US exporters snub de-risking to give China another shot - but they're finding a new obstacle

"It could not have been a warmer reception than what we received," said American businessman Jeff Bowman after spending a week in China last month.

Bowman is the CEO of the US materials science company Cocona, with his unique sweat-drying Masterbatch additive for yarn garnering significant interest in the China-based fabric sector.

"The reception couldn't have been more cordial - super excited to see us, wanting to do business with us," said Bowman, speaking from his home in the US state of Oregon.

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He has set up a wholly foreign-owned enterprise in China, with one client even agreeing a deal during the recent visit.

Around half of Cocona's Masterbatch is shipped to Chinese yarn spinners, with roughly 20 per cent of its US$10 million to US$20 million annual company revenues plus mill business coming from China - a share that is only expected to grow.

Bowman's story is a bellwether for American industry - a pile-up of obstacles notwithstanding.

First came the US-China trade war in 2018, then Washington's curbs on technology transfers, later the coronavirus lockdowns of 2022, and all along US calls for decoupling supply chains amid deepening political rifts.

"The typical sentiment is we wish the governments would get out of the way and let businesses do their thing," Bowman added.

American industries as diverse as film, nuts, dairy and hi-tech equipment are also circling back to China with intent to grow business again despite, in many cases, a decline at the start of the US-China trade and tech wars.

They are making it in some cases by selling to super-rich clients who can absorb price increases caused by the trade tariff increases.

Others have found that China needs US imports because it cannot produce enough domestically, while tech firms in the iconic Silicon Valley have started re-exploring the market because of its sheer size.

China's post-coronavirus reopening since December particularly prompted US companies to re-explore the world's second-largest economy, with entrepreneurs such as Bowman now able to resume in-person visits.

"I've been criss-crossing the [US] for the last 18 months or so, and found that it's not entirely true that everyone in America agrees that we can't work with China," said Ker Gibbs, the former American Chamber of Commerce Shanghai president, who is now executive-in-­residence at the University of San Francisco, in mid-June.

"People are definitely sensing that there's a problem, but Americans and Chinese are not natural enemies. On the contrary, we share a lot of the same values, especially when it comes to business."

California's agriculture sector saw a 30 per cent drop in its China business at the start of the trade dispute, but income has edged up since 2018, said William Matthews, a researcher with the University of California Agricultural Issues Centre.

He pointed to demand from wealthy Chinese consumers, plus lack of available land in China to grow enough food for its population.

Consumers in China buy around half of the state's annual US$2 billion pistachio and almond crop, he said.

California is the biggest US dairy producer and Chinese importers are buying what would otherwise be a "glut" for the state itself, Matthews added.

"China has been moving up," Matthews said, pointing particularly to dairy and nuts. "Incomes have been going up pretty steadily over the past 30 to 40 years and the number one thing they want to do is improve their diets.

"[Growers in the state] might squawk a bit at the tariffs, but when it comes down to it, California is very competitive in producing quality products at a low cost."

Former US president Donald Trump started the trade war because of what he saw as "unfair" practices by China, including limited market access, intellectual property theft and forced technology transfers.

The dispute has raised tariffs on US$550 billion worth of goods from both sides.

But 59 per cent of American Chamber of Commerce in China respondents told a survey in April that they had a positive outlook on the recovery of the Chinese economy, up from 33 per cent in a survey conducted in October, November and February.

In 2021, China cut the number of American studio films allowed for release by a third against the backdrop of political tension.

And in December, the US government decided to curb its cooperation with American studios that edit films for Chinese censors.

Director, screenwriter and actor Derek Ting of New York is hardly deterred. He filmed the 2016 movie Always in China and would do it again.

He filmed at a hospital venue in Guangzhou and recalls hiring "talented" and "hardworking" local fixers.

The streamed movie has racked up millions of views in China, he added.

The Chinese market has more promise with the rise of streaming, Ting believes, since online films do not fall under the curbs on foreign studio releases.

Chinese cinemas, he added, are recovering from coronavirus-era closures.

"I think everyone would say it's a huge market," Ting said. "If you have something right for it, and they want it, then why not?"

Silicon Valley firms see investing in China as "more harried" now than pre-2019, said Danny Levinson, the US-based former technology head of a China-focused venture capital fund.

He pointed to the pullback in Chinese firms seeking initial public offerings in the US, a "crackdown" on foreign data firms in China, and the localisation of Silicon Valley venture capital firm Sequoia Capital's China investments.

The two sides "may be in the midst of a longer period of separation", Levinson said.

But many still want to expand in China now because it is "simply too big a market to ignore", said Mark Natkin, managing director with the Beijing-based market research firm Marbridge Consulting.

"After a tough three years of zero-Covid, China's policymakers - particularly local governments - are still very eager to attract more foreign direct investment," he added.

Now US enterprises worry that Chinese industries will eventually outcompete American exporters, analysts said.

"For those which have already been hammering away at it for the last 10 to 20 years, selling their China operations to a local buyer in return for a big bundle of cash is often a welcome alternative to simply grinding on in an increasingly competitive environment," Natkin said.

"China now has a lot more home-grown companies with the resources to make such acquisitions."

Chinese farmers are trying to grow some of California's signature crops, Matthews said, while growers in California must combat an erratic water supply to stay competitive.

"Market access barriers in manufacturing in China have merely moved up the value chain," said Derek Scissors, resident scholar at the American Enterprise Institute public policy think tank.

"The problem remains that China wants foreign production only until it can replace foreign production with its own. It's win-win, until China doesn't need you any more."

This article originally appeared on the South China Morning Post (SCMP).

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