Remarks by John S. Chen
Chairman, CEO and President of Sybase Inc.

 
upon acceptance of the New Silk Road Award
for significant contributions to U.S.-Asia business ties
from the
California-Asia Business Council,
at Asia Night, St. Regis Hotel, San Francisco, Oct. 26, 2007

John Chen Stresses Long-Term Approach
to U.S.-China Business Relations

SAN FRANCISCO – Oct. 26, 2007 – Corporate America should balance short-term and long-term approaches to increasing the competitiveness of the United States, according to prominent Chinese-American businessman John Chen.

Addressing some 300 business leaders at California-Asia Business Council’s 13th annual Asia Night gala, where he received the New Silk Road Award, Chen noted more attention should be paid to the “free flows of the three fundamental ingredients of any knowledge-based economy: investment, talent and knowledge” between the U.S. and China.

Chen, chairman, CEO and president of Sybase, serves as member of the President’s Export Council and co-chairman of the Secure Borders and Open Doors Advisory Committee. He is a Hong Kong-born engineering graduate of Brown University who also holds a master’s degree from the California Institute of Technology.

The U.S. faces challenges from economic powerhouse China, he said, pointing to the fact that China’s share of world GDP in purchasing power terms at 15.5 percent is nearly par with the U.S. share of 19.8 percent.

The U.S. is making great efforts to push renminbi revaluation, implement a one-size-fits-all immigration policy, and demand enforcement of intellectual property rights in China, Chen said in summary.

While the short-term focus makes sense politically, said Chen, the gains should not come at the expense of long-term ones.

No Solid Correlation Linking Stronger RMB with Trade Deficit, Jobs
 
Little evidence shows a solid correlation between increasing valuation of a foreign currency and improving the U.S. economy, Chen pointed out.

Oxford Economics calculated that even a 25 percent revaluation of RMB against the dollar would only cut the U.S. trade deficit of $800 billion in 2006 by $20 billion after two years.

“On balance,” Chen said, “a stronger RMB is more beneficial to China than to the U.S.”

“A stronger currency helps China combat inflation and economic overheating,” according to Chen. It helps the country raise internal consumption, and consequently reduce export dependency. It would strengthen China’s position when it comes to acquiring foreign assets, he added.

As for the U.S., Chen predicted, a higher renminbi value will likely result in inflation in the U.S. as we pay more for the numerous “made-in-China” goods in stores like Wal-Mart.

“It would not help shift basic manufacturing jobs back to our country, either,” he argued. “Our labor is so expensive, let alone the fact that we don’t have the abundance of population to handle labor-intensive manufacturing.”

Chen pointed to the expected decrease in the U.S. workforce growth rate from 9.4 percent for the period of 1998-2006 to 6.3 percent for 2006-2014.

While we have been successful in blocking Chinese companies’ investment bids in America, we have to remember the rule that “for every action, there is a reaction.”

He gave the examples of the ongoing challenges to Bain Capital and Huawei Technologies plan to buyout 3Com. He also pointed to China National Offshore Oil Corporation’s bid to acquire Unocal Corp., and Haier Group’s attempt to buy Maytag. Both bids, both blocked by the U.S. because they came from Chinese companies.

“China may use them as an excuse to interfere with future U.S. investments,” Chen cautioned. In 2006, for example, China’s Ministry of Commerce was authorized to block foreign acquisitions that “may have an impact on state economic security.”

 It may also drive Chinese overseas investments to other parts of the world, he warned.

Additionally, Chen pointed out that China now commands $1.4 trillion in foreign exchange reserves. So far, only 7 percent of China’s overseas direct investment in 2006 was spent in North America, equal to what Africa received.

Immigration at Heart of Long Term

Immigrants play an important role in our economy, maintained Chen. A quarter of the engineering and technology companies started between 1990 and 2005 were founded or co-founded by immigrants.

“Imagine this,” he said, “if Jerry Yang, Sergey Brin and Pierre Omidyar never came to America, we might have to buy shares of Yahoo!, Google and eBay from Taiwan, Russia and France.”

While a secure border is an absolute must, Chen noted, the U.S. has to balance it with the flow of highly skilled workers. “A one-size-fits-all immigration and visa policy is not the right approach.”

He referred to the unresolved case of musicologist Nalini Ghuman, who had her green card suddenly revoked at the San Francisco airport in August last year, after living, studying and working in the U.S. for 10 years. Ghuman is a British citizen, an Oxford graduate who earned a doctorate from UC-Berkeley, and an assistant professor at Mills College in Oakland, Calif. After a year of inquiries, revocation reasons remained unclear.

One severe consequence of such a policy is a “brain drain” effect, Chen concluded.

While hailing the recently simplified entry procedures for foreigners and reductions in waiting times, Chen pointed out the combined refusal rate of student visas, i.e. F1, J1 and M1, rose by 23% from 2005 to 2006.

