China must focus on itself
The US-China trade war will be a protracted war, and there are no signs of a slowdown or end. There are at least three reasons for that.
First, the aggressive attitude of US President Donald Trump regarding China will not change in the short run. Current policies dealing with China are not formed by Trump himself.
There are four people setting Trump’s China policy. White House Director of Trade and Industrial Policy Peter Navarro is Trump’s tariffs booster. The only dove – Treasury Secretary Steven Mnuchin – is turning more hardline. US Trade Representative Robert Lighthizer insists on putting sanctions on China. The last one is Lawrence Kudlow, director of the US national economic council. In all Congressional hearings, their attitudes toward China have been tougher and tougher.
Second, the difference between the US and China is a divergence on path. The US has taken China’s growth and development as a threat. The US government aims to check mercantilism in China. The Trump administration aims to abandon passive measures and adopt more progressive measures to force China to abide by the “rules.”
Behind these so-called rules is discontent with the global governance system centered on the UN. Trump has been threatening to withdraw the US from international organizations. The intention of these withdrawals is to form a new set of rules and new mechanisms. NAFTA, for instance, was changed to USMCA.
China, on the other hand, has been giving full support to international organizations such as the UN, WTO and IMF by sending more staff, making more contributions and shouldering more responsibilities. China has been actively playing a role in peacekeeping missions, fighting the ebola virus and participating in natural disaster search and rescue. It appears that Trump is threatening to leave these organizations. But he is in fact making a step forward and setting up a new order.
Third, the trade friction will have limited effects this year. Demand in the US market is still growing, and importers and exporters on both sides are getting ahead and making shipments before the tariffs take effect. Plus, the overall economic situation is still stable. The GDP growth rate in China this year will remain at 6.5 to 6.6 percent.
But next year can be rough. How to deal with it? The answer would be to accelerate the reform and opening-up process. The policies launched for small and medium-sized enterprises and the private sector should be better implemented. There is still work to be done on that front.
As for trade, provinces in South China can fully explore their advantages to step up foreign trade. In the 1990s, the GDP of the island of Taiwan was equivalent to almost 50 percent of the entire Chinese mainland. Now, 12 provinces’ GDP has surpassed that of Taiwan.
For instance, South China’s Guangdong Province started by producing daily goods and kept upgrading to make electronic devices. The prosperous manufacturing industries in Guangzhou not only help with local fiscal revenue, they are also able to transfer production and processing to western China to help with employment and development there. To replicate the success of Guangzhou, China has to further open up with a faster pace of reform in cities and metropolitan areas.
China has more opportunities down the road as well. The UK would like to extend its services sector, including financial institutions and banks, to China. China and the UK are natural partners for building a free trade zone.
Japanese companies have a strong demand to explore the Chinese market. The bilateral relationship has warmed up as Japan changes its attitude. The two sides have agreed to cooperate in third-party markets and renew the currency-swap deal.
Next, China will work out the upgrading of a China-South Korea free trade zone and China-ASEAN free trade area. China-African trade volume is expected to reach $400 billion, according to the action plan of the Forum on China-Africa cooperation. The EU is China’s second-largest trade partner following the US, and it has the potential to replace the US. All things considered, these countries and regions can definitely fill the gap in China-US trade.
Looking forward, the overall trend is still positive. First, Trump may not be able to withstand pressure from many interest groups. Enterprises, semiconductor associations, medical equipment associations and think tanks hope China will do something to alleviate their difficulties. The booming US economy has nothing to do with imposing high tariffs.
Second, many countries and regions are ready to grab a slice of the Chinese market. China does not need to worry. As we continue to expand exports and imports, foreign trade will easily maintain double-digit growth.
Third, next year is an important time for structural reform as well. The provinces and regions that make the first moves will gain the largest advantages. Talent is important in this process. Companies like Alibaba are capable of expanding their businesses to Africa. The smart grid and electronic payments alike can be promoted in European countries.
China needs to focus on itself, ensuring employment (especially for college graduates), encouraging innovation and entrepreneurship, opening the financial sector and so on. More opening policies will be announced by the end of year.
The author is a former Chinese vice minister of commerce and executive deputy director of the China Center for International Economic Exchanges. bizopinion@globaltimes. com.cn