The Australia-China Chamber of Commerce and Industry of New South Wales



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Session 1

American Chamber of Commerce in China

2001 White Paper American Business in China

Analysis of Recommendations and Implications for Australian Business

24th May 2001

T & I Investment Centre Theatrette

225 George Street


John Zerby

Vice President

Australia-China Chamber of Commerce and Industry of New South Wales


A short while ago the Chamber initiated a study of the activities of other China-related organisations and business councils for the purpose of assisting in designing our own corporate strategy for the next several years.

In the process of assembling the information, we discovered a White Paper by the American Chamber of Commerce in China (referred to as AmCham-China), which we thought was important enough to bring to the attention of China-interested companies in Australia.

The White Paper was written mainly for government authorities in China.  It does so by listing recommendations made by American companies to improve business relations in China. 

The White Paper is an 82-page document and represents a “massive undertaking involving dozens of people from a wide range of professional backgrounds but with a common desire to achieve a healthy, world-class, and stable business environment”.

The many chapters of the report were written separately by various individuals from AmCham-China membership and then circulated among industry experts to ensure a consensus that fairly represents member companies.

The compiled results were reviewed and edited by AmCham-China’s Public Policy Development Committee, the members of whom are volunteers.  After the committee’s review process, the manuscripts were re-edited for both format and style by AmCham-China’s director of communications.

The document was then translated into Chinese, checked by volunteer bilingual reviewers and, when approved by AmCham-China’s manager of Chinese public affairs, was submitted to the Chinese authorities.

This entire process is somewhat daunting for other bilateral chambers.  The Americans obviously have far more resources available to them, and proceed in much more organised way, than the rest of us are able to contemplate.

It is unlikely that any China-related organisation in Australia would consider undertaking a similar process, but we should definitely note it and try to build upon it for our own purposes.  It is therefore the focus of this session.

A Survey of China-Related Organisations:

The purpose of this brief discussion of China-related organisations is to put AmCham-China’s White Paper into a context that displays the functions and objectives of the various bilateral organisations.

In the reference section of ChinaOnline’s Internet site (, listings are given for 55 China-related organisations and business councils.  Australia has five:

Ø       The Australia China Business Council (ACBC)

Ø       The Australia China Chamber of Commerce and Industry (ACCCI)

Ø       Australia Taiwan Business Council

Ø       Chamber of Commerce and Industry of Western Australia (Inc).

Ø       Queensland Chamber of Commerce and Industry

Obviously not all of these exist exclusively for Australia-China business relations, but all have apparently expressed a major interest in China.

Among the Australian listings, only the ACBC has an Internet site,, though all of the others have e-mail addresses.

The ACBC’s Web documents consist mainly of the China Update, which is a national newsletter.  The current issue is Vol. 5, No. 2, April-May 2001.  It contains:

Ø       A letter from the national president

Ø       “China Now”, which is a short note about China and the WTO

Ø       “China’s New Customs Law”

Ø       “China Roundup”, which is a summary of news appearing (mainly) in People’s Daily

Ø       “Australian News”

Ø       “ACBC Dateline”

Ø       “Trade Fairs and Exhibitions”

Ø       “Job Minimarket”

Some links to other Internet sites are included, as well as answers to frequently asked questions.

The Canada China Business Council (CCBC) is located in Toronto and Vancouver, and was incorporated in 1978 to facilitate and promote trade and investment between Canada and China.  The Internet site states that its mandate includes the following:

Ø       to stimulate and support trade in goods and services, investment and technology transfer;

Ø       to achieve greater economic growth and a closer relationship between Canada and China;

Ø       to provide practical and focused assistance to business;

Ø       to be the voice of the Canadian business community on matters of Canada-China relations, both to government and to the public at large.

The CCBC provides market information, business and logistical support and services, and potential project leads to its members.