Those who had been granted visas and finished their studies still face hurdles in the recruitment and employment front, Chen noted.

H1B visas given to foreign workers are set at 65,000 a year, which was reached on the first of day when submissions were accepted this year. An amendment by Senator Maria Cantwell (D-Wash.) for increasing the cap for 2008 to 115,000, and for each subsequent year, to 180,000 had gone nowhere, Chen added.

Even foreign scholars and inventors owning intellectual property are given far from enough opportunities to legally work in the U.S., said Chen.

In 2006, he said, foreign nationals accounted for 24.2 percent of the patents filed from the U.S. to the World Intellectual Property Organization, up from 7.3 percent in 1998. Despite this increase, the U.S. isn’t encouraging more inventors to stay.

“Eventually these turned-aways and forced-backs will likely work for a competitor in a foreign country or become a competitor by starting their own businesses based on their patents or know-how,” he concluded.

Talent Issue Bigger Than IPR Enforcement

Currently our focus on intellectual property rights (IPR) enforcement in China mainly “serves the purpose of the immediate return,” Chen emphasized.

It’s no question that IPR enforcement will happen, and that education of China’s judicial system and businesses will bear fruit over time, he said.

“Even more so,” added Chen, “as China’s middle and upper classes expand, they will drive IPR awareness and enforcement, seeking authentic brands and fueling the creation of domestic IPR. Therefore, we should focus our attention on accelerating the expansion of robust middle and upper classes in China.”

The contemporary histories of Japan, Taiwan and South Korea were proof of this eventuality, Chen pointed out. Even U.S. history shows a pattern of illegally exploiting others’ intellectual property when its economy and its middle class were struggling. Chen quoted Lawrence Lessig, the noted law professor at Stanford, who described America as a “pirate nation” in Wired magazine in 2006.

“When America was poor, its citizens ‘stole.’ We took the intellectual property of Dickens and other foreign artists without paying for it. We didn't call it stealing, but they did. We called it a sensible way for a developing nation to develop. But we only imposed this burden on ourselves when it made sense to do so. Until 1891, we were a pirate nation,” wrote Lessig.

Chen compared IPR enforcement to roasting turkey, which naturally takes time. “You can’t crank up the temperature of the oven hoping to cut the cooking time.”

Chen pointed out two trends that affect American businesses while China improves on IPR.

First, China will develop competitive domestic choices for equivalent U.S. goods. This has more far-reaching implications for American businesses than IPR violation, he said. “Beijing has always been keen to control the market by buying from local vendors. Once China’s local products mature, the U.S. market will come under even more severe pressure.”

Meanwhile, China has a tendency to promote local standards, which the country has discussed in many forums, such as national security, local business promotion, and reduction of international royalties, Chen cautioned.

He gave the example of the proposed wireless local area network authentication and privacy infrastructure certification by China in 2005. Other proposals are heard in China from time to time to circumvent international standard bodies, such as the Institute of Electronic and Electronics Engineers Standards Association, he added

He described the real solution as being to encourage the free flow of knowledge between the two countries – fostering collaborative innovation based on global standards. “Leveraging knowledge on a global basis would accelerate innovation, which should benefit all.”

Self-Correction to Balance Long Term and Short Term

Chen encouraged corporate America to give more weight to the most critical things – market openness, market transparency and future competitiveness of the U.S. – by promoting the free flows of investment, talent and knowledge in both directions.

“Our government is doing the right thing for the short-term, and we need to put long-term considerations into perspective,” Chen stressed.

One of the strengths of the U.S. is its flexibility, said Chen. “Somehow, some way we always get it right even if we may be off balance in the beginning.”

He attributed this strength to the government’s openness to debate and discussion as well as its willingness to engage its people and the business community. “These qualities are what’s comforting about America’s strength.”

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About Photo:

John S. Chen (4th from left), Chairman, CEO and President of Sybase, Inc., receives the New Silk Road Award for 2007 from the California-Asia Business Council at the group's annual Asia Night gala, held Oct. 26 at the  St. Regis Hotel in San Francisco. Chen was honored before a sell-out gathering of California business leaders and Asian diplomats for creating strong markets in Asia for American technology, and vigorously advocating improved trans-Pacific business ties in Congress, industry and other forums. 

With him, left to right, are Bill Lee, Director of Economic Development and Tourism for the City of San Francisco; Fiona Ma, California Assembly Majority Whip; Lyz Ferguson of the Bay Area Family of Funds, who serves as Cal-Asia President; Jeremy W. Potash, Cal-Asia's founding Executive Director; Daniel Chao, Cal-Asia's Chairman Emeritus and former Chairman of Bechtel China; and Brad Aris, Senior Vice President of Wells Fargo-HSBC Trade Bank, who chaired the award committee.  -- Photo by Seeneng Foo.