The deteriorating relations between the United States and China have companies like General Electric worried they may be shut out of billions of dollars in revenue.
GE is among companies pursuing contracts that are part of China’s trillion-dollar One Belt One Road initiative to establish modern-day trade routes tying together Asia, Europe and Africa.
The massive infrastructure program includes ports, railways, and highways, as well as power generation. GE had Belt & Road revenues of $2.3 billion in 2017, the most recent figure available
“I would say the embrace of GE is strong at the customer level,” CEO Larry Culp told analysts during a second-quarter earnings call. “At the government level, GE is seen as a key partner… But the trade tensions there are real.
“And you don’t have to look past today’s headlines to have that, I think, as a watch item,” Culp added.
Just last month, GE Renewable Energy announced plans to open an offshore wind factory in Guangdong province, in southern China adjacent to Hong Kong. Construction is to begin by the end of this year, with production slated to start in 2021, according to the company.
GE Renewable Energy’s headquarters were shifted from Schenectady to Paris as part of the acquisition of Paris-based Alstom. And it’s not clear how much equipment GE might end up producing at its plant in Schenectady.
In at least one project, steam turbines were being manufactured at plants in Beijing and in India.
GE is involved in a number of other Belt & Road projects, including a coal-fired power plant that GE and a unit of PowerChina are building in India, and a joint venture between GE and China Machinery Engineering Corp. to make electricity more accessible in Iraq.
So far, trade tensions don’t appear to have had an impact on U.S. companies involved in the Belt & Road effort, said Doug Barry of the U.S.-China Business Council.
“We have a number of member companies, including GE, who are pursuing (Belt & Road) projects. Having American companies participate in these projects is a big plus for the Chinese government funder because we provide great technology, high technical and environmental standards, experience working in developing parts of the world, and other capabilities,” Barry said.
Chinese engineering, procurement, construction companies, or EPCs, have benefitted from the latter-day Silk Road effort. They’ve gained international experience in developing countries.
But China also has been accused of stealing intellectual property and blocking access to its markets, violations of what’s known as Section 301 of the U.S. Trade Act of 1974.
“The way out of the current mess is for both sides to get back to the negotiating table and settle the disputes around Section 301, which seeks fair treatment for U.S. companies in China,” Barry said.
The protracted trade dispute has undermined business confidence and rattled equity markets worldwide.
“As the world’s largest economies and guarantors of the international trading system,” he added, the U.S. and China need to find ways to resolve their differences.”
And while GE plans for a long-term presence in China and along the Belt & Road, it’s also keeping an eye on continuing trade tensions.
“How that plays out for our book of business in China, how it plays out more broadly for all of us, is a bit unclear,” said Culp.
“I think we’ve tried to take in some of that pressure into account in the back half here, but we flagged it just given it’s a variable good bit outside of our control.”