U.S. firms in China: Frustration amid big potential

In this story:

• 'Not a level playing field'
• Counterfeiting is 'extremely alarming'
• Related stories and sites

SHANGHAI, China (CNN) -- The latest stop on President Clinton's visit to China is a showcase of economic reforms.

Companies from around the world have flocked to Shanghai, hoping to cash in on the China market and its potential for millions of new customers. Still, from the U.S. point of view, the booming city can be a frustrating place to do business.

An 11-year-old Shanghai factory produces 10 million packets of Raid bug killer every year

Every year at its Shanghai plant, Wisconsin-based S.C. Johnson & Son makes more than 10 million cans of Glade air freshener and 10 million packets of Raid bug killer.

But only now, after 11 years of operation in a difficult business climate, is the company finally making a profit.

For all the success of S.C. Johnson, IBM, Coca-Cola and other U.S. firms in China, the Sino-American economic relationship is in trouble.

The Beijing government, which exports more than it imports, has a $50 billion trade surplus. That makes it tough for U.S. firms to break into the huge Chinese market.

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Charles Wu of the U.S. Chamber of Commerce Shanghai office 153K/13 sec. AIFF or WAV sound

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S.C. Johnson & Son (Shanghai) World Trade Organization

'Not a level playing field'

"In a lot of ways, it is not a level playing field," because of Chinese tradition and culture, says Charles Wu of the U.S. Chamber of Commerce office in Shanghai.

Shanghai's famous waterfront promenade, known as the Bund, has become a symbol of that frustration. In the years before the Communists came to power in 1949, it was home to dozens of international banks and trading houses.

The waterfront promenade known as the Bund was once home to dozens of international banks and trading houses

Now, even as Shanghai seeks to regain its role as a regional financial center, China is keeping out most international service industries -- finance, accounting, law and telecommunications, for example.

"If China opens the door too fast, a lot of state-run banks wouldn't be able to survive the competition from outside," explains Shawn Xu of the Merrill Lynch brokerage firm. "This is the main reason why China has opened the service sector so slowly."

And it's not just services. In a society with a crude legal system and a history of Communist Party meddling, even companies that have done well face persistent difficulties, from corruption to counterfeiting.

Counterfeiting is 'extremely alarming'

"The speed, quality, audacity and quality of counterfeiters in China is extremely alarming," Frank Guerera of S.C. Johnson & Son says.

"We market products for the body, like a shampoo. If a counterfeiter puts in a product that has dangerous ingredients into the marketplace, and a consumer uses that product, that consumer is going to get hurt."

News: • Clinton takes tall agenda to China • Visit fuels debate over Sino-U.S. policy Background: • The politics of engagement: U.S. and China since 1949 • China's challenge: Shaking the 'Asian flu' Interactive Features: • Who's Who in U.S.-China relations • President Clinton's Itinerary Streaming Video: •Clinton explains why he’s going to China • A CNN Special Event: The Legacy of Tiananmen

Some of these problems might be ironed out if China joined the World Trade Organization, a Geneva-based body whose mission includes resolving international trade disputes. But, for now, Beijing and Washington are deadlocked over the membership terms.

Clinton's summit in Beijing with Chinese President Jiang Zemin did not produce a breakthrough.

The economic relationship between the two countries is on shaky ground in Washington, too, due to U.S. congressional allegations about illegal Chinese campaign contributions and questionable acquisitions of missile technology.

The potential of the China market is so great that many U.S. companies believe they have no choice but to be in Shanghai. But their operations and future prospects remain hostage to the shifting economic and political currents in China and the United States.