US-China trade war: Opinion

Open debate needed to find the best path for economic reform in China

A rising tide of nationalism spurred by trade tensions with the United States has added to the internal resistance for further economic reform. But the threat of a full-blown trade war may ironically be what pushes Beijing into considering change

PUBLISHED : Monday, 14 May, 2018, 7:00am
UPDATED : Monday, 14 May, 2018, 7:00am

The case for further landmark reform and opening up in China is being frustrated by internal resistance. A rising tide of nationalism spurred by trade tensions with the United States has not helped.

Ironically, however, the threat of a full-blown trade war could make a difference, by raising pressure on the government to address meaningful reform just when opposition to it is increasing.

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A Chinese government adviser has warned the looming threat could actually push Beijing into reviewing its industrial and economic policies and considering further reform. Lu Feng, an economics professor who had a role in the now-stalled Comprehensive Economic Dialogue with Washington and still advises the Ministry of Finance, was speaking ahead of the next round of trade negotiations.

With Vice-Premier Liu He expected in Washington this week, Lu said it was time China reconsidered its economic strategy and the trade conflict gave pause for reflection.

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In talks with an American delegation in Beijing earlier this month, China ruled out compromise on its plan to support an industrial upgrade embracing advanced technologies or agreeing to US President Donald Trump’s demand to lower the trade deficit by US$200 billion by 2020.

With responsibility for scientific and technical development as well as trade negotiations, Liu He has a complex brief. If he were to make concessions to US demands to change industrial policy, radical nationalists would brand him a traitor.

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But many Chinese economists and scientists consider demands for China to make a so-called great leap forward in technology and science, including talk of developing its own computer chips, counterproductive to sustainable growth.

Rising nationalist sentiment underlines the need for a more rational approach. It is all about how to adapt to external pressures to forge a stronger economy and guard against nationalism that conflicts with a free-trade agenda.

Lu said China may need to consider a new round of systematic reform such as that in the 1980s as a way to address concerns in the US and developing countries about its economic policies.

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“While many people think we should strengthen government support [in an industrial upgrade] there are also some who think China should allow free competition in the market and protect intellectual property,” Lu said.

There were similar debates before China joined the World Trade Organisation, but those pushing for opening up prevailed and the economy became stronger through external pressure.

China clearly faces difficulties in planning the way forward for economic development. Intensive open debate, especially on a controversial industrial policy that divides economists, is the healthiest way of narrowing differences and dealing with them.