WASHINGTON — Chinese President Hu Jintao this week restated pledges to crack down on illegal business practices and painted a rosy picture for foreign investors, but confidential U.S. diplomatic cables tell a far different story for U.S. businesses.
U.S. companies complain about China's persistent disregard for intellectual property rights — shorthanded as IPR — where Chinese firms ignore patents or copyrights and sell falsified products at home and abroad. They also complain about China's "indigenous innovation" policy, designed to give domestic companies a leg up when selling to China's government, which controls much of the economy.
Hu promised that all will be fixed in an interview published Monday in The Wall Street Journal and The Washington Post.
"China will continue to improve laws and regulations concerning foreign investment, strengthen IPR, promptly address the legitimate concerns of foreign companies and facilitate the growth of enterprises all kinds in China by offering them a stable and transparent legal and policy environment," the Chinese leader said.
Hu also said that China's efforts to stimulate its economy during the global downturn benefited U.S. firms in China.
"Their innovation, production and business operations in China enjoy the same treatment as Chinese enterprises. The package plan and the related policy measures that the Chinese government introduced to counter the international financial crisis have also provided good opportunities for the growth of all enterprises in China, foreign companies included," Hu wrote.
Hu's glossy view on the eve of his state visit to Washington this week is a very different take from the unvarnished one offered in a secret January 2010 memo to Secretary of State Hillary Clinton from Jon M. Huntsman, the U.S. ambassador to China. The memo was one of hundreds of classified documents released late last year by the website WikiLeaks.
"Strong Chinese economic and export growth coupled with an artificially undervalued RMB (currency) will further heighten focus on our huge trade deficit with China. Widespread perceptions that China's industrial policies are rolling back market access add to the overall sense that China plays unfairly in the global marketplace," Huntsman noted in the confidential memo. "Other emerging issues, like Google's problems (censorship and ad hoc bans) and new rules on indigenous innovation, create a drumbeat of bad news stories for firms seeking to do business in China."
The cable addressed the need to push China in areas that could benefit U.S. jobs, including reducing barriers that favor Chinese-made goods over U.S. exports and pressing China to eliminate requirements that service-sector investors must have a Chinese joint venture partner.
Another obstacle Huntsman cited was China's more assertive global posturing as the U.S. struggled to emerge from the global financial crisis it created.
"We may want to consider ways to toughen up our talking points and enhance the use — or perception of likely use — of other real 'sticks' in order to achieve market opening, job-creating objectives," Huntsman wrote. "This will require some consideration of just how much disruption in our economic relations we are willing to countenance if we must carry through on threats."
The biggest "stick" the U.S. wields is the threat of retaliation against China for the valuation of its currency — called the yuan or renminbi. Over the past 12 months, the Treasury Department has twice delayed a report to Congress on whether China unfairly manipulates its currency to make its exports cheaper and foreign products more expensive in China. The delays ostensibly are to give China time to revalue its currency, but that hasn't happened, and lawmakers threaten legislation.
In another cable released on WikiLeaks about private meetings in 2009 during a visit by Robert Hormats, the undersecretary of state for economic affairs, Chinese economic leaders acknowledged that the currency dispute must be addressed. They also admitted that local leaders are acting to protect their local tax bases and favored industries.
Treasury Secretary Timothy Geithner last week called on China to act now on the currency, noting that doing so would benefit China most.
"If China does not allow the currency to appreciate more rapidly, it will run the risk of seeing domestic inflation accelerate and face greater risk of a damaging rise in asset prices, both of which will threaten future growth," Geithner said. "And sustaining an undervalued currency will undermine China's own efforts to rebalance growth toward domestic consumption and higher-value-added production."
It would be hard to loosen U.S. investment restrictions and export controls to allow Chinese firms access to U.S. high technology, Geithner suggested, without movement from China on its currency and other problems for American firms in China.
"We are willing to make progress on these issues, but our ability to move on these issues will depend of course on how much progress we see from China," Geithner said. "As China reduces the role of the state in the economy, reforms policies that discriminate against U.S. companies, removes subsidies and preferences for domestic firms and technology, and allows its exchange rate to reflect market forces, then we will be able to make more progress on China's objectives."
The appeal of the huge China market to U.S. businesses was underscored in another embassy memo leaked on WikiLeaks late last year, written by Huntsman's predecessor, Clark T. Randt.
"China plans to build 20,000 to 50,000 new skyscrapers over the next two decades — as many as ten New York cities," Randt wrote in a cable outlining challenges and opportunities posed by economic interdependence. "More than 170 Chinese cities will need mass transit systems by 2025, more than twice the number now present in all of Europe."
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