Business climate in china and how it could affect trade relations with the u. S. This is one hour. Good morning, ladies and gentlemen. If you will kindly take your seats. Latecomers will be accommodated. There are handouts over on the right you will want to have with you or take away with you. Please help yourself to some coffee. Welcome to the u. S. China Business Council. This is a press conference talking about our annual member survey, and it will be done in three parts. The first part i will introduce our president , craig allen, and then after that our Senior Vice President , jake parker, will walk you through some of the highlights of the survey, and then we will open it to questions. So at this point, its my pleasure to introduce you to president alan. Alan good morning, everyone, and thank you very much for joining us today. My name again is craig allen and the president of the u. S. China Business Council, and we would like to welcome you here to discuss our most recent survey, which we are releasing here today. So thank you again for joining us. So just a couple of words of background at this stage. The u. S. China Business Council has some 220 members, and most of our members are large multinational american headquartered companies. And theres a good mix of manufacturing, service companies, and agriculture as well. Most of our members, not all, but most are invested in china. And for the most part, they are in china to Service Chinese customers, rather than to export back to the United States. Many of them have trade going both ways, but they are not invested in china primarily to service the american market. So we send out this survey on an annual basis, and approximately one half of our 220 members reply every year. And so we have excellent data going back some 19 years on many of these same questions. Some of the question migrate over time. We at new questions, we change them a little bit, but by and large with very good data going back almost 20 years. So the Current Survey that we are releasing today was conducted, or was closed in june 2019. And so this data represents, or reflects the state of the bilateral relationship at that time in june. And that of course is before the designation of currency manipulation and the most recent tariff round. So, you know, a survey as a survey. It provides specific Reference Data from a certain sample group at a specific time. And we put a lot of effort into this project, and we are very confident of its statistical veracity. But as with every data set, we also recognize that the survey does not represent the totality of the American Business experience in china. Rather, it reflects the views of about one half of our members. So today, jake parker, our Senior Vice President , will walk you through the numbers, and then ill provide a little bit of a wrap up after he concludes. Following that, were happy to discuss with you the survey or anything else you would like to discuss on the record. So with that, thank you, jake. Jake thank you, craig. Jake parker, Senior Vice President at u. S. China Business Council. Ive recently relocated from beijing, so i dont know many of you. Please feel free to come up afterwards and introduce yourself. Ive interacted with many of your colleagues in china over the last several years. So before we get into the survey findings, i did want to walk you through some of the Respondent Profiles of this years survey. The survey was conducted for three weeks in june. 100 Companies Respond to the survey, which, as craig mentioned, is around half of our membership. In terms of Respondent Profiles, the majority have operated in the china market for many years. Around 95 of respondents are in china for china. Thats important because if youre operating in the china market or manufactured in the china market, and the terrorist tariffs and the bilateral relationship will impact you in a very different way. That being said, read a quarter of our companies are leveraging china sport platform for the new broad or for the United States. 67 of respondents in this years survey were in china are based in china. Around 33 are based in the United States, 2 in other locations, europe, south america, et cetera. So getting into the survey, the key findings this year, companies are commercially successful in china. Revenue in china operations increased last year and the overwhelming majority of our Member Company respondents, 97 , were profitable. However, trade frictions are eroding use company competitiveness. This is happening because both u. S. And chinese retaliatory tariffs and because u. S. Companies are increasingly viewed as unreliable suppliers. While this issue is top of mind, the more pernicious longterm concern for u. S. Companies in the market is that chinas Playing Field is increasingly unlevel. We will hear from companies, the Chinese Government policies and practices frequently offer competitive advantages to Domestic Companies, not offered to foreign ones. So the key point that we see from our survey data is that optimism that use companies can participate in chinas future Economic Growth and development is moderating. While the most significant concern of use china trade frictions, the reality is chinas domestic policy environment, particularly the policies that favor Domestic Companies over foreign ones is the trend most likely to negatively impact u. S. Companies outlooks on their ability to compete in the china market in the years ahead. So looking specifically