US business group says market barriers contributed to drop in China investment

WASHINGTON – A U.S. business group voiced concern Monday over market access barriers in China, which it said likely contributed to a drop in foreign investment there last year.

The U.S.-China Business Council's president, John Frisbie, said that in a recent survey of its 230 member companies, nearly 10 percent of respondents reported that they had stopped or delayed a planned investment in China because of foreign ownership restrictions.

China, the world's second-largest economy, is recovering from its own downturn. It reported last month that its foreign investment inflows from all sources fell 4 percent in 2012 compared with 2011.

"I think the decline in foreign direct investment that China saw last year in part reflects the investment barriers," Frisbie said in a briefing to journalists after a visit to China. He added that those obstacles were a more predominant reason than the uncertain global economic environment for U.S. businesses withholding investment.

According to China's official investment catalog, there are ownership restrictions in nearly 100 sectors, including financial services, agriculture, cloud computing, health insurance and hospitals, refining and petrochemicals and energy-intensive industries.

Frisbie said this was "moving higher up the scale of concern" for the council, which was formed 40 years ago to advocate for American companies working in China. It estimates the country is a $250 billion market for the U.S. that will only grow as China's middle class expands in the coming decade.

The survey, published in October, garnered responses from both U.S. and China-based executives and represents the views of the council's members. It included companies involved in manufacturing, services and primary industries such as agriculture and oil and gas.

Despite the overall drop in foreign investment into China last year, that from American companies still actually rose slightly, Frisbie said, although it was less than half the amount of Chinese direct investment into the U.S., which hit record levels.

The council advocates stronger ties between the U.S. and China. Frisbie described the current bilateral relationship as "fairly good" and on an upward trajectory despite continuing distrust. He suggested the two sides consider holding annual presidential summits.

He said it was too early to gauge the direction of reform under new Communist Party leader Xi Jinping, who becomes president in March. Washington is looking for Beijing to dilute the heavy state involvement in many sectors of China's economy.

Among its other recommendations, the council is warning that cyber security concerns threaten the commercial relationship. Frisbie urged the two governments to address it. He steered clear of making specific recommendations other than for American companies to have the best information technology protections in place, regardless of where the cyber attacks are coming from.

Last week, The New York Times and The Wall Street Journal reported that their computer systems had been infiltrated by China-based hackers, putting a spotlight on cyber intrusions that are becoming a growing economic and national security concern for Washington.