The China Britain Business Council (CBBC) provides initial China business advice to any British company free of charge.  Members have access to a range of services, some of which are exclusive and are either free of charge or at valuable discounted rates.  Some services are available to non-member companies on a pay as you go basis.  The services include the following categories:

Assessing the Market

Ø       free advice

Ø       China business library

Ø       briefings

Ø       customised market research

Ø       CBBC publications: China-Britain Trade Review and Ying Zhong Wei Lei

Entering the Market

Ø       trade missions, seminars and exhibitions

Ø       individual visits

Ø       CBBC’s china offices

Ø       CBBC's launchpad scheme

Maintaining a Successful Strategy

Ø       seminars and briefings

Ø       conferences

Ø       VIP events and trade delegations

Ø       lobbying for British business interests

Ø       members’ workshops

Ø       cross-governmental and industry sector projects

The CCBC library consists mainly of embassy reports, brochures and projects for a variety of provinces and cities in China.  Its Internet site is

The US-China Business Council (USCBC) is separate from AmCham-China, with its main office in Washington, DC, and representative offices in Beijing and Shanghai.  Its Internet site is and USCBC is similar to the ACBC, CCBC and CBBC in purpose and function.  That is, it provides information and services for businesses located in the US to enter the Chinese market.

AmCham-China ( and other chambers of commerce in China, such as the China Australia Chamber of Commerce (AustCham), have member companies that are located in China.  Therefore, the first two categories listed by the CCBC (assessing the market and entering the market) are not relevant.  AmCham-China members have already ‘assessed and entered’.

AmCham-China, and other similar organisations, act as representative bodies for their members and convey whatever is necessary to fulfil that representation. 

Relevance of Anticipated Accession to the WTO:

The extra effort put into the White Paper on China, and a similar one on Taiwan by AmCham-Taiwan (, can be explained by the importance of China’s WTO membership, as seen by American companies in China.  The White Paper states (in the Chairman’s message):

China’s WTO accession will benefit China because it will help advance China’s reform and development, improve the quality and reduce the cost of goods and services, spur investment and the creation of new jobs, and promote the rule of law.  It will benefit foreign companies because it will foster a more transparent and predictable business environment and dramatically expand market access for our goods, services, and farm products.  It will also make Taiwan’s immediate accession to the WTO politically possible.

AmCham-China nevertheless recognised that “given the breadth and depth of the numerous specific commitments made by China during the negotiation process, full compliance will not be easy and will not be achieved overnight”.  The document is therefore intended partly to point to specific areas where improvement is needed.

The biggest problem China faces after WTO accession is maintaining employment and family incomes at socially responsible levels.  “Should this prove to be difficult, there is a risk that China will defer on the timetable for WTO commitments”.

Exploitation of loopholes in the agreement is a concern, but this must be viewed in terms of the following:

Ø       Legitimate exploitation of loopholes versus aggressive interpretations of ambiguities.

Ø       Delays or incomplete compliance arising from practical difficulties following good-faith efforts for compliance versus blatant disregard for clearly defined obligations.

Ø       Delays or incomplete compliance arising from inadequate resources versus unwillingness to seek solutions through procedural changes and innovative resource allocations.

The document cautions member companies not to rely excessively on WTO dispute resolution machinery, but to apply due diligence when contemplating specific transactions and to explore more immediate forms of conflict resolution.

US businesses were optimistic about their China operations.  Ninety-one percent of 160 respondents to a membership questionnaire conducted by AmCham-China in 2000 said they were either cautiously optimistic or optimistic about their business outlook for the next five years; 8 percent were neutral, leaving only 1 percent pessimistic.

AmCham-China members anticipate reduced tariffs, better distribution channels, more impartial, objective tendering practices, stronger legal protection of intellectual property, improved ownership structures, and more international-standard accounting and business practices in China.

Tempering this positive outlook is the realisation that the structural and process-oriented changes that Chinese institutions must undergo to meet WTO standards will not be easy to implement, despite the government’s strong commitment to do so.