at some of the data points, lets begin with a positive note. The overwhelming majority of u. S. Companies are profitable with 97 of Companies Reporting profitability in 2019. The Profit Margins are generally in the midsingle digits as opposed to double digits that weve seen in the past, recent past. This is because companies are beginning to treat them more like a mature market. Its no longer about expanding capacity at all costs. Companies are much more careful and considered about headcount because of rising costs from the Human Resources side. And companies are automating or possible which is increasing their profitability and reducing their costs. Where we begin to see some challenges and concerning signals is in the current projections for 2019 revenue growth. What you can see is significant uncertainty on revenue of the year ahead. We attribute this to an increasingly competitive environment and the impact of the tariffs are having on u. S. Company margins. I also want to dig a little into the top ten challenges that Companies Report facing in the china market. I wont go through all these but but i want to highlight a few of them from our member survey. First, despite positive commercial gains in the last year, American Companies are feeling a measurable impact of u. S. China, of the deterioration degeneration of use china bilateral relations second, advantages enjoyed by Chinese Companies industrial policies, and uneven scrutiny raise questions about American Companies future competitiveness in the china market. Looking specifically at the u. S. China trade tensions and impact its having on business, fourfifths of respondents in this years survey have been impacted by use china tensions. The impact has been felt in ways that we have not seen reported in previous years. Lost sales because of tariffs, lost sales because of doubts of continued use company supply, and lost sales because he is companies are not viewed as reliable suppliers. That can be impacted primarily by price of the products fluctuating as a result of the u. S. And chinese retaliatory tariffs. Also is impacted by the perception by many Chinese Companies in the domestic market that any Chinese Company could be added to the entity list and that could have an impact on their future supply in china. This has led to an erosion of use Company Market share which is been absorbed by european, japanese, and Chinese Companies. This mortgage is built up over decades. So once lost, the marketers extremely difficult to regain. Next, ill pivot my points to protectionism and how the survey looks at that. Getting back to the top ten challenges. We recognize many Chinese Companies excel at producing innovative, highquality competitive goods. However, Chinese Government policies and practices frequently offer competitive advantages to Domestic Companies not offered to afford. Unfair competition is at the root of many of this years top challenges. Licenses and approvals, data flows, ip our protection, uneven enforcement of rules and regulations, innovation policies and investment restrictions on Foreign Companies. These issues are all at the core of the bilateral negotiation between the United States and china which is why we support the objectives of the Trump Administration in section 301 report. However, protection manifest itself would look at protectionism it manifests itself in what i would describe as two main ways. The the first is Market Access. The second is Domestic Company support for the Market Access irritant span the gamut from increasing time and Regulatory Burden it takes a company to receive license approval. Restrictions and standardsetting jam packs u. S. Companies to fairly compete in Government Procurement processes, to greater scrutiny to Foreign Companies on the ground in china. The second main basket is around Domestic Company support. And on the other side, so in this situation as i mentioned before, we see or our members see the Chinese Companies receive benefits that use companies are unable to receive. This applies to both private and stateowned companies as you can see on the chart above. This allows Chinese Companies to be more financially competitive because of preferential tax policies, lower cost of capital from preferential financing, and other financial subsidies that the Chinese Government offers to Domestic Companies. Next, i want to shift to Technology Transfer. The way we ask this question is very specific. Has your company been explicitly asked to transfer technology in china . Weve been asking this question largely in the same way every year for the last decade, and the findings have been consistent. A few Companies Receive explicit request to transfer technology. That said, there are plenty of Ways Technology can be compromised. Information request and regulatory processes, lower incentives if theres limited Technology Associate with an investment, partners which is not to proceed if technology is not transferred. The companies asked in a survey indicate the receipt you a direct request than in the past but that does not mean that Technology Transfer is not happening in other ways. And even though the number of Companies Report it locum it is illegal under dubya to the rules for any such request to be made are traditionally the companies are received the request have to make a decision on whether to comply and if not then foregoing investing in the market. This is an inappropriate choice to force upon them. Looking ahead at the