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Economic & Trade Relations
Special> Sino-U.S. Economic & Trade Relations> Economic & Trade Relations
UPDATED: January 13, 2008 NO.3 JAN.17, 2007
Creating a Favorable Environment
China is striving to build a sound business environment for U.S. businesses and expects the American side to do the same

The subprime mortgage crisis has cast a shadow over the U.S. economy, devastating major financial institutions overnight. However on the other side of the Pacific, American businesses in China have been doing better every year.

According to the 2007 white paper "American Business in China" published by the American Chamber of Commerce (AmCham), over 73 percent of the 150 survey respondents said their businesses in China were profitable and only 4 percent said they suffered major losses. Meanwhile, half of the respondents said their profitability had increased since 2005.

U.S. investment in China is positioned both to sell in China's domestic market and to remain competitive and viable globally. Their activities in China have become part of their global supply chains.

China is upgrading its economic structure and focusing more on the service industry. Apart from traditional industrial sectors like engineering and aviation, U.S. financial institutions are demonstrating their strong presence in the Chinese market. Of all the 46 financial institutions granted qualified foreign institutional investor (QFII) status by January 31, 2007, 13 are based in the United States, topping all other countries.

Since its accession to the World Trade Organization (WTO) in 2001, China has fully honored its commitments and built up a legal system in accordance with WTO requirements. It has provided a favorable policy environment for American business development in China.

In line with the spirit of the 17th National Congress of the Communist Party of China, the country will further encourage overseas investment in hi-tech industries, advanced manufacturing and environmentally friendly industries. However, "foreign investment in energy-consuming, resource-consuming and high pollution areas will be prohibited," said Shi Guangsheng, Deputy Director of the Financial and Economic Committee of the National People's Congress and President of the China Association of Enterprises with Foreign Investment.

At present, a common concern coming from foreign companies in China is the increase in corporate income tax.

Effective from January 1 this year, the corporate income tax for foreign-invested companies will be 25 percent, the same as for Chinese companies. Previously, foreign-invested companies only paid 15 percent, which was the result of China's policy to attract foreign investment.

Some people fear the increase in the corporate income tax will hamper U.S. investment in China, but AmCham's survey suggests that the issue will not be a problem. Instead, U.S. investors contend that salary and wages, as well as marketing and sales expenses, will be the biggest factors influencing their profitability.

Room for improvement

AmCham suggests in its white paper that in order to balance domestic economic and social development, both sides should join hands and make due contributions.

It urges China to embrace the "global stakeholder" mindset, recognize China's newly achieved regional and global leadership, and fully honor its commitments to the WTO's fundamental principles of transparency, national treatment, nondiscrimination and market access in order to continue to improve the quality of economic growth. The white paper also suggests China develop an innovative economy based on open markets, protection for inventors and originators, respect for the rule of law and sound financial infrastructure in order to move up the value chain.

AmCham contends that the United States should maintain a constructive and responsible dialogue on common issues that contribute to long-term sustainable growth for both economies. The paper suggests the United States should refrain from attempting to address trade balance issues by enacting legislation with the intent to force a Chinese currency revaluation.

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