profit organization committed to both building and nurturing relations between Chinese and local Ohio businesses. In addition to hosting various webinars related to Chinese economic policy and investment opportunities, the organization provides members with access to domestic and international resources to facilitate their China operations.
About the America China Society of Indiana
America China Society of Indiana (“ACSI”) is a non-profit organization devoted to providing Chinese investors with advice and resources on how to establish themselves in the Indiana market (and vice versa). Since its establishment in 2011, ACSI has played an active role in improving Indiana-China business relations by not only providing resources to local and international investors, but also assisting both inbound and outbound delegations.