fiveyear outlook, uscbc survey dated has indicated moderating optimism over the past several years, a trend that continued in 2019. While companies are not pessimistic, only slightly more than half, except the companies are fully about the prospects in the market five years from now. However, decreasing optimism is neither inevitable nor is it unsolvable. Uscbc is called for chen to speed up implementation of its Economic Reforms to fully implement its calls for improved ip protection, provide equal treatment of Foreign Companies and allow the marketable in a stronger role the economy. Chinas leadership is regulated acknowledge these changes are in its own economic interest. While we seem some movement, the pace is far slower than expected. Shifting to some issues specific areas, id like to talk about ipr protection. This is ranked six in come of the top ten challenges and regularly ranks among the top ten in the history of uscbc survey. Nearly 60 of Companies Companies noted improvement in ipr protection and none none reported the protection it working. The reason we achieve if this is china has continued to take steps and ip protection. They set up a supreme court, ip appeals mechanism. Theyve made amendments to the trade law, which address some of the challenges companies have faced in the market. They released an interagency m. O. U. Talking about ipr protection and if set of specialized ip courts which companies indicate are important for resolving their ip issues. Improved ipr protection does not mean i pr enforcement has been fully addressed. Companies continue to express concern with ipr enforcement environment with over 90 either somewhat or very concerned. Just in the last year, for example, we hear from u. S. Companies that many courts are refusing to rule on pending ip adjudications involving u. S. Companies, likely as as a result of u. S. China trade tensions. And keep issues remain. Ip leakage through administrative processes is a challenge Companies Deal with. Weak deterrence, high thresholds for burdens of proof, theres progress back and still be made but as we saw in the last slide theres been some incremental progress to date. We should recognize that. Talking a bit about data flows and cybersecurity, these issues affect almost all companies in our membership, not Just Technology firms. The majority of our members, 76 , are concerned about chinese policies and information flows and technology security. 64 cited u. S. China political tensions as the top concern. Negotiations between u. S. And china as an aside with a significant number of these draft policies put on hold while the two sides were negotiating. When the situation deteriorated in the aprilmay timeframe, a significant number of these were released, a flood of new regulations which have a Significant Impact on u. S. Company operations, should they be finalized in their current form. Other top concerns and data are operational such as crossborder data flows. The new data regime increases cost to businesses as well. Such as requiring them to build new local data infrastructure, and at the same time decreases Network Security because companies are unable to use the best technologies or connect seamlessly with a global operations. Enforced to chain link off a section of their i. T. Infrastructure in the china market. Last, ill just give it very briefly to one final slide on investment. And i would note that there was a slight error in the slide in the packet you received. My colleague will be sent along an update, and i would just like to thank our friends at the wall street journal reporting that out so that we are able to correct it. The plurality of uscbc Member Companies take a china for china strategy, as i mentioned at the beginning. Those companies have been impacted by the u. S. Tariffs but they are primarily impacted by the chinese retaliatory tariffs. Affecting the upstream inputs the import from the United States which are hit by the chinese tears. For those companies that export chinese products to the United States which smh is about a quarter of our Member Companies, theres a mixed bag of responses. And those are related to the increased costs of labor in the china market. They are related to the costs of the tariffs. They are also related to an automation push that our companies are dealing with. So with that i will conclude todays presentation on the survey data, and pass it over to great to talk a little bit more. Thank you. Thank you for a really thorough walkthrough of our data. Let me try and highlight three things and draw quick conclusion. And jake has always spoken about these, reaching into the same pool of data. But three trends and then a a conclusion, if you would allow me to add the first is, the first trend is that the trade war is having a tangible negative impact on American Companies. Almost one half of our Companies Said the lost sales in china due to tariffs. And this obviously is a competitive benefit for european, japanese, or chinese competitors. We dont really have enough data to know whether the market loss, they share of market that we are losing, a shortterm or is it longterm . But i would agree with jakes comment that loosening market share losing market share and gaining it back is very, very difficult. And so these costs are real and potentially they are longterm. The second trend that i would note is that American Companies are pretty clear that they feel that their competing on unlevel Playing Field in china with the