While a number of the recommendations made by AmCham-China to the Chinese Government are noteworthy, some convey a desire to create in China the type of business-government relations that closely resemble those in the US.  It is of course not surprising that US companies in China would seek a business environment with which they have already gained experience and have a proven track record in succeeding.

Among the international practices that AmCham-China members most wish to see implemented is transparency in government.  Broadly defined, transparency would include: allowing business and other interested parties to comment on draft laws and regulations before they are finalised; making public all laws and regulations in full detail; and making public the reasoning used in later interpreting these laws and regulations.

The Business Climate in China:

The business climate in China is characterised by a high degree of regulatory risk.  More specifically, the risk arises from a possible loss from sudden changes in law, policy, or individuals in office. 

On the one hand, the rapid development of the legal system, a high rate of economic growth, and rapid social change are welcome.  On the other hand, the government is forced to respond rapidly to changing situations.  It often does so pragmatically, to deal with short-term needs, and without good co-ordination among different agencies and levels of government.

This situation is exacerbated by the prevalence of local protectionism, local regulations or practices inconsistent with national law or policy, and the inability of the central government to enforce uniformly its policies.

Since China does not have a federal system, the central government has very few employees in localities and is dependent on successive layers of provincial and local government and party organisations to carry out its directives.

As a result, there are very few truly national markets but rather an assortment of local markets regarding each other suspiciously.

For firms willing to operate in legal or regulatory grey areas, local flexibility may provide advantages in terms of special incentives or technically improper approvals to enter restricted businesses.  There is always the risk of being caught in a crackdown, but if the return on investment is quick, some may take chances.

For companies in capital-intensive or technology-intensive industries making large investment and facing long payback periods, including most US companies, the lack of nationwide consistency and the varying characteristics of local markets are severe constraints.

Most observers of macroeconomic policy agree that capital controls helped protect China during the Asian financial crisis.  Those managing businesses, however, are aware that the necessity to distinguish capital account transactions (dividends, debt repayments, investment) from trade transactions (purchase or sale of goods and services) in order to restrict and regulate the former leads to cumbersome and complex regulations hindering the flow of goods and services across the Chinese border.

Among the problems often noted are:

- Import prepayment is limited to 20 percent of order value.  This means that companies cannot use ‘wire transfers before shipment’ for urgently needed import items, though these terms are frequently used on export orders.  This restriction causes delivery delays, as companies have to wait for the processing of letters of credit.

- Import invoices must be paid within 90 days after customs clearance.  After 90 days, it becomes extremely difficult to apply for foreign exchange to make the payment.  This causes cash flow and cost problems to customers, mostly Chinese companies, and makes them non-competitive.  Frequently, overseas suppliers are willing to accept terms longer than 90 days.

- Chinese-standard import contract forms must be used for all import orders.  For imports, a simple purchase order is the normal international practice, but companies are required to use the Chinese-standard import contract form for all import orders, which is in fact a foreign exchange requirement instead of a commercial requirement.  Without the standard contract, companies cannot get approval for foreign exchange to pay invoices.  This practice is not appropriate for inter-company purchases from foreign investors’ overseas affiliates, as it adds to the cost but brings no benefit.

- Accounts cannot be settled with foreign partners or investors by offsets.  Consider an example where a foreign company owes a Chinese company US$100,000 for goods and the Chinese company owes the foreign company US$75,000.  The international standard of settlement allows the foreign company to make cash payment of US$25,000 and issue credit to the Chinese company for US$75,000.  But this is not allowed in China because the customs verification sheet for export of US$75,000 in goods cannot be reconciled with US$25,000 payment.  This system is inefficient and adds cost to the transaction.

- It is difficult to get foreign exchange to pay for services.  Invoices for overseas services do not have customs stamps on them; therefore, it is very difficult for the recipient firm to obtain foreign currency to pay for such services.

As noted above, these controls are mainly for protection against the use of trading accounts to shift funds into and out of China for non-trading purposes.  The controls are nevertheless administratively complex, difficult to administer, expensive, and frequently provides the occasion for corruption.  It is important to balance the benefits of specific control measures against the costs of such controls, and to strive continually to make them as efficient as possible.

