CHINAwatch

US-China trade war may turn out to be a watershed for promising changes

Stephen Olson's piece of 15 February, 2019 in The Diplomat  poses three begging questions about the US-China trade war. 

First, on top of Germany’s existing Industry 4.0 program, "just--released German National Industry Strategy 2030 signals a growing consensus in Germany that in order to respond to China’s challenge, government needs to be more proactive in fostering and supporting critical strategic industries. The strategy calls for, among other things, state investment in important technology firms to prevent them from being acquired by foreign entities." This begs the question why the "Made in China 2025" strategy is singled out as being unfair. 

Second, the now-disallowed "merger between Siemens and the French giant Alstom was explicitly presented as necessary to permit Europe to compete against China’s state-backed national champions. Discussions are now underway as to whether EU antitrust policies need to be relaxed in order to allow greater latitude to meet the challenge posed by Chinese mega-firms. The implications are clear: as concerns over China mount, regulatory frameworks are being rethought, and state-directed industrial policies are gaining ground." "Ironically, the conventional wisdom at the time of China’s entry into the WTO was that China would inevitably become more like the West. But could some countries in the West actually end up becoming more like China?"

Third, the Office of the United States Trade Representative has just completed its annually mandated report to Congress, cataloging a "variety of ways that China’s WTO compliance has fallen short," contrary to "optimistic hopes and aspirations held by the West at the time of China’s WTO accession." "And while there has been widespread global consternation over the unilateral U.S. application of punitive tariffs in response to China’s trade practices, there is also an underlying recognition among major trading nations that many of the United States’ grievances are in fact legitimate and that China needs to be – in one way or the other – held to account."

Beijing is now realizing that its past trade practices need to be reformed to provide greater reciprocity (market access) and a more level-playing field for trading partners. On the other hand, the West is also beginning to appreciate that some of China's trade practices are perhaps to be emulated rather than censored. 

So the trade war may be a timely watershed where both China and the West need to re-examine "the entire terms of engagement between China and the West on trade, investment, and economic integration", as Olsen suggests. As pointed out in my South China Morning Post Op-ed of 24 January, perhaps it is a also a watershed moment for China to practise what it preaches about "building a global community of common destiny", President Trump's "Make America Great Again" unilateralism notwithstanding. 

US-China trade talks good for both sides?

My live TV interview on TRT World of 14 February, 2019

Why US "Freedom of Navigation Operations" in the South China Sea are becoming a "New Normal"

Live TV interview with Press TV on 11 February, 2019

What's so scary about Huawei?

A BBC World Service radio documentary on The Inquiry released on 8 February, 2019. My interview contribution runs from time counter 12:18- 16:48

How US trade war and other efforts to thwart China’s rise have actually accelerated its reform and innovation

Edward Tse's Op-ed in the South China Morning Post of 4 February 2019 points out that -

• "the picture of American firms being victimised in China is exaggerated - In the tech sector, pundits lament that Facebook and Twitter are blocked in China, but neglect to mention Apple, Amazon, Bing, LinkedIn, eBay and Airbnb are not".
• "Last April, Beijing set a timetable for phasing out foreign ownership limits in the automotive industry. It is also easing curbs on sectors such as banking, securities, insurance, agriculture and aircraft manufacturing. Recently, BT Group became the first non-Chinese telecom company in China to get a nationwide operating licence. S&P Global’s Beijing-based wholly-owned subsidiary was also given a green light to enter the Chinese bond rating market".
• "To boost the private sector, Chinese President Xi Jinping met entrepreneurs last November, and China Banking and Insurance Regulatory Commission chief Guo Shuqing followed up with a statement that no less than 50 per cent of new loans should go to private businesses."
• "China is stepping up mixed ownership reform, that is, diversifying the ownership of parts of the state sector. According to the National Development and Reform Commission, 100 more state-owned enterprises will join the mixed-ownership reform programme. Along the way, many “zombie” enterprises will be eliminated."
• "To improve the protection of intellectual property right, China’s top court has started to rule on intellectual property cases since the beginning of this year; laws are also being drafted to ban forced technological transfer."
• "China’s innovation – the fast-evolving consumer demand patterns, rapidly developing government policies and regulations, increasingly prevalent tech-enabled business innovations, and the emergence of bona fide innovative and competitive local companies – has led many foreign multinationals to the realisation that what they have learned in the West won’t give them an advantage in the local market any more. Their success in China is no longer guaranteed if they rely only on what they already know. They will need to learn how to innovate in China, for China, and also in China for the world – and this won’t be easy for many."

China already started to implement reforms and changes that tally China's own development trajectory with demands from the Trump administration. That's why I was realistically optimistic about a measured outcome by the 2 March dealdine for the current US-China trade negotiations. Click here

However, as I pointed out earlier, trade is only a part of an all-out US strategy to push back against a rising China's threat to a US-led order on multiple fronts, including the South China Sea, military and space technology, Taiwan, human rights, and ideology. So, even with a historic, multi-faceted US-China trade deal, rivalry between the two superpowers is likely to carry on for decades to come. 

US-China trade talks - where to go?