chinese home team enjoying a distinct competitive advantage in the Chinese Market. So while 16 of our members said that they did not see any signs of protectionism, 84 of our members did see problems of protectionism. So we highlighted the problems in our presentation. We could go over them in our discussion. I wont go over that in more detail here. But but i would like to note editorially that none of these problems are specific to American Companies only here and, indeed, they are all multilateral. If we were to talk to a japanese or a korean or European Company in china, they would highlight exactly the same issues. These issues, these problems are not directed specifically against American Companies. They are systemic. They are ingrained in the regulatory structure of china, and they should be understood in that context. The third trend is that China Remains an important market for American Companies, but optimism in that market is waning. So lets be clear. 97 of our Companies Report that they are profitable in china, but 26 say that their revenue is decreasing. And that is a record. So we have a record degree, if you will, of pessimism here. 17 have said they have reduced or stopped planned investment in china. Thats a large number as well, which indicates a net loss, i believe, for American Companies, the chinese economy and chinese consumers. 37 said the market environment had deteriorated, and nearly 80 said that they were concerned about data flows and cybersecurity. That is a large number. I would say that probably, certainly all Foreign Companies would feel that pinch and, indeed, i would say most Chinese Companies who Work Overseas would also be concerned about data flows given the tempo of new regulation coming out in the cyber area. And a record low of 22 said that they were optimistic about the fiveyear outlook here so those three trends. Let me draw a conclusion and then we could open it up for your comments or questions or criticisms, whatever you would like to talk about. My conclusion, my take away from this from looking at the data is that over the short term, the trade war is indeed hurting American Companies, certainly in the shortterm manner, possibly in the long term manner. But over the longer term it is imperative that we address the structural issues that underlie the trade tension. So the conclusion that i draw from this exercise is to highlight the urgent and critical importance of the trade negotiations being conducted by ustr, robert lighthizer, secretary of the treasury steven mnuchin, and vice premier leo. These negotiations are based on the real one submission that highlight the very real and the very valid concerns of American Companies, our members come and, indeed, all of chinas trading partners, including our members. So returning to the real one negotiating table is urgent because American Companies workers, farmers, ranchers and consumers are being hurt by the tariffs and the uncertainty on the gender. Returning to the 301 the goshen cable is critical because it is imperative that Foreign Companies be allowed to compete in china on unlevel Playing Field, that the structural barriers affecting Foreign Companies in the Chinese Market must be removed. So without question, successfully addressing the structural issues within the chinese economy would benefit china over the longer term, the medium, short, medium and longerterm, and would facilitate a sustainable longterm chinese Economic Growth. So we believe that returning to the table to resolve the 301 negotiations is important for both sides, and we urge the two sides to meet as soon as possible to address our legitimate issues, and then we need removal of the tariffs as soon as possible. So let me conclude there, and welcome comments, suggestions. I dont see any rotten tomatoes, so we will exclude welcome any questions. Thank you, craig. If you will state your immediate affiliation and then, please. Go ahead. [inaudible] is it possible some of the issues that u. S. Companies facing our nontariff retaliation for what the Trump Administration has done with tariffs . So what were seeing on the ground in china is the Chinese Government is very reluctant to make any aggressive specific retaliatory action against u. S. Companies. Theres a concern among many in the Chinese Government that further deteriorating their own domestic investment environment will impact the appetite of others to invest there in the future. Now, that being said, we have seen progress in some sectors, particularly about joint venture requirements. Leasing liberalization insecurities come and Credit Rating agencies and insurance and equity caps lifted in those spaces. However, the challenge is that the market is open, the review and licensing process remains very uncertain and some cases the decision seems to be very capricious and for American Companies that are going to the processes, the timeline can be much longer than whats expected which does have an impact on the operations and the ability to receive and operate in the market. So from that perspective wasting less of a direct negative retaliatory effort against u. S. Companies and more of a delay for many of the licenses that would allow them to compete fairly in the market. Is that different from what a japanese are European Company would face going through that same review . Weve seen a delay generally for all companies in the market. Foreign companies in the market. But, for example, would look at the sequencing of when