Sales, service and distribution:

The accession agreements for China’s entry into the WTO specify an opening of China’s sales, service, and distribution sectors to direct foreign participation.  China agreed to phase out most restrictions affecting the sales, service, and distribution operations of foreign manufacturing companies, as well as many of the restrictions that effectively block market access for foreign third-party distribution and retail companies. 

Specific schedules for the elimination of such restrictions vary, but many are to become effective within three years of accession and most within five years.  The opening of the sales, service, and distribution sectors to direct foreign participation is a critical element in greater market access that will be enjoyed by foreign companies in the China market under the provisions of WTO.

AmCham-China recommended further liberalisation of the retail sector, including the following:

Ø       Allow foreign retailers to import finished goods and sell them directly to Chinese consumers.

Ø       Grant retailers one national license that is applicable to all regions and cities, eliminating all other retail licensing requirements.

Ø       Allow reasonable royalty payments to foreign retail parent companies.

Ø       Commit to enforcement of hygiene requirements and other permits on an equal basis for domestic and foreign retailers.

Ø       Permit direct-selling operations and allow companies to compensate distributors for services provided to the company with incomes from product sales, and prohibit pyramid schemes, distinguishing the two under the law.


Rule of Law:

While the Chinese government has made significant progress over the past two decades in establishing the rule of law, progress has slowed in recent years.  The weakness of the legal system has become a deterrent to many large-scale investments by foreign companies in China.

Despite the recent growth and increased professionalism of the legal profession and improved competence of the judiciary in certain localities, many observers believe that lack of progress on other important fronts has outweighed the effect of those advances in the short-term.


Improvements in transparency during the past few years are reported to be minimal.  To be transparent, laws must be publicly available, objective, and unambiguous.  In the haste to comply with global standards the government has issued regulations that are vague, contain subjective standards, and even explicitly require further approval or input from governmental authorities for their interpretation.  In many instances this occurred without the criteria for such approval ever being made public.

While the government has made greater efforts to create an appearance of transparency, in fact unpublicised internal guidelines or personal relationships continue to determine the ultimate meaning of published regulations and, hence, which activities are permitted or not.


Inconsistent enforcement of contracts and laws continues to limit further increases in foreign investment.  While the quality of judges in major metropolitan areas has improved, the quality of the courts in the provinces continues to be a problem.

Specific recommendations include the following:

Ø       Establish a mechanism similar to the Federal Register in the United States to publish draft laws and regulations.

Ø       Open the drafting process of new laws and regulations, providing industry and affected parties the opportunity to comment at a meaningful stage prior to promulgation.  Establish an appeals process where public opposition to draft laws and regulations can be heard.  An open process will improve the clarity, practicality, and enforceability of new laws and regulations.

Ø       Give adequate advance public notice before a new law goes into effect or an existing law will be implemented.

Ø       Strive to make regulations and regulatory guidance issued by all government agencies objective and unambiguous.  To a much greater extent than exists today, regulations should be specific and not subject to broad and subjective interpretation by the agencies and ministries that wrote them.

Ø       Publish internal standards or eliminate them.

Ø       Provide private rights of action as a means of redress for individuals or entities that believe they have been treated by government agencies in an illegal way.  Such complaints should be heard by independent, competent judiciary (in the best case scenario) or at least by qualified administrative panels specially created to hear such cases without interference from the government department under complaint.

Ø       Rotate judges to help insulate them from local pressures.

Ø       Provide better pay for prosecutors and judges while taking stronger punitive action where corruption is found.

Ø       Ensure enforcement of court judgments when the local public security bureau does not execute a court judgment.

Ø       Establish independent working groups at provincial and central levels to monitor and supervise enforcement.

Ø       Establish a national codification system for all laws and circulars; increase efforts to publish new circulars for immediate access to the public; post all circulars on a consolidated government website.


