CHINAwatch

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 proposed "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". 

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".  

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. 

"China scrambles to sustain its trade truce with America"

So says The Economist of 18 December. On the same date, reporting on President Xi Jinping's speech on the 40th Anniversary of China's reform and opening-up, the The New York Times points out that whilst concessions are on the cards, China will stay its own course of development under the well-proven guidance of the Communist Party.

Judging from China's remarkable achievements under the Communist Party's watch during the past 40 years, President's Xi's confidence is understandable. Witness the staggering contrast in living standards enjoyed by China's people and society in images presented by the BBC and the South China Morning Post (SCMP)

Indeed, there are not-so-subtle references in President Xi's speech to self-proclaimed masters teaching an ancient nation with an astonishingly successful transformation during the past 40 years how to suck eggs. There are also pledges of never seeking world hegemony and continuing reform and opening-up but at China's own space and choosing. Evidently, the leadership remains wary of the spectre of collapse of the former USSR by blindly following an American "shock therapy" trying to change everything from economics to politics within 500 days

While the trade war has yet to play out its full havoc, not least to the world economy, according to Caixin, China's internationally-respected economic publisher, a worse--case scenario is likely to knock off up to 1.5% of China's GDP growth. Whilst this may not be a life-and-death matter, in the midst of a host of domestic and international challenges, it certainly is an unwelcome prospect.

Most of the changes demanded by the US, such as intellectual property protection, creation of a more level-playing field for foreign businesses, and buying more American goods and services, tally with China's own development trajectory. However, as evident from President Xi's speech, China will not give up its model of mixed state capitalism anytime soon. 

In any case, rhetoric and hubris are no substitute for real progress. It's pointless to win brownie points at every turn of events. It's better for China to tune down proclaimed ambitions such as the "Made in China 2025" plan, even as China continues its drive to upgrade technological capabilities, perhaps in cooperation (and competition) with the West. 

With China's political model, time is very much on China's side. After all, realizing China's Two Centenary Goals of building a modern China and a global "Community of Common Destiny" will take many more decades. Even a 360-degree push-back against China is unlikely to derail China's long-term trajectory. Click here 

So there is a real chance that, the Huawei saga notwithstanding, China will keep its head down, keep calm and carry on. This augurs well for a reasonable settlement with the United States over the trade war, even as long-term competition and rivalry remain. 

China-America tensions heat up: Huawei CFO faces extradition to US

 Live interview with RT on 6th December, 2018. 

Interviews with Aljazeera and RT on US-China trade war and long-term rivalry before and post G20 Summit

With Aljazeera English Channel on 1 December, 2018. 

With RT International on 2 December, 2018. 

The Trade War and Sino-US relations

Radio Hong Kong's Backchat live panel discussion on 5 November, 2018 looks at the dynamics of the trade war and shifts in future Sino-US relations. (My input runs from time-counter 20:59 to 27:43 in the Full series.)

View this photo

Trade, People, and Money: Understanding China's Unique Capabilities

Stephen Olson, Hong Kong-based research fellow of the Hinrich Foundation, in an article of 24 October, 2018 in The American Prospect, a liberal magazine based in Washington D.C., suggests that the West, (particularly the United States), needs to  negotiate a modus vivendi with China's very different economic system and unique global capabilities in trade, peoples and money, "to pursue national objectives and shape it relations—economic, trade, strategic, and diplomatic—with other countries and multilateral institutions." This may well be pivotal in helping to shape a looming Chinese Century

The Chinese Century is well under way: Many trends that appear global are in fact Chinese

An infographic of The Economist (27 October, 2018) shows that -

• Chinese economy in PPP terms became the world’s largest in 2013;
• Its GDP per person at PPP has risen tenfold since 1990;
• Because China is so populous and is developing so quickly, it is responsible for a remarkable share of global change. Since the start of the financial crisis in 2008, for example, China has accounted for 45% of the gain in world GDP;
• In 1990 some 750m Chinese people lived in extreme poverty; today fewer than 10m do. That represents two-thirds of the world’s decline in poverty during that time;
• China is also responsible for half of the total increase in patent applications over the same period;
• China’s record has exerted a “gravitational pull” on the world’s economic output, tilting it towards the East;
• The People’s Liberation Army accounts for over 60% of the total increase in global defence spending since 1990;
• China is also the source of 55% of the increase in the world’s carbon emissions since 1990.

The infographic, however, does not capture the reality that China now sits at the centre of a global supply and value chain. Even if not made in China, many goods have imbedded a Chinese component in terms of materials, parts, logistics or trade. Many countries across the globe depend significantly on Chinese trade and investments.

This global centrality will intensify with China's Belt and Road Initiative, driven by Policy, Infrastructure, Trade, Finance and People-to-People Connectivity, covering 64 countries representing 62% of world population and 30% of world GDP with potential investment $5 trillion, many times the size of the post-war Marshal Plan in comparable money-of-day terms.

According to a McKinsey Global Institute Report of September, 2018, emerging economies (of which the Chinese economy is bigger than the rest of the BRICS combined), have accounted for almost two-thirds of the world’s GDP growth and more than half of new consumption over the past 15 years. This translates into a declining relative share of global GDP contributed by the United States, its recent positive growth notwithstanding.

Taking into account all of the above, it seems unlikely that the "Chinese Century" scenario will be reversed, America's current 360-degree pushback against China notwithstanding. 

However, it begs the question how a transition into a possible Chinese Century could be benign. China's state-directed capitalism and authoritarian regime are not everybody's cup of tea. Helping to shape a benign transition into a World Order of global appeal may well call for negotiating a modus vivendi with a now-wide-awake giant with unique capabilities to shake the world.