Live TV interview on TRT World (Turkish Radio & Television Corporation World Channel) on 1st February, 2019 

China slams US charges agaisnt Huawei

My TV interview with RT on 29 January.  

How US-China technolgy rivalry is likely to play out in coming years - Huawei and "supersonic trains"

A PowerPoint presentation to the EGN Founding Chairmen's Group in Hong Kong on 11 January, 2019 serves as a backdrop to the growing US-China technology rivalry in coming years. 

Download How US-China rivalry is likely to play out in coming years

Huawei

As regards Huawei, it is a non-listed Chinese company with shares overwhelmingly owned by its staff. It has now overtaken Apple as the world's second largest supplier of cell-phones. It generates global revenue of some US$100 billion, double that of CISCO.  

According to some estimates, the company has built up a commanding position on 5G around the world. More than 45% of its 170,000 employees and 10% of its overall revenue are devoted to R&D. It has set up 16 R&D centers in countries including Germany, Sweden, the US, France, Italy, Russia, India, and China. It supplies 5G routers and switches to some 160 countries worldwide. It accounts for a substantial proportion of 5G's international patents and international 5G standard-setting committees. With a 5-year head start in 5G mobile technology, Huawei's "tdd specification" is claimed to be the best to maximize the potential of 5G. The company has been working very diligently over the past three decades to establish customer trust in quality-price competitiveness and "come hell or high water" customer service reliability around the world. 

Huawei has 350,000 5G stations around China (compared to 30,000 stations in the United States). The average price of its 5G products is a fraction of similar products in the West. This year, dozens of 5G trial locations are being rolled out across the country. 

It seems that the dice for China's global dominance of 5G is already cast, at least according to the hubris in a Japan Economic Times article (in Chinese) of 10 January, 2019. 

Download 日本經濟新聞2019年1月10日有一篇長文專門分析5G霸權爭奪戰

However, Huawei’s ‘Wolf Culture’ Helped It Grow, and Got It Into Trouble, according to a New York Times article of 18 December. In any case, while there is still no smoking gun or concrete evidence of any malicious "backdoors" in Huawei products, the US has now filed criminal charges against Huawei and CFO Meng and is pushing allies to fight against Huawei's perceived threats. 

Supersonic trains

Beyond Huawei, China is slated to be opening up another technology frontier, that of magnetic-levitation supersonic trains capable of traveling at a maximum speed of 4,000 km per hour, multiple times the speed of normal passenger trains, according to news on CCTV 13 and widely-circulated reports such as on Sina.com Click here and here and on Mail Online This technology has been on the cards in the United States and a few other countries including India, but nothing much has hit the ground running.  

According to China Aerospace Science and Industry Corporation (中国航天科工集团), the T-Flight ("Flying Trains") Plan is to advance the operational speed by three stages, with a mid-term target of 2,000 km per hour by 2027, linking China's various major urban clusters and regions into a one-hour commuting economic circle, including both people and goods. If the development proves successful, together with China's Belt and Road Initiative, it would revolutionize traditional concepts of sea power supremacy, paving the way for China's trajectory as an ultra-modern nation by 2050. 

 

 

 

Prospect of a New U.S.-China Cold War

Featuring analyst Ali Wyne of the Rand Corporation, a podcast of 28 January 2019 hosted by the CHINAfrica Project (a non-profit educational initiative founded in South Africa partnering with NGOs in the United States), explains that reference to a new Cold War risks conflating a number of major distinctions from the Cold War with the USSR.

The current confrontation against China springs from a "collapse" of the original hope that bringing China into the global liberal order would eventually result in China becoming more like the West, at least in economic terms. The disillusionment is exacerbated by consensus across the aisle that China's growth so far has been at America's expense, short-changing in level-playing field, reciprocity and intellectual property protection.

Nevertheless, China has largely been branded by the United States as a competitor, albeit an almost peer competitor, rather than an out-right antagonist across the board. This is because (a) there is much more mutual dependence in the global supply and value chain, (b) any rivalry remains largely, though not entirely, economic and technological, rather than mainly military and ideological and (c) there is no ideologically-linked opposing bloc of "communist" nations. The main aim of the current pushback against China remains the creation of "fairer" rules of the game for America to compete with China, apart from a degree of containment of China's assertiveness. 

Additionally, some of the backlash against China is due to the global rise of anti-globalization populism. This is informed by a frustrations and anger of those who feel being left out by the wave of globalization, who feel cheated by the elite and powerful in their respective society. Brexit in the UK and the Yellow Vests in France are echo-chambers of similar frustrations of the grassroots in America, of which Trump is largely an outcome. 

Headlines about China’s weak growth are somewhat misleading

The above is pointed out by a report of The Economist 0n 23 January, 2019. The headlines ignore that China's economy has a much larger base, adding 8 trillion yuan in 2018 compared with 5 trillion yuan in 2007, the year with the fastest growth (14.2%) in recent decades. Moreover, shortfalls in foreign sales were offset by much larger domestic consumption. As for marginal utility of credit, "in 2015 it took more than four yuan of new credit to generate each yuan of incremental GDP. In 2018 that multiple fell to 2.5, in line with China’s average over the past 15 years," the report says. This could mean that Beijing is somewhat less worried about the trade war that it is portrayed to be.