european and japanese Companies Receive their license versus u. S. Companies, we do see them at the head of the line over the u. S. Companies. Could i make to make comments . Firstly, chinese bureaucrats are risk averse, for chinese bureaucrats to approve an american license in this environment would quite possibly be perceived in a a negative light within the chinese bureaucratic context. The second observation i would make would be to point you to a recent survey by the brunswick group, which suggested it to 6 of chinese consumers had avoided purchasing American Products over the last few months. Now, 86 chinese consumers, if china represents 20 of the worlds population, which is approximately right, then 56 of chinese consumers would represent about 12 of the worlds population. And if 12 of the worlds population is avoiding American Products, they were going to feel bad sooner or later. So both on the consumer side and on the administrative side, i think that we are seeing some slowdowns. I have two questions. One is a clarification. In the documents we received, it says that a slight majority said revenue will increase in 2020, down 26 from last year. Just before he said 26 expect profits to go down. I want to clarify, which is correct . And then i have another question related to, you know, is there some lag, you know, the survey obviously was taken in june but is are some lag in terms of what companies are seen, the expected impact . And are you starting to see signs of decoupling of the two economies that has been much discussed and you take that as a realistic possibility or is that still a bit [inaudible] that was three questions. [laughter] let me answer the first one. So we do take the revenue numbers from our companies in two ways. Ask, what are the revenue projections year to date . What are your projections for the year. So that is counted as a cycle from when we last asked to be sure, when we asked this time, then projections up to the end of the year. We see a slight variation in what copies of experience to date versus what they expect to experience which is a more direct impact of the tariffs and of the uncertainty that will negatively impact their margins in the year ahead. Thats without distinction comes from and what the difference is in the survey. But the 26 come use 26 Companies Expect to lose money or so to decrease, this is what were looking at in terms of revenue projections. [inaudible] that was for 2020. So thats looking forward . Correct, looking forward for so its projections of the future reflecting the uncertainty. And your question about decoupling, did you want me to so let me just say on decoupling, that we dont see a great deal of evidence that our members are leaving china at all. Rather, investments in china are healthy. Most American Companies that are there understand that china will remain one of the primary engines of growth, Global Growth, for the foreseeable future. There are projections that china will produce as much as 33 of Global Growth over the next ten years, and American Companies need to be there to take advantage of that. That said, supply chains are incredibly flexible, and that our supply chain adjustments happening all the time, and particularly we see for multiple reasons, especially increasing lot of the more labor intensive Assembly Type of operations are leaving. And perhaps that has been accelerated as a result of the tariffs. So when we speak of decoupling, we should speak only of tears but also export controls. And it is clear that the export controls are having an effect on hightech industries, particularly in the telecom, semiconductor, and electronic sectors. But at least to date it would seem that is where the focal point is and we dont see it more broadly than that. If i could just add to that. The general uncertainty in the u. S. China relationship is having impact on new Investment Decisions. So as craig said Companies Want to be in china to access the local market. That is not going to change in the future. However, if theres any supply chain implications between the u. S. And china, thats affecting new Investment Decisions in china but also in the United States. China because of the size of its market to some of her companies in the United States, manufactured your export to china, they are mostly affected by the chinese retaliatory tariffs or affected by the entity listing. So many a altogether supply chains globally, and if theres any risk in either the u. S. Or china, the does impact on the making your investments today. They may delay investments within a seek to invest in the third market that would not be impacted directly by the current frictions. In the back with the blue shirt. Just wondering, thanks for the say they survey. Is it the timing or increase in the church for the fact that there they were added on a few weeks ago . Will it have on affect on sentiment for American Companies in china and in doing business very . What effect will that have in the latest round . I think that we dont have empirical evidence on that obviously. I would dont that last night the chinese side said that it will not retaliate against this new round of tariffs. And we applaud that, that announcement and appreciate that. The new round of tariffs is specifically on mostly consumer goods, and they as i think most people in this room will know are two steps. September 1, the first round come into effect and december 15 , the segment come into effect. That does give