China progress?

I have been asked why I write about China so often.

By Dr. Paul Freedenberg,
Vice President
Government Relations
AMT—The Association
For Manufacturing Technology

I have been asked why I write about China so often. I do it for the same reason Willie Sutton robbed banks — "that's where the money is." That's certainly the case regarding manufacturing.

Starting with almost nothing in the 1980s, China has become an industrial powerhouse that shot passed the United States in machine tool consumption in 2002. That's an unsurpassed record for manufacturing growth.

This year, it is possible that China's machine tool consumption will double that of our country. A few years ago, China overtook Japan in total trade volume, and in 2005, China's trade volume is likely to be ranked third, behind only the United States and Germany. Furthermore, while U.S. regional tradeshow attendance continues to decline, China's machinery trade shows fill to capacity. And why not? China has an insatiable appetite for capital goods, and its growth rate is projected to continue at the eight or nine percent rate seen for the last decade. By contrast, the European Union struggles to reach two percent economic growth, and we think three to four percent is a good year.

In recent columns I discussed the barriers to sales into China that the United States placed in the U.S. machine tool industry's path. While our businessvisa system has improved, it still hinders doing business in China. The six-month delays are gone, but delays of two or three months are not uncommon. Moreover, the reputation for unreliability developed over the past three years will take a long time to erase.

Likewise, if the uncertainties regarding export-license approval for five-axis and highprecision machine tools were not enough, the U.S. is now discussing the imposition of a new China "military catch-all" regulation. It would prohibit the export of previously unlicensed machine tools to Chinese end users — if those items seemed likely to make a material contribution to the Chinese military. Given the uncertainty about who actually works for the Chinese military, this proposed regulation has the potential to put many attractive customers off limits to U.S. exporters (but not to European competitors likely to obtain a more liberal interpretation of their regulations).

Meanwhile, the U.S. has made glacial progress in its efforts to convince the Chinese to revalue their currency upwards. An increase of 2.1 percent cannot be counted as progress, and the Chinese are seemingly unwilling to do much more in the foreseeable future. Trouble lies ahead, as Congress is rapidly losing its patience on this issue and is likely to take retaliatory measures that could touch off a trade war.

Virtually the entire U.S. business community is united in its insistence that China strengthen and enforce its intellectual-property laws. U.S. trade officials have consistently warned the Chinese that counterfeiting and technology theft are serious impediments to improved trade relations between our two nations. The Chinese Government itself estimates the volume of the counterfeiting to be in the tens of billions of dollars and repeatedly promises to address the problem.

But the trade representatives —- of three U.S. administrations — believe that it would damage our interests more than those of the Chinese if the retaliation trigger were pulled in reaction to the blatant violations of intellectual-property rights that occur regularly in China.

If I were asked what grade I would give to overall trade relations between our two nations right now, the answer would have to be an "incomplete." Do the costs outweigh the benefits? Are the problems insurmountable? The tally sheet is unfinished.

You can help revitalize U.S. manufacturing! Send this page to your Congressman, local and state government leaders, or your local newspaper editor. Add your own comments on the importance of manufacturing innovation to the health of our economy. Your comments are also welcome at [email protected]

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