Raising the Bar - High-Tech Outsourcing to China

Excerpted from
Fast Boat to China: High-Tech Outsourcing and the Consequences of Free Trade: Lessons from Shanghai
By Andrew Ross, Ph.D.

According to the most widely cited version of this argument, Chinas currency was artificially undervalued by between 15 and 40 percent, ensuring that wages were kept down against the dollar, while goods exported to China were prohibitively priced. China-bashers called this "mercantilism," as opposed to the "free trade" that any presumably honest national policy should favor. Among those leading the charge were the latest pair of unlikely coalition partners, the National Association of Manufacturers (NAM) and the AFL-CIO. Though NAM s membership list and policy orientation had long been dominated by the multinationals who were doing business in China, the association was facing an open revolt from its smaller and more numerous domestically focused firms. These companies were losing business and profits to the China trade, since they lacked the capital and resources to move offshore themselves. While they were clearly being killed by free-trade fundamentalism, they were politically incapable of assailing the doctrine, so they rook the low road of scapegoating Beijing. Joining them, for the time being at least, were their habitual antagonists, the house of labor, while the multinationals in China pushed discreetly but effectively to preserve NAM s traditional support for free-trade policies.

As the run-up to the 2004 election season got under way, a goodly number of big Washington guns were being swung around to train on China. This time around, large U.S. corporations, ever more deeply entrenched in China, were positioned directly in the line of fire. Their returns on offshore investments, and their production shifts out of the United States, were being viewed with suspicion. As for the trade imbalance, even official Chinese estimates showed that almost 60 percent of the country's exports were from China-based affiliates of multinational corporations, and assessments of the rate of return for U.S. corporate investment in the China export trade ranged from 14 percent to 21 percent. This was hardly persuasive evidence of Beijing's "mercantilist" efforts to protect indigenous industries by hook or by crook, as some of the China-bashers alleged. On the contrary, the profile of the trade deficit showed clear evidence of the deliberate outsourcing strategies on the part of foreign corporations.

As the heat was turned up in Washington, Shanghai's expat executives began to run for cover. "We'll just try to keep our heads down," chuckled one of the guests as the dinner party, an AmCham board member and regional director of one of the largest multinationals in town. All things considered, it might have been sound advice, but it in no way reflected the policy that AmCham itself adopted. In the hue summer of 2003, as the stair of the election season, a columnist in the chambers newsletter had warned members: "We have to come up with engaging ways of illustrating the positive role played by U.S.-China economic ties to counter the emotive but analytically weak appeals of the anti-China trade lobby. It will take some hard work to create effective sound bites in support of China trade. ... It's up to those of us involved in business with China to make sure that it's not only die displaced workers that get all the air time."

In a subsequent issue devoted to "Getting Heard Inside the Nation's Capital," Robert Kapp, president of the Washington-based U.S.-China Business Council, reinforced the warning: "You don't call Congress when you save money on a shirr, but you do when you lose your job. The message was clear. Chamber members would have to enter the lobbying fray full tilt if they wanted to turn around the perception that U.S. businesses in China were actively draining the American workforce and its investment base. In the year that followed, the Shanghai and Beijing AmChams would be called on to take on a much more visible role than usual in the lobbying frenzy that churned around U.S.-China trade relations.

The global commitments of large American corporations made it increasingly difficult for their executives to reconcile their firms' interests with anything recognizable as "the national interest." If multinationals paid taxes at all to the IRS, the "creative accounting" of their fiscal officers ensured that they contributed as little as they could get away with. Their record of loyalty to U.S. employees and host communities was more and more threadbare. It fell to their regional managers abroad to execute policies that many workers and politicians at home saw as a betrayal of the national interest. Yet these managers, more than anyone on Capitol Hill or Wall Street, were in a position to gauge the pros and cons of the China trade investment from day to day, and if they were not too insulated, they also had some sense of the problems faced by local Chinese in finding a decent livelihood.

Expatriates are generally prickly about being called on their patriotism, and those in China were in an especially pivotal position to argue for the importance, to their country of origin, of the corporate presence there. On this topic, the membership of Shanghai's AmCham - more than 1,100 companies and 2,600 individuals (by the end of 2004)-offered a rich resource of opinion and conflicted sentiment. Though they represented firms that were likely to be in competition with each other, and hailed from industries with vastly disparate interests, they could be rallied by the chamber to a single voice with remarkable efficiency. Individually and privately, their anxieties, ambitions, beliefs, and prejudices were the grassroots that informed and reinforced the policy agendas of Am Chains friends and lobbyists in Beijing and Washington. But did they have anything like a group mentality, and could it be profiled?