companies, particularly in the second tranche, time to adjust their supply chains. But certainly this is just adding to the pressures that American Companies face, and chinese exporters of course face. So we again call for resolution of the issues under the 301 umbrella, and a removal of the tariffs as soon as possible. This side of the room. Yes, sir. This question is for craig. [inaudible] costco opened its first store in shanghai tuesday. Shut down early, too many shoppers. How do you see the retailer side in china at this time of tension . We know that walmart is a Member Company, and how well cosco in china affect the operation of walmart . Id rather not speak about individual companies, but i would be happy to address the Consumer Market in china. I think that what we are seeing is that most consumer goods and Consumer Brands in china are doing quite well, that chinese consumers welcome American Brands and have been purchasing them with a great deal of enthusiasm. So at least thus far we do not see a pronounced effect by the terrorist or the trade tension on the Consumer Markets. Rather, as jake had indicated, the tensions are more on the industrial side where some American Companies dont enjoy the reputation for reliability that they have earned, that they have worked on for years and years and years, and that is eroding. On the consumer goods side, we dont see that trend at all, yet. [inaudible] you mentioned negotiation table is critical. Do we see any positive signs that the negotiation will resume in september . Because we had been [inaudible] President Trump and china spokesperson said they will not retaliate. Both sides. From your perspective for inside information, can we expect chinese delegation will come to washington . I think that we do not yet have dates. We do not have confirmation of a meeting yet from either side. Vice premier and quite a separate context were conciliatory, and positive, and that we found to be very welcome. But to date we do not have dates, we do not have been you. We are not aware that an agreement has been reached as to when to move forward with the negotiations. I am confident that it will be negotiation. I do not know when or where. Marilee, International Trade today. I have two questions. Ill ill start with the second one. Well i guess it is a first one. Please delay these tariffs, you sent out letters along and have been roundly ignored. So i wanted to ask our yell talking to in of the democratic candidates, staffers, trade staffers about if they were to win the presidency in 2020, how they might change cabinets . Are giving of the question when youre done with that. We are happy to talk to all congressional staffers and all congressional members, but we are a Nonpartisan Organization and we dont favor anyone in particular. But anybody wants to talk about u. S. China trade, hey, the doors open and we are pleased to communicate. The other question i have is, you talked a lot about a really the core problems identified in 301 and identified by your members are the biggest threat to u. S. Competitiveness. And i just want to ask you how worried you are that these will ever be resolved . Because you said it would be an chines best interest for the economy to do so, but the fact that in may we think that they backed away from all the progress that they seem to be making on changing some of these policies, and the fact that in shanghai did want to return to that may starting point. This was a very aggressive attempt to get them to change, and it seems to be failing. So what hope is it do you have that it would ever change . I think that it is very clearly and very materially in chinas interest to continue the reform and opening process started some 40 years ago, which took a great leap at the signing of the wto, but which is still incomplete and not finished. Chinas economy is characterized by overdependence on Stateowned Enterprises and government intervention, and this model of economic governance is great in the catchup period but it is not great for innovation or for Sustainable Economic Development to get out of the middle income trap. It is absolutely in chinas interest to renew their energies and the reform and opening. It is absolute in chinas interest to allow increased foreign competition in the markets that are truly dominated by as a wheeze. Recall that that is up to 4040 4045 of chinas gdp. Youll not get to a rich and modern economy and less these issues are addressed. The Chinese Government knows that very well, and i think i have full confidence over time will address these issues as they must if they are continue a robust rate of Economic Growth. Why was there such a [inaudible] the political dynamics of the negotiations are obviously complex, and the measures that the chinese are taking to open the economy are continuing outside of the bilateral context. Tariffs are coming down. The vat has been reduced. Intellectual Property Rights have been improved. We have zero tariffs on oncological drugs. So there are a good number of reforms that are continuing under, outside of the bilateral context. And those reforms are important and we should recognize the reality of them for what they are. The pace of those reforms is not rapid enough to satisfy the administration, and we fully appreciate that. The cadence, the pace is important, and we encourage of the chinese to accelerate those reforms as rapidly as possible. China today is the Worlds Largest manufacturing country. It is the Worlds Largest