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China Economy

China can best answer Trump’s trade threats by improving its own economy

Zhou Xin says concern about potentially damaging US trade policies should lead Chinese leaders to take stock, and put their own house in order

PUBLISHED : Sunday, 22 January, 2017, 8:00am
UPDATED : Sunday, 22 January, 2017, 6:56pm

Beijing has good reason to worry about Donald Trump. The US president’s threats of a trade war are not empty; they look real after he appointed China critics Peter Navarro and Robert Lighthizer to key trade posts.

A full-blown trade war would be bad news for China. After all, China’s rise to a world economic powerhouse over the past decades has been based on its integration into a US-led global capitalist system. Now, Trump is threatening to unmake it. No country has gained more from globalisation and, accordingly, the stakes are very high for China.

To make matters worse, Trump’s blustering comes at a time when China’s economy is losing its shine. Its double-digit growth rate has long gone; the renminbi has been weakening continuously against the dollar; the country is no longer an ideal place to make things for many companies; and, its image as a promising land with 1.3 billion potential clients is being quickly tarnished by an intrusive state apparatus.

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If there is a silver lining in the gathering storm, it would be this: the challenge could spur Chinese leaders to take stock of what the country has been doing right, and what it can do to help itself – and the world – in the Trump era. As Winston Churchill put it, “The farther back you can look, the farther forward you are likely to see”. Beijing could borrow a few pages from its own recent history to deal with a “hostile” America.

Sino-US ties were volatile in the 1990s when Washington sent aircraft carriers into the Taiwan Strait in 1996 in response to Beijing’s missile firing in the waters around Taiwan, and when bilateral exchanges ground to halt after a Nato bomb hit the Chinese embassy in Belgrade, triggering massive anti-US protests on the streets of Beijing and Shanghai.

Nonetheless, the hostilities did not deter Beijing from opening up its market wider to external investment and seeking membership of the World Trade Organisation. On November 15, 1999, Chinese premier Zhu Rongji (朱鎔基) skipped the Communist Party’s biggest annual economic meeting that he was to preside over, so he could meet visiting US trade delegates to ink a deal on WTO membership.

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China’s determination to be part of the global system has paid off. Its economy is now 10 times bigger than it was in 1999, according to World Bank figures, and the country’s economic might is felt even in the remote corners of the world, from Afghanistan to Angola.

Therefore, the Chinese leadership headed by President Xi Jinping (習近平) should recognise that, since China has gained a lot from open trade, it should honour its promises to open up its home market. It is good that Xi has been taking the stage in international forums, most recently in Davos, to deliver the message that China will continue to open up. But words alone are not enough.

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Xi’s message on opening up is less than convincing when many foreign businesses are experiencing the opposite. The list of complaints from foreign business groups is long. Fifteen years after China joined the WTO, it remains a tough market for foreign businesses. Competition is one reason, of course. But, in many cases, foreign businesses are struggling because the ground rules discriminate against them and favour state-owned companies.

In the lucrative telecom and banking businesses, for instance, the presence of foreign players is negligible. Google, Facebook and Twitter are still blocked in China. Meanwhile, Chinese government bodies and state-owned enterprises have been shutting out foreign vendors, including IBM, Oracle and Cisco, in the procurement of key infrastructure systems and devices. Home-grown alternatives are preferred, ostensibly because of security concerns.

In less-sensitive areas, the winds are turning against foreign businesses, too. Apple’s market share is eroding quickly, and McDonald’s ceded control of its China operations to a state-backed Chinese firm earlier this month.

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Many Chinese businesses are simply off limits for foreign buyers, even though Chinese companies are enjoying a shopping spree abroad. Trump’s allegations that China is “raping” America may be too much, but China should see that some of its practices, such as squeezing foreign firms from the technology sector, are not totally fair.

It is rather embarrassing for China ... that its biggest trading partners do not recognise it as a ‘market economy’

It is rather embarrassing for China, now the world’s biggest trading nation by goods, that its biggest trading partners do not recognise it as a “market economy”.

China should heed Confucius’ instructions about how to deal with allegations of wrongdoing: “Correct mistakes if you have committed them, and guard against them if you have not.” When Trump points a finger at China, retaliation is not the only option.

Meanwhile, Trump’s pledge to cut business tax and woo manufacturers back to the US should nudge Beijing to review its own polices. For years, China has believed that a country’s strength is measured solely by how powerful the state is. It regards its grass-roots manufacturers as disposable low-end businesses, and imposes heavy taxes on businesses, even when costs are rising fast. Chinese entrepreneurs such as “glass king” Cao Dewang (曹德旺) and beverage tycoon Zong Qinghou (宗慶後) are publicly pleading with Beijing to cut taxes.

Whether Beijing likes it or not, Trump is US president. The real danger for China isn’t Trump, but what will happen if its leaders miss this chance to clean up their own house.

Zhou Xin is the Post’s deputy China editor