As the two largest economies in the world, the relationship between the United States and China is of great importance to global growth and prosperity. This week’s visit of Chinese President Hu affords the opportunity for direct high-level attention to the imbalances in that relationship and lays the basis for a new direction. 

It is critical that the relationship be characterized by both mutual respect and benefit through adherence to international trade rules.  It is also vital that the relationship be a balanced one in terms of trade and commercial opportunity.  When the final trade data for 2010 come in, the U.S. deficit in manufactured goods with China is likely to have set a new record of about $290 billion, exceeding the 2008 record of $277 billion.

The National Association of Manufacturers (NAM) has long pressed for efforts that would result in a more open and balanced economic relationship.  A key aspect is a bilateral and multilateral effort to address China’s greatly undervalued currency.  We strongly support the Administration’s engagement with Chinese leadership on this issue.  But we also call for much greater attention to China’s distortion of commercial opportunities for U.S. firms – particularly China’s set of policies designed to encourage “indigenous innovation.” 

China’s leadership has set itself a broad strategic objective of making the Chinese domestic economy more innovation-oriented and decreasing China’s reliance on foreign technology.  The leadership considers these policy imperatives as critical to China’s long-term economic development, national security and global competitiveness.  

There is nothing wrong with seeking to spur innovation and technology.  Just about every major country, including the United States, pursues that objective.  But the United States and other countries follow the global rules they have adopted and seek to promote development within those rules.  China’s policies, however, bend and break the rules.  Its policies come at the specific expense of foreign companies and competitors, essentially forcing the transfer of foreign technology to China.  (continue reading…)

With China’s top government official, Hu Jintao, meeting with President Obama today, The Washington Post uses the experience of a Wisconsin equipment manufacturer, Manitowoc Co., to highlight the positives and negatives of business dealings and U.S. economic relations with China.

From “Wisconsin firm learns ups and downs of doing business in China“:

MANITOWOC, WIS. – As much as any U.S. firm, Manitowoc Co. has tied its fortunes to China’s star, designing its corporate strategy around the promise of a booming billion-person market.

But as President Obama and Chinese President Hu Jintao prepare to meet this week, Manitowoc’s fitful performance illustrates the challenges of U.S. trade with China, even as it has become crucial for many companies, particularly in the decade since Beijing joined the World Trade Organization.

From the shores of Lake Michigan, the oddly diverse company – a manufacturer of industrial cranes, commercial ice makers and high-tech ovens – has pumped out exports for China and helped sustain a workforce of about 8,000, mostly in Wisconsin. But the company has also been slapped by China with unexpected import taxes that threaten to put some of the employees out of work.

It’s a thorough, serious story. (Although we’d say “oddly diverse” isn’t right: Many manufacturers produce a wide variety of products, the result of innovation, growth, acquisitions and mergers.)

UPDATE (9:35 a.m.): AP reports on other business concerns with China, including theft of intellectual property and the anti-competitive procurement policy, “indigenous innovation.” From “US companies expand goals as China leader arrives“:

When it joined the World Trade Organization 9 years ago, Beijing promised to give foreign companies a fair chance to sell to the government. By most accounts, it hasn’t done so.

“In terms of government procurement, every year is the year of the snail in China,” said Frank Vargo, vice president for international affairs at the National Association of Manufacturers. “China is still a state-managed economy, and government procurement is enormous. China has simply not opened that market.”

But Hu told the Journal and the Post that foreign companies’ “innovation, production and business operations in China enjoy the same treatment as Chinese enterprises.

Los Angeles Times, “In China, Obama’s hosts show no signs of budging“:

Not only is the U.S. president coming away without any definable concessions, but the Chinese appeared to be digging in their heels.

On Tuesday, just hours after Obama stood with President Hu Jintao in the Great Hall of the People, praising China’s commitment to “move toward a more market-oriented exchange rate over time,” a senior Chinese official called a news conference across town to issue a rebuttal.

“We maintained a stable yuan during the financial crisis, which not only helped the global economy but also the stability of the world’s financial markets,” He Yafei, deputy foreign minister, said, adding that it was too soon since the worldwide financial crisis to talk about a change of strategy.

• Christian Science Monitor, “Obama bids China farewell with Great Wall tour, modest expectations“
• Washington Post, “In Obama’s China trip, a stark contrast with the past“
• Dallas Morning News, “Obama, Chinese president low key in talks”