Labour and Benefits:

While much progress has been made recently, labour issues continue to be a major problem for new and established companies in China.  In fact, labour-related developments have reduced China's competitiveness in the world market.

In the International Institute for Management Development’s World Competitiveness Yearbook, China's ranking actually slipped from its 1999 position.  The main reasons cited included the recent brain drain (only one-third of Chinese students studying abroad return) and a lack of training that produces technologically skilled people who can also think creatively and have good people-management skills.

The good news is that investments continue to pour in from foreign and private Chinese sources.  China approved 7,433 new foreign investment companies between January and April of 2001, which is an increase of 23 per cent from the same period in 2000.

Contracted investment totalled US$20.25 billion, which represents an increase of 38 per cent from the same period in 2000, and actually used foreign investment was US$10.95 billion, increasing 12.4 percent over the same period in 2000.

This inflow of capital will support the continued development of Chinese organisations and talent, and add to the pool of qualified personnel in China.

Other progress includes the following:

Ø       easier access to the labour market with the rollout of the Internet throughout China including Web-based recruiting services and more flexible handling of personnel files transfers between localities

Ø       more trained engineers and scientists, making it easier to staff research and development centers in China

Ø       improved banking infrastructure allowing more efficient handling of payroll and statutory benefits

Ø       loosening of regulations allowing PRC staff to participate in stock option schemes as well as variable pay schemes

Ø       improved professionalism of labour agencies and bureaus in large cities.


Allow companies entering joint ventures to take only people they need to operate on a profitable basis.

Eliminate lifetime employment requirements.

Clarify and update regulations controlling how redundancy may be implemented and severance payments calculated.

Clarify and relax current regulations regarding foreign stock ownership, including stock options, by PRC nationals

Continue efforts to monitor and better control:

Ø       co-operation of local public security support at the scene of labour unrest on the premises of foreign businesses

Ø       the security of employee balances in pension accounts

Ø       compliance with safety regulations

Ø       consistent enforcement of laws in all types of enterprises.

Certify skills in audit and control functions.

Continue and increase support for modern management programs in China.

Systematically review and update both national and local labor regulations to better meet the needs of companies doing business in China today.

Standardise and streamline the administration of labor and benefits laws at all levels--national, provincial, district, and city.

Standardise the labour benefits law across the nation and make pension, medical, and housing benefits more transparent and open to private or individual employee channels

Announce in November the dates of national holidays for the coming year.

Structure a flexible program that would allow certified private companies to manage employee pension and housing accounts or allow the employees to manage their own accounts.

Other Areas for Improvement:

Similar descriptions and recommendations are made in the following areas:

Ø       intellectual property rights

Ø       technology transfer

Ø       safety and quality standards

Ø       government procurement

Ø       taxation

Ø       venture capital investment

Ø       chambers of commerce registration


US Sanctions and Export Controls:

As noted earlier, most of the recommendations made by AmCham-China were addressed to the Chinese authorities.  Some, however, are directed to the US Government.

Specifically, AmCham-China believes that unilateral economic sanctions imposed for political reasons are ineffective.  They disadvantage US exporters vis-à-vis other competitors abroad whose governments provide extensive financial and other support.

After more than a decade-and-a-half of negotiations, the United States and China achieved a market access agreement in support of China’s WTO accession.  In order to take advantage of China's market opening, US companies should enjoy the full support of relevant US export promotion and finance programs.

Prior to 1989, the US Trade and Development Agency (TDA) and the Overseas Private Investment Corporation helped US firms, particularly small and medium-sized ones, take advantage of commercial opportunities in China. 

TDA generated US$467 million in downstream exports of US goods and services during the period in which it operated in China.  With the support of these government programs, US firms were able to provide equipment, technology, know-how, and investment that helped China enhance infrastructure development.

To further restrict US firms' export of dual-use technology to China without a corresponding commitment from our multilateral trading partners forces US companies to cede the playing field to other nations.  Other governments’ restrictions on their firms’ export activities often are not as stringent as those of the United States, which maintains the most restrictive export control policies of China's major trading partners.

