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Are Chinese Business Partnerships a Good Deal for U.S. Companies?

February 17, 2012 at 12:00 AM EDT
A joint venture called Oriental DreamWorks launched Friday as Chinese Vice President Xi Jinping wrapped up a U.S. tour. Jeffrey Brown discusses the benefits and drawbacks of U.S.-China business partnerships with the National Committee on U.S.-China Relations' Stephen Orlins and University of California, Irvine's Peter Navarro.
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JEFFREY BROWN: More now on the challenge of U.S. companies in China.

Stephen Orlins is president of the National Committee on U.S.-China Relations, which seeks to promote better business and other relations between the two countries. Peter Navarro is professor of economics at the University of California, Irvine, and author of “Death by China: Confronting the Dragon.”

Well, Peter Navarro, as that title suggests, you have been very critical of Chinese practices when it comes to American businesses. This deal with DreamWorks is quite new, but how might it fit into that larger picture? What does it tell you?

PETER NAVARRO, University of California, Irvine: Jeff, I think this is actually the poster child of Chinese protectionism.

If you look at the deal, basically, DreamWorks is forced to take a minority stake in the deal. Basically, they have to transfer their animation technology to what will eventually be a future competitor.

Most of the animation and therefore most of the jobs are going to be in China, and the revenues that we’re likely to see over the course of that venture would probably amount to little more than paying for one day of our trade deficit to China. It’s a poster child of the conflict between corporate goals and the goals of this country.

And CEOs like Jeffrey Katzenberg today, GE’s Jeff Immelt, Jim McNerney at Boeing, they have consistently made these forced technology deals, and the American worker and the American economy is really suffering. And then you hear the president talk about getting tough on China, and it’s a farce.

JEFFREY BROWN: All right, let me get Stephen Orlins in here.

What do you see in a deal like this?

STEPHEN ORLINS, National Committee on U.S.-China Relations: I feel — I see DreamWorks getting close to their customer. I see them creating content for the Chinese market.

I see that, you know, 10 years ago, when China acceded to the WTO these quantitative restrictions that exist on U.S. movies — on all foreign movies going into China were agreed to. So this is not something that’s new. The structure that they adopted was the only structure that they could use.

But it was 10 years ago that this was agreed to, and there are restrictions in other countries. There are restrictions in France. There are restrictions in Canada for cultural heritage reasons. So this should be a very profitable deal for them, and I think a good one.

JEFFREY BROWN: You’re saying — just to stay with you, even though the joint venture route is the only way that DreamWorks could get in, and as in a case like this, where it’s the American company that has the competitive advantage going in, you still think it’s a good deal for them to go this route?

STEPHEN ORLINS: Well, the media is not a poster child for anything. Media restrictions exist in virtually all countries. So I don’t think it’s fair to say that’s a poster child, because again, as I said, it’s part of WTO accession agreement. We, the U.S. government, and all the members of the WTO agreed to some restrictions in this area. So that’s not a poster child.

I think at this point, almost 75 percent of U.S. investment into China is done through what is called a wholly foreign owned enterprise. So it is not joint ventures. Of the $110 billion invested, almost $80 billion of that was through wholly owned foreign enterprises. So the idea that they’re forced into joint ventures is not the case.

Some people choose to join joint ventures because it brings you closer to the customer. The partner brings distribution capability. It brings other capabilities that make it — one and one make three.

JEFFREY BROWN: Well, Peter Navarro, you broaden it out now from the media world to the more general situation for American businesses going in. What kind of — what other challenges do you see?

PETER NAVARRO: Well, first of all, Stephen’s just factually dead wrong.

The WTO doesn’t allow forced technology transfer, period, and that’s kind of the deals . . .

STEPHEN ORLINS: I didn’t say that it allowed . . .

PETER NAVARRO: Now, let me say that the bigger picture here is that China, basically, over — since they joined the WTO, we have lost 57,000 factories, we’ve lost six million manufacturing jobs, and we have lost over 15 million jobs total in those 10 years.

And the reason we have done that is because of our trade deficit with China that is the result, not of cheap labor, but rather of five what I call weapons of job destruction, which include currency manipulation, illegal export subsidies, the theft of our intellectual property, the use of worker abuses that have 16-hour days, seven days a week, and suicide nets at companies like Foxconn, which make our iPad, and finally the worst environmental regulations in the world, which are turning that country into a living hell for over a billion people.

So I think we are in denial here if we do not recognize that China is basically a primary source of our economic woes here. And the best jobs program right now is not more fiscal stimulus. It’s trade reform with China, so that we can play on a level playing field, like President Obama has acknowledged in his latest speech.

JEFFREY BROWN: Well, Stephen Orlins, we clearly have two very different portraits of the world here, but, Stephen Orlins, you’re saying American companies just keep going . . .

JEFFREY BROWN: Go ahead.

STEPHEN ORLINS: I think that the assertion that all of those jobs have been lost to China — talk about factually inaccurate — is grossly inaccurate, that they have been lost to automation. That have been lost to efficiency, that very few of those jobs have actually been lost to China.

STEPHEN ORLINS: And, second, I didn’t say that technology transfer is — I didn’t say that technology transfer is what was agreed to in the WTO. I said quantitative restrictions on imports of films was what was part of the Chinese accession to the WTO, agreed to by all members and the United States.

So, if you’re going to represent my position, I would ask you to represent it accurately.

JEFFREY BROWN: What do you think, Mr. Orlins, about the government-to-government type action, the president announcing a task force, trying to push, however gently or strongly, China to open up a little bit more, to loosen some of the restrictions on businesses coming there?

STEPHEN ORLINS: Absolutely, he should be doing it.

And some of Peter’s points, that we should be pressing on intellectual property right, we should be pressing on market access, are absolutely right. I just put it in the context of 80 percent of U.S. companies in China had double-digit growth last year. Forty percent of those companies had growth in excess of 20 percent.

I just put in the context that U.S. business in China is doing well. But should we be pushing on these issues? Absolutely.

JEFFREY BROWN: And, Peter Navarro, I guess you look at a visit like this one from Vice President Xi, you don’t take much of this in terms of having a real impact?

PETER NAVARRO: Well, I think the most comical thing about the visit is that the Chinese solution, basically, is for America to loosen its restrictions for the export of high technology to China, which basically has dual use for military applications. The Chinese want that.

And, basically, what we’re seeing right now as we go into Wal-Mart and we buy this illegally subsidized cheap Chinese junk, they are using those Wal-Mart dollars basically to finance the most rapid military buildup we have seen in a very, very long time.

So, the Chinese basically have a strategy.

JEFFREY BROWN: Okay.

PETER NAVARRO: We do not. And we’re losing our manufacturing base. At the end of the day, we cannot prosper in this country without a strong manufacturing base.

JEFFREY BROWN: All right, brief last word, brief last word, Mr. Orlins on this visit?

STEPHEN ORLINS: I’m sorry?

JEFFREY BROWN: No, a brief last word from you on this visit.

STEPHEN ORLINS: That China can’t prosper without a prosperous United States, and the United States can’t prosper without a prosperous China.

JEFFREY BROWN: All right, Stephen Orlins, Peter Navarro, thank you both very much.