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China prefers to buy from europe { November 18 2005 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2005/11/18/business/worldbusiness/18export.htmlhttp://www.nytimes.com/2005/11/18/business/worldbusiness/18export.html
November 18, 2005
Made in U.S., Shunned in China
By KEITH BRADSHER
GUANGZHOU, China, Nov. 17 - Abby Chan, a 23-year-old advertising copywriter, took a break from shopping for Levi's jeans at a mall here on Wednesday evening and relaxed at a table in a Starbucks restaurant.
Aside from coffee and denim, there were not many American brand products that interested her. She covets Chanel clothing and Louis Vuitton bags, dreams of owning a BMW or Mercedes-Benz someday, and struggles to think of an American brand that appeals to her.
"There are more choices for European brands, more styles, so they are more interesting," she said.
When President Bush arrives in Beijing on Saturday, he is expected to press China to reduce its large and growing trade surplus with the United States, on track to hit a record $200 billion this year.
But for a long list of reasons, American products are struggling these days in the Chinese market, where they have trouble measuring up to European brands and even some Chinese brands.
The United States is buying $6 worth of goods from China for every $1 worth of goods it ships to China. With American imports from China climbing at a clip of nearly 30 percent a year, American exports to China would have to nearly triple each year just to keep the deficit from widening further.
Many economists say that it is the United States' total trade deficit that is a more disturbing reflection of overall American weakness in trade. But it is the bilateral deficit between China and America that sets off fires on both sides.
China's economy is galloping along just as a long series of America's weaknesses are combining to hurt American exports. With many of America's name brands made in China these days, from clothing to cars, the Chinese are beginning to wonder what a "Made in U.S.A." label really has to offer.
"The only U.S.-produced items that I can think of that exist in large quantities in China are dollar bills," said Matthew Crabbe, the managing director of Access Asia Ltd., a market research firm.
But the handful of products that Americans make well, and which sell like hotcakes, do not have labels on the sleeves - Boeing's aircraft and General Electric's power plant equipment, railway locomotive parts and aircraft engines. Beyond those, American exports to China consistently grow more slowly than imports, and this year, they have slowed even more.
To be sure, many economists question the value of focusing on any single bilateral trade deficit - even one that Rob Portman, the United States trade representative, decried in a speech in Beijing on Monday as "the largest trade deficit in the history of the world."
Chinese officials increasingly try to deflect criticism by emphasizing America's growing dependence on borrowing from the world. That borrowing pays for a higher level of consumption than America's economic output would otherwise sustain.
"Even if the United States stopped importing from China, it would have to buy from somewhere else," said Liao Xiaoqi, China's vice minister of commerce.
Another big reason for the expanding bilateral deficit lies in changing patterns of trade. Companies from Japan, South Korea, Taiwan and elsewhere in Asia increasingly manufacture only the most technologically sophisticated components at home. They ship them to China, buy the less complicated parts locally at low cost and assemble the product in China for shipment directly to Europe or the United States.
A result is that East Asia has achieved the dream that a dozen years ago gave rise to the North American Free Trade Agreement: a regional manufacturing center that taps each country for the part it can produce most efficiently.
America's overall trade deficit with Asian countries has changed little in recent years, but the deficit is now concentrated in China.
The glue for this highly efficient regional export machine lies in the common rules of the World Trade Organization, which China joined in November 2001. Those rules make it very hard for the United States, also a W.T.O. member, to impose limits on Chinese imports unilaterally, giving investors the confidence to put factories in China and to make use of the country's immense supply of cheap labor.
Only in textiles and agriculture do W.T.O. rules allow more restrictions. The United States has limited Chinese textile exports; Chinese agricultural exports are small.
America's inability to sell to China is a result of many different limitations. A few of them are self-imposed, like American visa restrictions since the Sept. 11, 2001, attacks that make it harder for buyers to come to the United States, and limits on the export of technologies with potential military applications.
"We are in essence restricting trade" by restricting visas, said David L. Cunningham Jr., the president of FedEx's Asia and Pacific division. "Businesspeople take their business elsewhere."
Other limits to American sales are a result of Chinese policies, like the Chinese government's purchase of $20 billion or more in dollars and other foreign currencies each month to prevent the Chinese currency from rising in value. China has also insisted that technology transfers to Chinese companies accompany any large import agreements for anything from cars to computer software.