Industry Specific Issues:

Industries and industrial sectors include:

Agriculture, food and beverages
Automotive Components
- General
- Architecture and Engineering
- Building Materials
- Construction Engineering
Education and Training
Environmental Protection
Information Technology
Internet and E-Commerce
Medical Equipment
Professional Services
- Legal Services
- Accounting
- Advertising
Transportation and Logistics

Evaluation of the AmCham-China Document:

Many of the recommendations pertaining to overall structural changes in the Chinese economy (such as liberalisation of capital account transactions and the legal system) have been noted and commented upon by the multilateral organisations.  They are, therefore, not new.

The AmCham-China document nevertheless provides additional, practical detail concerning these changes.  They also serve to highlight the potential problems that newly established, foreign-funded enterprises may encounter.

Similarly, the fact that many of the listed changes are necessary to China’s more complete opening to the outside world is already known to Chinese officials.  However, the tendency for those officials to concentrate on their individual area of responsibility most probably means that few, if any, have a working knowledge of the full range of desired changes.

Many of the industry-specific recommendations are new and have generally been missed from the more broadly based changes that have emerged from the multilateral organisations such as the World Bank, International Monetary Fund and the Asian Development Bank.  These recommendations rarely, if ever, get factored into bilateral support programs.

This is an important contribution since the broader programs will be less effective if they fail to alter, in a significant way, the cost structure of enterprises in China.  This often occurs when economic reforms are planned and implemented in a “top down” manner.  Input and feedback from enterprises is essential.

Perhaps the greatest contribution of AmCham-China is to signal a willingness of their members to participate in this “input and feedback” process.  That willingness should also be conveyed by Australian enterprises in China.

Further Implications for Australian Business:

In recent years, Australia has again become a major trading nation.  The share of exports fell during the interwar period and only recently began to rise (see Table 1).  In 1999, the ratio of merchandise exports to GDP in Australia was 20 per cent, which is nearly the same as it was in 1913.

Table 1: Ratio of Merchandise Exports to Gross Domestic Product


United Kingdom
United States











Source: Nicholas Crafts, Globalisation and Growth in the Twentieth Century, IMF Working Paper 00/44, March 2000.

Perhaps of greater importance, Australia’s world ranking as a trading nation is steadily increasing.  Treating European Union nations as a single unit, and including only extra-EU trade, Australia ranked 13th in terms of total trade in 1999 (see Table 2). 

Table 2: Exports, Imports and Total Trade by Value (in US$ billions) and Share – 1999














 United States








 Extra-EU trade
































 Hong Kong
































































 Russian Fed.















Source: World Trade Organisation.

That contribution to world trade yields us less influence that that of the United States and Japan, and the gap is substantial.  The US remains one of China’s important export destinations, accounting for 21 per cent of China’s exports.  If re-exports from Hong Kong are included, the US market will make up roughly 40 per cent of China’s exports.

The Japanese market accounts for 17 per cent of China’s exports.  The two markets combined receive more than half of China’s exports.  Relative positions change with changing economic conditions.  The growth of China’s exports to the United States fell by 46 percent in the first quarter of 2001, compared to the same period in 2000, while growth in exports to Japan declined 8 percent.  This was due almost entirely to the slowdown in the US and Japanese economies.

China continues to recognise the importance of a diversification in trading activities in order to avoid excessive exposure to such downturns.  In this sense, Australia’s influence is greater than its normal market share.

China also recognises contributions made by various trading partners for the adjustments that the Chinese require for timely and effective compliance to WTO rules.  The Department of Foreign Affairs and Trade, AusAID and other Australian government departments that participate in China programs have made significant contributions.  The Australian business community has contributed little, especially in comparison with American companies.

There may have been good reasons for this in the immediate post-World War II period, but it is difficult to accept the same reasons now.

There are many ways in which Australian enterprises can contribute and we leave this to a discussion during the seminar.  We also leave open the possibility of a follow-up summary being released after the seminar.


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