Trump to demand changes in China’s economy

BEIJING — Before his first year as leader of China was out, and three years before Donald Trump was elected president of the United States, Xi Jinping laid out a historic vision for market forces to rule the $13 trillion Chinese economy.

Now, Trump is demanding Xi finish the job, making a sweeping overhaul of China’s economy a key condition for ending the U.S.-China trade war. As Trump’s negotiators, led by trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, sit down with their Chinese counterparts for a second day of trade talks Friday, U.S. demands for such structural reforms will be at center stage.

During a Chinese Communist Party conclave in November 2013, Xi declared that he would restructure the economic system “to let the market play the decisive role in the allocation of resources.” Although he reiterated the party’s commitment to socialism, Xi’s pronouncement was viewed as an epochal moment for China.

“After the Third Plenum, there were a lot of great expectations — albeit unrealistic — that the state was finally going to retreat and the market would thrive,” said Jane Golley, head of the Australian Center on China in the World at Australian National University, referring to the meeting by its official name.

But today, just a year before the event’s 330-plus major reforms are scheduled to be completed, the Third Plenum symbolizes the gap between Chinese promises and performance. It also shows how Trump’s hopes of winning genuine structural changes in China’s economic model are colliding with the entire thrust of Xi’s rule, which has focused on bolstering Beijing’s role in the economy while preserving party control.

Securing Xi’s assent to abandon the economic model that lifted China from Maoist impoverishment to become the world’s fastest-growing major economy would be a major success for Trump.

But few analysts anticipate such an outcome. China has made genuine progress in only two of the 10 areas where it has promised reforms: innovation and environment. On labor, land, fiscal affairs, competition and state-owned enterprises, it has regressed, according to an analysis by Rhodium Group for the Asia Society Policy Institute.

Reforms of the kind that Xi envisaged in 2013 — and that Trump wants now — are hard for the party to push through as the economy slows. Growth decelerated to 6.4 percent last year, and a state-run paper this week warned it could sink to 6 percent in 2019.

“Xi wants to steer the economy toward a high-tech and dominant position,” said Barry Naughton, an expert on China’s economy at the University of California at San Diego. “But when it comes to paying any kind of cost in terms of reduced growth rates or, even worse, any kind of economic turbulence, he seems quite ready to step back.”