NOT SO FAST
Don’t be fooled by the sweet talk: China’s trade goals haven’t changed,
It appeared early this week that China and the U.S. were engaged in a remarkable “climb-down” from a global trade war they had been poised to launch.
But for all the dramatics Tuesday, when the heads of state of the world’s two largest economies exchanged conciliatory remarks that defused trade tensions, nothing has changed in China’s ambition to achieve global technological dominance this century.
To be sure, the Chinese president, Xi Jinping, recommitted Tuesday to earlier pledges to address a range of irritants in China’s trade practices and economic-development strategies. Those irritants afflict not only the U.S., but Canada, the EU, Australia and other major exporting countries.
China has now pledged to further open its financial sector to Canadians and other foreigners by year-end. Xi also committed to slashing tariffs on auto imports, granting foreigners greater access to the world’s biggest vehicle market. And Xi suggested that China would be more respectful of intellectual property rights, ease away from demanding technology transfers from foreign companies seeking Chinese market access, and that the percentage of Chinese ownership in foreign enterprises in China would be lowered.
Within hours, Donald Trump, the U.S. president, reacted to Xi’s landmark speech with exuberance.
“Very thankful for President Xi of China’s kind words on tariffs and automobile barriers,” Trump tweeted. “Also, his enlightenment on intellectual property and technology transfers. We will make great progress together!” What a turnaround. Just last week, Trump threatened Beijing with approxi- mately $150 billion (U.S.) in new tariffs against Chinese imports. And China retaliated with a threatened $50 billion of tariffs on U.S. imports. Not for the first time, Xi depicted himself Tuesday as a champion of free trade. He lectured Trump on the ills of his “America First” policy, though without naming it.
Xi said: “Paying attention only to one’s own community without thinking of others can only lead to a wall. And we can only achieve win-win results by insisting on peaceful development and working together.”
But Xi’s self-depiction as a free-trade champion is a bit rich. As Britain did in the first Industrial Revolution, followed by America and repeated by postwar Japan, China has used a protected domestic market to nurture fledgling home-grown industries.
Also like those earlier economic empires in their infancy, China has made liberal use of government subsidies to create and prop up basic industries and advanced, specialized ones. For instance, China now leads the world in solar-panel technology.
The hypocrisy runs both ways, of course. There’s not much difference, and none in principle, between the protectionism by which China is bulking up its industrial and technological prowess and John A. Macdonald’s protectionist National Policy of the late 1800s. Or the current era’s repeated Canadian and Quebec bailouts of Bombardier Inc. Airbus SE was created by a European state consortium. The early U.S. aerospace industry was suckled on U.S. Mail contracts, and today relies on Pentagon orders.
And the Trudeau government’s plan to create advanced technology “superclusters” across the country to achieve global leadership in selected 21st-century industries bears striking resemblance to Beijing’s ambitious “Made in China 2025” strategy.
Trump’s most voluble com- plaint with China is its large trade surplus with the U.S. But that’s not Trump’s biggest gripe, just the easiest one to convey in scapegoating China for the loss of U.S. industrial jobs that in fact have been replaced by robots.
No, the sharpest thorn in Trump’s paw is “Made in China 2025,” the Beijing subsidization of 10 selected hightech industries. China seeks to be globally competitive in those sectors by 2025, just seven years hence, and globally dominant by 2050.
Those industries include aerospace, biotechnology, robotics, advanced container shipping and rail-systems technology (Bombardier’s bread and butter), agricultural machinery, alternative energy production and self-driving vehicles.
Separately, China is committed to becoming the world leader in artificial-intelligence (AI) technology by 2030.
You guessed it: global AI leadership is the mandate of one of Trudeau’s planned superclusters.
China is surprisingly transparent about its “2025” ambitions, detailed on an Englishlanguage website.
This week’s apparent Chinese climbdown is encouraging, of course.
But there’s a risk that in some quarters the Chinese might appear no longer determined to shift the world’s economic centre of gravity away from North America and Europe to the Pacific Rim. That goal has not changed. No matter the conciliatory things it says, Beijing is going to ramp up, not relax, its determination to boost prosperity at home and exert increased influence abroad.
China is to be lauded for its ambitions, which promise R&D breakthroughs that will benefit the world. Besides, there are no alternatives to China’s current course. China’s industrial revolution has so far lifted about 400 million people from peasantry to the middle class, one of the greatest achievements in human history. But China still has another 400 million destitute people to raise from poverty.
Xi has been careful to not attach deadlines to his promised trade and other reforms. In fact, Tuesday’s pledged Chinese reforms echo promises he made more than a year ago at the Davos summit.
“We’ve heard these pledges (from Xi) time and time again,” John Burns, professor emeritus at the University of Hong Kong, told Bloomberg News this week.
“There’s a ‘pledge fatigue’ setting in with China.”
In fairness, even if China embarked on a policy of becoming more “Western-friendly,” transformational changes to an $11-trillion Chinese economy, five times larger than Canada’s, simply cannot be made quickly enough to appease Trump, Japanese and EU leaders.
For example, it’s likely China will only gradually reduce its steep 25-per-cent tariff on imported vehicles. It will continue emulating a postwar Japan that was also a closed auto market until its homebuilt products were of sufficient quality to crack North American and European markets.
For now, don’t expect much change to a Chinese vehicle market that is 95.8 per cent supplied by Chinese automakers.
And the promised increased access by foreigners to China’s financial sector will be limited to the likes of insurers, accounting services and mutual-fund vendors. It does not mean the red carpet will be rolled out for the Bank of Montreal and Deutsche Bank.
Again like postwar Japan, China is a centrally planned economy that uses its stateowned banks to direct capital to industries and R&D of high national priority.
Make no mistake, China is rapidly evolving. Emerging only a few decades ago from millennia of isolation, China is listening and reacting to outside influences.
And at least we’re speaking the same language. A Chinese president whose vocabulary includes Western clichés such as “win-win” would be welcomed as a keynote speaker at any Rotary Club in Canada.