trading country. It should consider its wto obligations in light of oecd standards of a developed country, and approve wto compliance, which will positively impact the chinese economy. So yes, negotiations have difficulties. They have highs, they have lows. We encourage the Chinese Government to pick up the pace of reform, which we firmly believe is in the interest of the chinese people, and china as a country. Back to the site of the room with two questions i believe. Whats your advice to your members about the gravity of the tensions over hong kong . How they should handle the issue and whether they should [inaudible] many of your members will have financial ties to hong kong. Any other question was on decoupling. A number of your members will he the presence call last week to get out of china. As that part of your condition on that . So on hong kong, most of our members will have interest in hong kong. Many of them will have offices in hong kong. We dont pretend to offer them advice on this issue. However, we watch with anticipation what the resolution of the problems will be. And we encourage the Hong Kong Government to listen to the hong kong people and react to their legitimate concerns. On decoupling, we fully appreciate the powers that the president enjoys under the International EconomicEmergency Powers act. We have studied that act and note that its been used in many different ways over the last 40 years. I believe it has been in place since 1977. And so we have studied the cases in which it has been used. We believe that the president is using that threat to encourage opening and reform of the Chinese Market, and that he doesnt wish to harm American Companies that are actively and successfully doing business in china. As noted, the concerns are mostly on the trade imbalance side. Our companies are not exported from china to the United States. There are exceptions to that, but that is not the main focal point of our companies. His concern is the trade imbalance. The tears are one way in which he is trying to address that. We do not believe the tariffs are one way in which he is trying to address that. We do not believe he wishes to encourage other American Companies that have successful operations in china to leave. And so our members are in china for the longterm. None of them are anticipating orders to leave. We want to make this bilateral relationship strong and healthy from a commercial sense, and encourage the two sites to get back to the negotiating table. [inaudible] it sounds like youre interpreting get your supply chains out of china rather than dont participate in the Chinese Markets. Is that fair . Yes. Thank you for having this. My question that many economists and market concern there would be economic recession in the u. S. So in part because of the monetary policies. Do you think that trade policy contribute to u. S. Recession if it happens . Whats your comment . Thats a hypothetical, and im not a wellknown economist, for sure. But i would note that in the announcements by the fed chairman, that he noted trade policies one of the uncertainties that the u. S. Economy faces. The imf has spoken about this quite eloquently, much better than me for sure. And so i would reflect those same concerns, that the uncertainty engendered a trade dispute is slowing investment, both in the United States and in china, both. The decline of u. S. Exports by 18 to china has been felt by american farmers, workers, ranchers here it doesnt help the u. S. Economy. And we are concerned about the inflationary impact of additional terrorist, particularly come in on consumer products. And so there is no doubt that the trade friction is having an impact on the american economy, and that, in fact, is not a positive impact. I just want to follow up on earlier discussion about new tariffs. [inaudible] since june have you been also talking with your Member Companies about whether they have further, you know, they have even lower future and growing sense of uncertainty . Secondly, so you talked about there is growing number of people who have companies who are shifting their supply chains out of china and also the laying or stop making investment in china. Have you seen that as candid like a permanent decision, or do you see them, might change their mind if the situation improves . Thanks. Let me maybe address the second question. What were seeing consistently among our Member Companies, no end our membership is divesting from the china market. That is absolutely not happening. Some of their suppliers are shifting their operations to third markets and many of our companies are looking at new investment in china and to investments that may have gone to china in the past on a much more likely to go somewhere else. The process of tariffs and retaliation has led many of our companies to realize that there is a risk exposure to china that perhaps they didnt fully internalized in the past. And as a result, diversify their supply chains more fully in the future is something that many are looking at very seriously. But no is divesting from the china market there and as i mentioned in many cases some are expanding their china operations to further address the chinese domestic consumer and ensure their able to access the consumer going forward. On sentiment, i would say every new tariff, every retaliation doesnt help sentiment. Keep it at that. . Anyone else who has not had a chance for a question . . In the back. Anyone else who has not had a chance