BY CHASE STEWART
Kenneth Jarrett has a long and distinguished career including four decades in and out of China. Mr. Jarrett majored in history at Cornell and studied Chinese at the Chinese University of Hong Kong. He then received an M.A. in East Asian studies from Yale University. Mr. Jarrett was a Foreign Service Officer for over 26 years and during this time attended the Hopkins-Nanjing Center. Mr. Jarrett has previously served the Chairman of American Chamber of Commerce in Shanghai, the Greater China Chairman of APCO Worldwide and is the current President of the Shanghai Chamber of Commerce.
Where were you in your career when you decided to attend the HNC? Why did you want to go to school at the HNC? What kind of impact did the HNC have on your career?
My attendance at HNC in 1989 was part of a language training program under the aegis of the State Department. I was already a Foreign Service Officer and preparing for an assignment at the Consulate General in Chengdu. Part of my preparation was a year of advanced language study and I spent half the time in Taipei and the second half at HNC. The center was only in its third year but was an attractive alternative to the more traditional language learning options offered by the State Department. I was quite keen to attend HNC because the curriculum seemed rigorous, both in terms of language learning as well as substantive content. In addition, the opportunity to study in close proximity to a group of talented Chinese classmates was a special attraction as it offered another way to learn more about Chinese society. True to expectations, the time at HNC left me with fresh insights about China and Chinese culture. The spring of 1989 was a tumultuous period in China and observing this from a university campus was another major learning experience.
China is changing fast and there has been a lot of development since your time at the Center. What have been the most surprising or drastic changes you’ve witnessed since graduating from the HNC?
I’ve been in and out of China since 1989 and have lived continuously in China since 2004 — and even earlier if one counts Hong Kong. The pace of change has been extraordinary. Without trying to score which change has been the most surprising or most drastic, let me just highlight several that I would consider particularly noteworthy: the growth of the middle class and development of a consumer society; the greater individual freedom people have to pick jobs, move within China and travel internationally; Internet penetration and the power of social media; and the physical integration of China via high-speed rail, highways and a more developed transportation infrastructure.
China has recently established the Asian Infrastructure Investment Bank and many U.S. allies have joined despite U.S. opposition. What implications does this have, if any, for the U.S.-led global financial system? What are some areas of concern or cooperation?
The infrastructure development needs in Asia remain substantial, and by that standard, the Asian Infrastructure Investment Bank can play a positive role. There are of course existing institutions that already work to finance infrastructure projects in Asia — the Asian Development Bank and World Bank are two examples. China’s decision to launch the AIIB had both political and economic dimensions and could be understood as an effort by China to establish rival international financial institutions that it leads rather than simply participate in institutions created by developed Western economies. In that sense, AIIB is not so different from the institutions associated with China’s “One Belt, One Road” initiative. The bank might also be viewed as just another manifestation of China’s growing economic and political influence and a natural development. That said, I do not believe AIIB will undermine or replace the existing system of financial institutions. The Unites States should look for ways to cooperate with AIIB now that is obvious that the bank is here to stay. The United States had some initial concerns about internal governance structures, but once those are met, it would make sense for the United States to participate in the new bank. That is also the view held by most members of the American business community.
The Trans-Pacific Partnership was just recently signed (but yet to be ratified by Congress). What kind of impact do you think this will have, if any, on U.S. businesses in China? More generally, what effects do you think the TPP will have on U.S. businesses?
China is not party to the TPP, nor has the agreement been approved by Congress. But just the successful negotiation of the agreement has already had one significant impact on China by making the Chinese government more aware of the need to enhance their competitiveness in attracting foreign investment. It is no coincidence that China’s interest in pursuing a Bilateral Investment Treaty (BIT) with the United States became more intense when it looked like TPP would become a reality. China is concerned that TPP could divert some foreign investment from China to other parts of Asia, such as Vietnam, a party to the TPP negotiations, and China sees a BIT as one way to counter those potential effects. Thus, my hope is that TPP makes China more attentive to the long-standing complaints from the foreign business community about regulatory opaqueness and lack of a level playing field. If China wants to join TPP, it would have to meet the high standards established in TPP for labor, intellectual property rights, and environmental protection and be mindful of what TPP says about state-owned enterprises. If China can meet those standards, that would be positive for all.
To provide a more direct answer to your question, keep in mind that most U.S. companies are in China to sell to the China market. Thus, even if TPP has some impact on investment flows, American companies will still need to be in China to service the China market. As that market grows, even if at a slower rate, investment will grow too.
What are the greatest opportunities and challenges for American businesses in China?
The American Chamber of Commerce in Shanghai does an annual survey on precisely this topic and my first response is simply to encourage people to read the report, which is on our website (www.amcham-shanghai.org). China remains a strategic priority for U.S. companies even if the Chinese economy is slowing down, margins are tight, local competition is growing and Chinese industrial policies create new market barriers in some sectors. Some analysts describe China’s economy as operating at two speeds: a declining old economy that consists of construction, mining, and heavy industry, and a fast-paced new economy that includes e-commerce, healthcare, tourism, consumer goods, the growing service sector and environmental technologies. Opportunities are greatest in the so-called new economy.
Likewise, challenges come in different flavors. There are long-standing operational challenges such as high costs and the war for talent, but also familiar regulatory challenges such as regulatory uncertainty, the lack of transparency, a bureaucratic approval process, weak protection of intellectual property rights, restricted Internet access and favoritism toward local companies. All of this is described in detail in AmCham Shanghai’s annual survey.