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Money News

INTERVIEW - China's assertive policies raise investment concerns

BEIJING (Reuters) - China’s yuan stance is just part of a tide of assertive policies from Beijing that have unsettled American companies and risk stoking tensions, said the senior executive of a major U.S. business group.

A beggar walks past Renminbi (yuan) symbol in Changzhi, in north China's Shanxi province in this September 2006 file photo. REUTERS/Stringer

Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce, told Reuters on Wednesday that China’s campaign to encourage homegrown technology was also raising fears in the United States that foreign investors were being edged out.

Strains between Washington and Beijing over currency, trade, technology policy and other economic issues are manageable, but could take a more volatile turn if both sides do not open up more frank discussion, said Brilliant.

“I don’t believe the currency issue is an isolated issue. I think its part of a broader array of economic issues that, taken together, translate into questions about whether China has soured on foreign investment, has China slowed down its economic reform,” said Brilliant, in Beijing this week to meet Chinese officials.

“There is the risk of political escalation in the relationship right now. I think it’s important that both governments tone down the tough rhetoric,” he said.

China faces rising pressure from Washington to let the yuan appreciate. U.S. senators have threatened to seek extra duties on Chinese products, which they say are kept unfairly cheap by Beijing’s currency settings.

The Washington D.C.-based U.S. Chamber of Commerce is a business lobby group that has pushed for greater access for U.S. companies in China.

Brilliant is among the recent visitors between the two nation’s capitals seeking to deal with the trade disputes, which -- along with China’s Internet controls, U.S. arms sales to Taiwan, and President Barack Obama’s meeting with the Dalai Lama -- have created strains.

INDIGENOUS POLICY CONCERNS

A high-level “strategic dialogue” between the two governments in May and other official meetings could help cool tempers, said Brilliant. But the United States will have to adapt to dealing with a more assertive China, he added.

“China’s leadership is acting today differently than they would have 10 years ago,” he said. “Their tone is different, and we’ve got to come to grips with that in the United States.”

U.S. companies were especially worried by China’s “indigenous innovation” policies intended to foster homegrown hi-tech, said Brilliant.

Those policies include rules issued late last year that could be used to deter foreign competitors from bidding for Chinese government procurement orders, he said.

“That crystallised for the (U.S.) tech sector a deepening concern about the policies that are being undertaken here,” he said.

“What’s next? That’s the other problem here -- are there going to be other sectors that are addressed in that way?”

Michael Barbalas, president of the American Chamber of Commerce in China, also told reporters at another briefing that Beijing’s exchange rate policies were not uppermost among most member companies’ worries.

“Latching on to currency as your silver bullet or the one thing you’re going to do help, we’re not sure that’s going to be that effective,” said Barbalas.

China has kept the yuan on ice near 6.83 per dollar since mid-2008 to help its exporters ride out the global credit crunch by making their goods cheaper abroad.

The U.S. trade deficit with China grew from $83 billion in 2001 to a record $268 billion in 2008 before falling to $226 million in 2009 with a collapse in world trade.

The U.S. Treasury is due next month to issue a currency report that could label Beijing a “currency manipulator”, triggering more pressure from Washington.

Many in the U.S. Congress want Beijing to revalue the yuan by as much as 40 percent.

“Our ability to effect change in China is more restricted than it would have been 10 or 15 years ago, because of the rebalancing of where China is today,” said Brilliant.

Additional reporting by Simon Rabinovitch; Editing by Jeremy Laurence

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