China market is 'the major league': Industry insider

The China market has become the site of intense competition due to its companies' speed and ability to innovate, said Eric Zheng, president of the American Chamber of Commerce in Shanghai, and it is where US companies can stay globally competitive.

In a talk in Seattle earlier this month with David Tang, partner at international law firm K&L Gates, Zheng compared China's market to a "five-star gym" or "the major league".

"If you're playing NBA basketball, you want to be in the major league to be more competitive," Zheng said. "I truly believe that you could improve your competitiveness by being in China."

The discussion was organized by the Washington State China Relations Council and the Washington State Department of Commerce, and attended by former ambassador Gary Locke.

Zheng, a former principal commercial officer at the United States' Consulate General in Guangzhou and former president and CEO of insurance company AIG China, has been on the ground in China for more than 20 years.

There are more than a thousand members in AmCham Shanghai, according to Zheng, and its June survey showed that 78 percent of the member companies are profitable, the highest in the last decade.

However, due to competition in China, only half of the member companies forecast growth next year.

When he first moved to China to work for AIG, it was easy for multinational companies to make money in China — just replicate products in China, and you would do well, Zheng said.

However, after more than 20 years, Chinese companies have become very competitive and are narrowing the gap with US companies in product quality, development and setting standards.

"The rest of the categories, particularly speed to market, we're way behind because Chinese companies are moving very fast, they are very nimble, and they are not afraid of making mistakes," Zheng said. "Chinese companies are now very, very competitive relative to multinational companies."

Zheng said a US company can improve its capabilities globally even if it's not doing well in China for the time being. "You could actually improve your products, and you can do better in other places," he said.

Using EVs as an example, he said that with so many players in China, they are coming up with all sorts of features.

"Driving a car is only part of the game. They see this as a smartphone on wheels. They want to enjoy the dashboard with all the features. But Tesla has Model Y, Model 3 — they don't change very much."

When it comes to AI, Chinese companies come up with new applications in all sectors — services, retail and particularly manufacturing.

Zheng said some people are still talking about intellectual property violations in China, but the reality is that Chinese companies file more IP applications than the US and have their own IPs to protect.

AmCham Shanghai's survey showed that only 3 percent of its member companies listed IP as their top consideration in the China market.

"In fact, I believe the data indicate there's more technology being licensed out from China to the US than there is from the US to China these days. So that's certainly flipped," said K&L Gates partner Tang.