for a question . In the back. Im carissa. My question has to do something with the survey. About 3 of the Companies Said the removing operations active u. S. Do you have any more information on what operations are bringing back and why . That are moved out of china but not to the u. S. Do you know what operations are moving out of china and where to . Weve heard anecdotally for those companies that are shifting some operations back to the United States, that as a result of the tax cut that were incentives for research and development, in some cases exceeded the research and Development Incentives they get access and the china market. Thats one area where we are seeing some movement going forward. In terms of shifting outside of china but not to the United States, he gets back to the point i made earlier. Of the uncertainty in the bilateral relationship, companies are very concerned either investing in the u. S. Or china, that the future tariffs or the and certainly a relationship could impact the trade between those two countries. So for Many Companies there look at southeast asia, vietnam, thailand, malaysia particularly here. Also mexico and Eastern Europe tend to be locations for additional investment. That goes both to ensuring that they are not negatively impacted by tariffs but theres also implications around antigay listings and potential future export control actions which companies are very sensitive to it as well. John with cpi. Given the escalating war of words or tariffs, what is your best estimate for the prospect of the two sides, not just coming together, to resume the negotiations but coming to some kind of a mutually agreeable future . You have time frame in mine . Going to go back to the argument that is, it is in our mutual interest to address the 301 issues. That chinas sustainable Economic Growth, to get out of the middle income trap, it is imperative that Foreign Companies be allowed to compete fairly in the markets currently dominated by chinese Stateowned Enterprises, which i would estimate at about 40 of the chinese economy. It is in the chinese economic interest. It is in the American Economic interest. It is in the Global Economic interest for china to take the next steps of opening a reform as soon as possible and coming to an agreement on the trend what issues would be an excellent step in that direction. Thank you. You mentioned the survey, and i wonder [inaudible] chinese sentiment towards american goods, and how much is there on that . Since there were challenges in the april may timeframe in negotiations that weve seen a bit of an uptick in domestic nationals of in the china market. Weve also seen the Chinese Government deliberately remove any calls for boycotting u. S. Products. I think there is a sense among our membership that the United States, that the Chinese Government views the u. S. China relationship as critically important in the future and want to refrain from overly and negatively impacting the sentiment of the chinese citizen to a point where it would be difficult to change those perspectives going for. Forward. As a result what we saying is slightly increased nationalism against the United States domestically but not to the extent where its negatively impacting u. S. Consumer products sales get. Obviously that could change in the future but those are the sentiment i was picking up as i was leaving beijing. My question is about [inaudible] political pressure from the u. S. What does it mean . [inaudible] as a top reason why they go to u. S. My last question is what how Many Companies participate in the survey . 100 Companies Responded to the survey, about half of our membership. In terms of your questions on shifting operations, when Companies Tell Us 25 shift because of pressure from the u. S. Government, i think its no secret there is been some concern at the National Security sides of the u. S. Governments about exposure to the Chinese Market, particularly in supply chains, and there have been conversations that been happening in the United States which event lightly report abuse government talking to companies about those risks. So that is what i would attribute that to you. [inaudible] in the past, that was the top reason for shifting production. That continues to be a trend now and perhaps tariffs have accelerated the process of that shift which would have been inevitable 35 years down the road. One more thought. Doug palmer of politico, reforms and that makes it a more prosperous country. If it is a more prosperous country, will that also lead to a reduction in the trade deficit . Are these goals contradictory or complementary . Will it cut the trade deficit . I think the Global Economy requires a stable, rapidly growing china. We benefited from chinese Economic Growth for many many years. American farmers, american workers, american ranchers, American Companies have made china one of the largest export markets. Of Growth Continues we can grow our exports to china and those exports are welcome by 300 million middleclass chinese consumers and that will only be more so over time. China confronts demographic problems leading to the reduction in its labor force even as we speak right now and that will continue for the foreseeable future and so i think it is not a dream that we can have a strong, prosperous, stable china which is a good economic partner of the United States over time and that is an objective we should work towards. 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