Herculean' Pact to Open China's Markets Yields Less-Than-Heroic Results

When Commerce Secretary Wilbur Ross announced in May the "herculean accomplishment" of extracting Chinese promises to open swiftly long-restricted markets in finance and agriculture, he pronounced the actions "more than has been done in the whole history of U.S.-China relations on trade."

Now, as the two countries mark Sunday's deadline for completing the agreements, affected American companies say Beijing has met the letter of its pledges, yet fallen short of the spirit. Their assessment: slow, modestly improved access in some sectors, while lingering obstacles in others will continue to stymie foreign firms for years, even as specific targeted barriers have been removed.

"They've delivered on the promises by the date they've been required, but they could do more," said Jake Parker, vice president for the U.S.-China Business Council, which represents American companies in China and has been monitoring the agreements. While the changes "indicate from the Chinese perspective that their market is open," Mr. Parker said, "whether foreign companies can actually operate there is still unclear" in some industries.

The success of those market-opening measures will be on the table when top economic officials from the two countries meet Wednesday to discuss trade and investment issues. Officials from both governments insist the pact has been successful.

"We hope to report further progress on...deliverables next week," a Commerce Department spokesman said Thursday, referring to actions taken under the May agreement.

"A number of 'early harvests' have been reaped," a Chinese foreign ministry spokesman said Friday, adding: "China's door to the world...will be opened wider."

The May announcement was portrayed as an early down payment on a general April agreement between President Donald Trump and Chinese President Xi Jinping to make progress toward reducing the $347 billion bilateral trade imbalance that Mr. Trump regularly complains about.

In return for China's promises, the U.S. offered a couple of market-opening gestures as well and, in compliance with the pact, has issued rules allowing previously blocked Chinese cooked-poultry imports.

The two presidents gave themselves 100 days to come up with a comprehensive plan. More commitments are expected at this week's meetings, scheduled to observe the 100-day mark of the new U.S.-China Comprehensive Economic Dialogue.

Those discussions are expected to address American grievances over Chinese agricultural subsidies, steel overcapacity and government data-sharing requirements, among others. Mr. Trump may ratchet up his demands beyond those made in the spring, when he said he would cut China slack on trade in exchange for help curbing North Korea's nuclear program -- a deal the president said hasn't worked out.

But difficulty showing quick, significant progress on even the early items targeted as low-hanging fruit indicates bigger challenges ahead in reshaping U.S.-China economic relations.

In the May agreement, the Trump administration had marked five sectors -- three in finance, two in agriculture -- where U.S. firms had long been frustrated by perceived Chinese regulatory barriers.

Chinese agencies have made the specific changes promised in the written agreement. One resulted in clear, complete compliance: Beijing granted licenses promised to Citigroup Inc. and J.P. Morgan Chase & Co. to expand their bond-market activities in China.

In the other four, market gains seem limited or uncertain, business officials say.

Consider the yearslong battle by Visa Inc. and Mastercard Inc. to get banks in China to distribute credit cards that run on their networks to Chinese consumers. China committed in May to issue any further necessary guidelines allowing U.S. firms to begin the licensing process, a crucial step that had long been stalled. The Chinese fulfilled that commitment on June 30. But while that step was aimed at leading "to full and prompt market access," according to a U.S. government press release, industry officials say it hasn't.

"All this does is allow companies to submit an application; it doesn't mean that a foreign card company can begin operating in the market," said Mr. Parker, who believes it still will be years before Chinese banks distribute many Visa or Mastercard branded cards that run on those networks in China. Among other barriers, he said, the new rules require firms to submit to a national security review, without laying out the details of that process, and require foreign firms to build new data centers in China.

Visa and Mastercard spokespeople said they are reviewing the guidelines, without offering a timetable for submitting applications.

A similar partial victory has been handed Moody's Investors Service, S&P Global Inc., and Fitch Ratings over Beijing's commitment to allow wholly owned financial-services firms in China to provide credit-rating services.

The Chinese government issued new rules effective July 10 removing foreign-ownership restrictions for credit-ratings services. Industry officials say that is a step forward, but uncertainty remains over the process and timing for receiving the licenses still required to issue domestic ratings.

"As a general matter we are encouraged by the policies of the Chinese government," Moody's said, while S&P said it was still reviewing the new rules. Fitch declined to comment.

Uncertainty over approval processes is also a concern for American seed companies. In May, China promised by mid-July to grant approval for eight stalled applications for genetically modified crops for companies including Dow Chemical Co. and Monsanto Co., or at least offer a clear road map for how they could succeed.

Two approvals were granted in June, to Dow and Monsanto, and trade groups expect a couple more this week. But industry officials remain frustrated by the licenses that remain stuck and by the continued uncertainty over the requirements and timetable for the process. And they say they are still waiting for broader reforms showing that any future applications would be handled more transparently.

"All eight [approvals] are necessary to showcase that this was a success, " said Matthew O'Mara of the Biotechnology Innovation Organization, a trade group representing seed makers.

Monsanto and Dow spokeswomen said they were pleased their products had received approvals and looked forward to more.

One triumph touted by the Trump administration has been the late-June opening of China's beef market, shut to U.S. meatpackers since a 2003 mad-cow scare. But the strictness of China's standards, which bar growth-promoting hormones common in the U.S. and require detailed records for each animal slaughtered, mean China likely will remain for now a niche market for the American beef industry.

The strings attached "limit the number of cattle in the U.S. that qualify," said Marcel Smits, chief financial officer for Cargill Inc., the No. 3 U.S. beef producer. "It's not going to move the needle in the short term."

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com, Jacob Bunge at jacob.bunge@wsj.com and AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

July 16, 2017 07:14 ET (11:14 GMT)