The fourth annual U.S.-China Strategic and Economic Dialogue between senior U.S. and Chinese officials began in Beijing. The Dialogue came about during the Global Financial Crisis to promote economic and political cooperation between the world’s two largest economies. The U.S. delegation this year is led by Secretary of State Hillary Clinton and Treasury Secretary Tim Geithner.
Chinese President Hu Jintao gave the opening speech on creating win-win situations through mutual cooperation and overturning the old paradigm that major world powers inevitably enter into conflicts.
These two countries should focus on common ground instead of differences—China is at an important inflection point in its economic growth as it transitions from an export- and investment-driven economy to one fueled by domestic consumption, especially in high-profit-margin premium goods and services, and each country has a lot to gain from the other.
This quarter’s earnings reports indicate strength in Chinese domestic consumption and slowdown in Chinese construction investments. While companies such as construction equipment giant Caterpillar (NYSE:CAT) reported a slowdown in their Chinese business, consumer-oriented companies such as Apple (NASDAQ:AAPL) and Starbucks (NASDAQ:SBUX) both reported strong growth from China.
With the exception of high-end liquor Mao Tai, Chinese companies have not been successful at branding premium goods. U.S. companies, however, have been quite successful in China.
For instance, Buick is still perceived as a premium, if not luxury, car brand in Shanghai. Several of my well-to-do friends in China own Buick minivans along with Mercedes S600 or BMW 750Li sedans.
Washington should recognize this fact and help American companies with a branding advantage expand in China — getting China to severely penalize counterfeit iPhone and other Apple knock-off products would be nice.
In the past month, CEOs Tim Cook of Apple and Howard Schultz of Starbucks both made visits to China to meet with high-level Chinese officials. Schultz even got a meeting with the elusive and still influential former Chinese president Jiang Zemin, who was rumored to have died last year. The U.S. government should help American businesses with competitive strength, such as Apple and Starbucks, expand their market share in China.
Chinese consumers like these companies — gaining popular support for them there should be easy. With Apple and Starbucks leading the way, it will be easier for other consumer-oriented American firms to expand in China.
Last week China reported its April non manufacturing index, which came in at 56. This number indicates continued economic expansion in China, with GDP growth of 8.0%.
With slowing inflation, there is room for further monetary easing from Beijing, and I continue to believe that we will see a soft landing for the Chinese economy.