Latest trends in the US-China Relations: Implications for MNCs in China

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Abstract

The China-U.S. relations sharply deteriorated since 2018. In the economic and trade realm, the Trump administration has launched a trade war against China by imposing tariffs. while the US policy of decoupling contains cutting-off technology and humanistic exchanges and sanctioning targeted Chinese companies on the Entity List. Upon taking office, the Biden administration revamped did not initiate any fundamental resets to Trump’s China policy regarding economy and trade. The tariffs and decoupling policies are not only kept in place but even has been extended to other sectors.

In 2020, the COVID-19 pandemic caused an unprecedented recession in global economy, with negative growth in all major economies except China. In the midst of the trade war and global pandemic, many multinational corporations suffered severely in their business in China. These circumstances compounded uncertainties for global companies when evaluating whether they should continue and expand their businesses in China: will the Chinese market remain open for foreign investment? will it adopt exclusionary policies? While the measures the Chinese government recently announced on improving the business environment and opening up more areas for foreign investments are certainly welcomed by these global companies, they are still questioning whether these policy directives will be implemented efficiently and effectively in the future. How will the large global multinational corporations conduct their business in China? Under the impact of worsening China-US relations and widespread disruptions under the pandemic, Will they choose to relocate outside China? These questions will be the main concerns of this study.

Over the past decades, multinational corporations have reaped huge benefits in the Chinese market and in return made outstanding contributions to China’s economic and social development. In addition, foreign enterprises in China have introduced modern corporate management concepts to their Chinese counterparts and nurtured a global supply chain, which optimized and upgraded the Chinese manufacturing structure. At the same time, they are actively practising corporate social responsibility, such as increasing the number of jobs created in China, improving the quality of employment, cultivating innovative talents and enhancing China’s innovation capacity.

This report mainly selects U.S. companies from all the global multinational corporations operating in China as the research subjects. The research methodology includes both qualitative and quantitative analysis. In the qualitative analysis section, this report will summarize the operation of multinational corporations in China from official data, documents and relevant reports in domestic and foreign media, and understand their future trends of development through (unbiased) analysis of the current economic and trade relations between the U.S. and China, relevant policies of the U.S. and China, and the business environment in China. In the quantitative study, this report focuses on 94 of the 121 U.S. companies with economic activities in China among the 2020 Fortune 500 and makes quantitative judgments about their business strategies – focusing on whether these 94 companies and 28 of them high-tech companies have plans to increase the proportion of their investments in China or withdraw their operations in China. The quantitative assessment reveals that most of the U.S. firms in China will maintain their operations in China for a considerable period in the future, while some will increase the proportion of their operations in China.

In response to these circumstances, this study concludes with recommendations to relevant policy-making departments and enterprises. These recommendations include: accelerating the development of the digital economy and the digital transformation of enterprises; enhancing corporate social responsibility practices; moving forward with the opening-up of more sectors; China and the United States should resume trade negotiations and formulate rules on digital trade; promote the full opening of the general manufacturing industry and the orderly opening of the telecommunications industry to lay a solid foundation for a new era of globalization with greater openness and integration.