Bei­jing’s re­sponse to es­ca­lat­ing trade war needs to fo­cus on long-term needs

Global Times US Edition - - BIZCOMMENT - Page Editor: [email protected]­al­times.com.cn

Amid the es­ca­lat­ing trade war, the US has not only im­posed pu­ni­tive tar­iffs on Chi­nese goods, but also im­ple­mented dis­crim­i­na­tory poli­cies against Chi­nese com­pa­nies. In re­sponse, China has had to take some coun­ter­mea­sures and re­tal­i­ate by in­creas­ing tar­iffs on US goods and com­pil­ing a list of un­re­li­able en­ti­ties that se­ri­ously un­der­mine le­git­i­mate in­ter­ests of Chi­nese com­pa­nies. But in ad­di­tion to these steps, what else should China do?

A re­cent re­port by the Asia Se­cu­ri­ties In­dus­try & Fi­nan­cial Mar­kets As­so­ci­a­tion (ASIFMA) may of­fer an an­swer. The re­port urged China to ac­cel­er­ate the re­form of its cap­i­tal mar­kets, re­lax for­eign own­er­ship rules, and cre­ate a

level play­ing field be­tween do­mes­tic and for­eign com­pa­nies. It also said that even if the trade war trig­gers con­cerns about cap­i­tal out­flows and the yuan de­pre­ci­a­tion, China should still re­lax cap­i­tal con­trols. “The Chi­nese au­thor­i­ties are well aware that they need to cre­ate trans­par­ent, non-dis­crim­i­na­tory ac­cess to the mar­ket and not al­low pol­i­tics to in­flu­ence its pol­icy de­ci­sions be­cause that ac­tu­ally un­der­mines ev­ery­thing they are try­ing to do to­ward de­vel­op­ing their fi­nan­cial mar­kets,” ASIFMA CEO Mark Austen was quoted by Reuters as say­ing.

It is worth not­ing that since an­nounc­ing plans to fur­ther open up the fi­nan­cial in­dus­try in April 2018, China has made con­tin­u­ous break­throughs in this re­gard. On Novem­ber 25, 2018, the China Bank­ing and In­sur­ance Reg­u­la­tory Com­mis­sion an­nounced that Al­lianz (China) In­sur­ance Hold­ing Co would be China’s first ever in­sur­ance com­pany wholly owned by a for­eign in­surer. Re­cently, the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion

ap­proved the pur­chase of stake in Mor­gan Stan­ley Huaxin Fund Man­age­ment Co by Mor­gan Stan­ley, which there­fore made it the top share­holder of the fund man­age­ment com­pany.

While the ASIFMA re­port may only fo­cus on how China should open up its mar­ket un­der trade war pres­sure from the per­spec­tive of the fi­nan­cial in­dus­try, the same ap­proach can be ap­plied to the rest of the Chi­nese econ­omy. Since China’s ac­ces­sion to the WTO, it be­came part of the global di­vi­sion of la­bor to be­come the world’s fac­tory with its com­par­a­tive ad­van­tages. At present, as China is tran­si­tion­ing from a “world fac­tory” to “world mar­ket,” it needs to fur­ther open up its do­mes­tic mar­ket to al­low more com­pa­nies to en­ter and to use in­ter­na­tional cap­i­tal to fur­ther im­prove it. Only in this way can it with­stand the down­ward pres­sure on the econ­omy and al­low in­ter­na­tional cap­i­tal to share the div­i­dends of the Chi­nese mar­ket, thus sta­bi­liz­ing and at­tract­ing cap­i­tal in­flows.

It is ur­gent that China cope with the cur­rent trade war; how­ever, it has also be­come clear that the com­pe­ti­tion be­tween the US and China will be a long-term and com­pli­cated one. For this rea­son, China should have more long-term plans and ar­range­ments in place. While deal­ing with the trade war in the short term, all the re­forms, ad­just­ments and innovation­s made to­day should go be­yond the trade war, tak­ing into con­sid­er­a­tion China’s long-term de­vel­op­ment needs.

Re­cently, China said that it will estab­lish a list of un­re­li­able en­ti­ties, which will in­clude for­eign com­pa­nies, or­ga­ni­za­tions and in­di­vid­u­als that do not com­ply with mar­ket rules, vi­o­late the spirit of the con­tract, block or cut sup­plies to Chi­nese com­pa­nies for non-com­mer­cial pur­poses, and se­ri­ously dam­age the le­git­i­mate rights and in­ter­ests of Chi­nese com­pa­nies. Some ob­servers have sug­gested that the cur­rent ap­proach is tar­geted at US com­pa­nies, as a form of re­tal­i­a­tion by China. But it should also be pointed out that mar­ket rules and the spirit of the con­tract should be the rules that all com­pa­nies abide by. Ac­cord­ing to past sur­veys, trans­parency, the rule of law, and a pre­dictable mar­ket en­vi­ron­ment are what for­eign com­pa­nies want most in an in­vest­ment en­vi­ron­ment. Ob­jec­tively speak­ing, the do­mes­tic mar­ket still lags behind that of de­vel­oped coun­tries in these as­pects. And these are ex­actly the is­sues that China needs to im­prove upon in the con­text of the trade war.

Amid ris­ing anti-glob­al­iza­tion sen­ti­ments, the world is ex­pected to un­dergo changes against the back­drop of the trade war, and China needs to be pre­pared for fu­ture long-term de­vel­op­ments. In this sense, it needs to main­tain the re­solve of re­form and open­ing-up, while also hav­ing the abil­ity to im­ple­ment them as well as the sys­temic im­prove­ments. China’s re­form and open­ing-up should go be­yond the Us-china trade war to fo­cus on how to get along with the whole world in the fu­ture, how to help the open Chi­nese mar­ket main­tain long-term at­trac­tive­ness to for­eign in­vest­ment, and how to make China bet­ter rec­og­nized as a big coun­try with glob­al­iza­tion re­spon­si­bil­i­ties. The ar­ti­cle was com­piled based on a re­port by Bei­jing-based pri­vate strate­gic think tank An­bound. bi­zopin­[email protected]­al­times.com.cn

Il­lus­tra­tion: Luo Xuan/gt

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