Concerns over Chinese trade reaching crescendo

AROUND the world, concerns are mounting about China’s unfair trade a nd i nvest ment pr ac t ic e s. How Donald Trump responds could have a far-reaching impact on the global economy and financial markets.

Trump has threatened to declare China a currency manipulator, but experts say he has little legal or economic basis to take such a step. He has also threatened to impose a tariff of up to 45 percent on Chinese imports if Beijing doesn’t “behave”, a move that could lead to a trade war and damage the economies of both nations.

Yet he is not alone in sounding the alarm about unfair competition and a playing field sharply tilted in China’s favour. And there are plenty of options on the table if he wants to show he is tougher than his predecessor.

The American Chamber of Commerce in China, which usually is very measured in any criticism of China, complained this month about a rise in protectionism and “economic hegemony”, with doors closing to foreign investment, regulations biased against foreign companies and new national security-related laws breeding “distrust and paranoia”.

The United States “needs to raise its game with the Chinese to drive for a sense of urgency” in dealing with these issues, it said.

But it is not just the treatment of foreign companies in China, and their lack of access to the Chinese market, that has raised tensions.

Chinese companies are also engaged in a state-sponsored buying spree of foreign companies, diplomats and experts say, in sectors identified by the government as key to an industrial modernisation strategy known as Made in China 2025.

China has been using the state’s vast financial resources to buy key foreign innovation and technology, often in sectors where the Chinese economy is closed to inward investment.

Currency manipulator

So as US investment into China slowly declines, Chinese investment into the US has surged, overtaking money going the other way for the first time in 2015, according to a new report by the Rhodium Group, an economic research consulting firm.

It is a similar story in Europe. Trade tensions between China and Germany have ratcheted up this year.

Ambassador Michael Clauss talks of an “unprecedented wave” of complaints by German companies about the problems of doing business here, and a “definite rise in protectionism” – at the same time as China pours billions of dollars into buying German firms, including several of its most innovative high-tech companies.

That has raised concerns in Berlin about national security and Germany’s ability to innovate in the future.

In Washington this month, the USChina Economic and Security Review Commission recommended changing US law to bar state-owned Chinese companies from buying US firms.

To judge China a currency manipulator under US law, the Treasury Department would have to determine that it runs a “significant” bilat- eral trade surplus with the US, a “material” current account surplus, and is “engaged in persistent onesided intervention in the foreign exchange market”.

Although China has by far the largest trade surplus with the US of any country – $356 billion in 2015 – its current account surplus is under 3 percent of gross domestic product, and it has actually been intervening to prop up its currency, not depress its value.

In other words, it met only one of the three criteria last year, the Treasury Department reported.

Across-the-board punitive tariffs are unlikely, not least because they would invite likely Chinese retaliation that could bring down entire industries, experts said. But specific measures are possible in specific industries.