That insistence, together with persistently low wages, has helped push multinationals to build, buy or invest in factories in China to supply the Chinese market, instead of exporting the same goods to it every year the way multinationals have long done in Africa, Latin America and elsewhere in Asia.
The Chinese market - a fifth of humanity - is so large that big corporations like General Motors and Caterpillar have been much more willing to move production here than to other developing countries.
Even among Cadillacs, the top of G.M.'s line, G.M. now imports only the $150,000 Cadillac XLR sports car, which is manufactured at the same assembly plant in Bowling Green, Ky., that has long made the Chevrolet Corvette. G.M. has started building the Cadillac CTS sedan and Cadillac SRX car-based utility vehicle for the Chinese market in a 50-50 joint venture in Shanghai with the Shanghai Automotive Industry Corporation.
Caterpillar, based in Peoria, Ill., has been one of the most successful American companies in the Chinese market, but now relies heavily on factories in China to supply the market. "For Caterpillar and for every multinational, the key is to have a big presence in a country," said Richard P. Lavin, the company's vice president for Asian and Pacific operations.
What China is buying, because it cannot grow or mine enough for itself, is food and minerals. American farmers - and the rural state lawmakers in Congress who represent them - have turned into a powerful lobby for free trade with China, as China erects few of the barriers that bedevil agriculture elsewhere.
"We have not been told of any trade barriers for two years now, it's really amazing," said Phil Laney, the China director for the American Soybean Association.
At the consumer level, tastes in China are also changing to the detriment of American companies. As China becomes increasingly cosmopolitan, an early admiration for all things American is fading. The generation of students who raised a copy of the Statue of Liberty during the Tiananmen Square protests in 1989 has gone on to acquire tastes as international as any in the world.
American car brands like Ford, marketed in the United States with a lot of waving flags, are promoted here as quality vehicles that show their owner's taste and sophistication.
"Putting explicit American symbols in advertising will be alienating, not because of anti-Americanism but because of Chinese nationalism," said Tom Doctoroff, the chief executive for greater China at the JWT Advertising Agency.
Shopping at a store selling Coca-Cola merchandise in the same Tee Mall where Ms. Chan shopped, Estella Chong, an English teacher who has never lived outside China, said that attitudes had changed. "Maybe some people thought American brands were better than Chinese brands or had better after-sales service," she said. "Now they don't think so."
Business hotels in China have a smattering of Americans and swarms of executives from China, the rest of Asia and often Europe, a sign of scant interest by small American companies.
The American Chamber of Commerce in Guangzhou in southeastern China helped organize an import opportunities fair here last year and arranged for American and Chinese officials to make presentations. But the heavily promoted event had to be canceled when fewer than a dozen American companies signed up to attend.
"American brands are not actively attacking the Chinese market - lazy, maybe," said Andrew Leung, a garment industry magnate who is the chairman of the Hong Kong Textile Council. "You see all the Italian brands doing quite well."
The biggest strength of the United States in many markets has been its innovation. At a conference in Beijing on Tuesday, Gov. Arnold Schwarzenegger of California held up a new solar cell that had been designed in Silicon Valley, though it was actually manufactured in China.
But China's rampant copying of everything from movies to auto part designs makes it hard for American companies to profit even by licensing their ideas. The Chinese government is determined to move into higher- technology industries, moreover, and is hiring top scientists to be researchers.
China wants new products to be "not just 'made in China' but 'designed in China,' " said Gov. Huang Huahua of Guangdong Province at a news conference here on Thursday evening.
Alan Greenspan, the chairman of the Federal Reserve, indicated this week that a steep decline in the dollar was the most likely way that the overall American trade deficit would narrow, by making America's imports much more expensive, and American exports less costly overseas.
Ivy Chan, a 26-year-old secretary shopping at Tee Mall, said that she thought Motorola cellphones - an American brand partly designed in the United States and manufactured in China - were less attractive than Nokia phones. But a big drop in the price might make her reconsider.
"I would buy it if it were a third cheaper," she said. "But I would think about why it is so cheap."
Copyright 2005 The New York Times Company
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