Changing times call for flexible policy
Expectations have played an important role in decision-making in the trade row between China and the US. The irrational expectations of some American politicians involving the Chinese economy are an important driving force behind the US’ tough policy in the conflict.
The Chinese economy this year has maintained general stability but with slowing growth quarter after quarter. Such cyclical economic fluctuations, combined with the American populist mentality, will inevitably deepen US politicians’ pessimism for the Chinese economy, leading to increasing difficulties and resistance in addressing China-US trade spats and even creating pressure on China during the negotiation process.
While China and the US reached a consensus on a trade war truce on the sidelines of the G20 summit, it doesn’t mean their trade dispute has been solved. On the contrary, uncertainties persist. In particular, the US side has set high demands with regard to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cybertheft, services and agriculture. Therefore, differences and friction in these areas may persist for a long time.
Given this situation, it’s crucial to change the irrational expectations of US politicians when it comes to China’s economy. Abandoning these views, or at least modifying them, will help the US government make a more realistic judgment about the Chinese economy and help it realize that it is difficult to force China to succumb to US pressure. In that case, the US will make fewer or no outrageous and dangerous moves, and it will return to rational ways of dealing with the issue.
Changing expectations requires convincing the US side, as well as managing expectations in terms of timeliness, transparency and relevance. But expectation management is not just about propaganda – it should also be based on reality. Now and in the future, the key to changing the irrational expectation of US politicians is to do China’s own thing well, with the focus on reform and opening-up, as well as expanding domestic demand.
For China, the top priority at present is to further expand opening-up and deepen reform. In line with its commitments, the government needs to accelerate the opening-up of its financial sector. It should also continue to expand the opening-up of China’s services sector. Especially in the areas of technical transfer and intellectual property rights, the government needs to implement a management system that is in line with international practices as soon as possible. In the meantime, China should do more to reform its economy, especially in fields where reforms are difficult to implement and progress is limited – fiscal and financial issues, State-owned enterprises, rural affairs, the services sector and the housing system. Effective reforms can eliminate disadvantages, enhance economic vitality, improve productivity and support economic growth. Moreover, China could also demonstrate to the world its determination to keep pace with the times and make changes through reform.
The years 2019 and 2020 will be crucial for US President Donald Trump if he decides to seek re-election. It will be important for his administration to satisfy voters on economic issues. In this context, Trump isn’t likely to make some big move that would harm the US economy, while at the same time he’ll keep striving to gain more benefit from international economic transactions.
If the Chinese economy performs steadily with mediumand high-speed growth, dissipating pessimistic expectations, US politicians’ toughness in trade policy with China and its hardline policy will be weakened. Thus, China could make fewer concessions in negotiations and achieve more benefits at a lower cost. Economic stability can embolden China in negotiations. For this reason, it is crucial for China’s
Our thinking, energy and resources should focus on stabilizing the economy. Changing opponents’ expectations will win China new room for development.
economy to maintain steady growth in the coming years.
To maintain stable GDP growth, it is also important to explore domestic demand, implement a proactive fiscal policy and expand financial support. There is still much scope for infrastructure improvement, so the Chinese government should speed up the launch of infrastructure projects. Authorities need to life bank credit to promote growth in infrastructure investment to 10 percent to 15 percent in 2019.
Excessive administrative restrictions imposed by some cities on property transactions should be reduced appropriately, with appropriate increases in land supply in some cities, to maintain a reasonable boosting effect of real estate on consumption.
According to China’s financial resources and actual needs, its deficit ratio could be raised to more than 3 percent in 2019, so that fiscal policy can really play a more active role. The GDP growth target in 2019 could still be set at about 6.5 percent to stabilize domestic expectations and boost confidence.
With intensified external pressure coupled with a complicated situation, China must make policy adjustments. Our thinking, energy and resources should focus on stabilizing the economy. Changing opponents’ expectations will win China new room for development.
The author is chief economist with Bank of Communications. bizopinion@globaltimes. com.cn