Chinese Vice-Premier Liu He and US President Donald Trump shake hands after signing the phase one trade deal at the White House in Washington on January 15. Photo: EPA-EFE
by Shirley Ze Yu
by Shirley Ze Yu

Will China stick to the phase one trade deal? That depends on whether it fosters stability

  • Chinese President Xi Jinping staying away from the signing of the deal suggests Beijing is leaving open how far it will abide by it
  • At present, the deal fosters China’s larger goal of stability and does not challenge its economic model, which is veering back towards state control
As the Chinese military classic The Art of War says: “All warfare is based on deception.” Thus, the US-China phase one trade deal will prove to be just a cosmetic act by Beijing. China is feigning trade appeasement to give itself time for structural economic adjustments – its goal is to seize global economic primacy.

At a Peking University forum in November, Justin Yifu Lin, former World Bank chief economist and one of China’s key economic advisers, said: “When will the US concede to China’s success? When China’s [gross domestic product] per capita is half of that of the US and the economy is twice the size of the US.”

Since December 13, when the trade deal was announced, US President Donald Trump has showered the world with hyped-up promises – that he and Chinese President Xi Jinping would be signing the deal themselves; that he would fly to Beijing to start negotiations on phase two. In the end, Trump could neither secure Xi at the signing table nor wrangle himself an invite to Beijing.
China has a number of strategic vulnerabilities with higher stakes than the terms of the trade deal. In a phone call with Trump on December 21, Xi stressed that events in Hong Kong are China’s internal affairs. China’s tough line on Hong Kong handed Taiwan’s incumbent president, Tsai Ing-wen, a landslide election victory.
Meanwhile, the Chinese ambassador to Iraq conveyed Beijing’s readiness to provide military assistance to Iraqi Prime Minister Adel Abdul Mahdi, after the US’ killing of Iranian military leader Qassem Soleimani in Baghdad upset Iraq’s government. Ramping up its massive investments in the Middle East, Beijing promised US$400 billion to Iran alone last September. A China-US face-off in the region looks inevitable.
Iran’s Foreign Minister Mohammad Javad Zarif (left) and his Chinese counterpart Wang Yi shake hands during a meeting at the Diaoyutai State Guesthouse in Beijing on December 31. China promised Iran substantial investments last year. Photo: EPA-EFE
For Xi, there is nothing glorious about the trade deal; he would prefer that the Chinese public forget to ask about it. The quantitative commitments and punitive enforcement mechanisms set forth in the deal are still great unknowns in China.
By delegating the inking of the deal to his chief trade negotiator, Vice-Premier Liu He, Xi frees himself from any association with China’s “ century of humiliation”, when the country was forced to sign treaties with foreign powers. He must remain the invincible dream builder, never the surrenderer.

Liu’s signature on the deal allows for several possibilities – from suspension or revocation of the deal to escalation of the trade war on Xi’s orders.

Will China implement the deal? Maybe, maybe not. “Whether this whole agreement works is going to be determined by who’s making the decisions in China,” US Trade Representative Robert Lighthizer said on an American news programme. Lighthizer surely knows, from when a trade deal faltered in May 2019 on the threshold of it being signed, who ultimately makes the decisions in China. Meanwhile, Trump might end up eating his own words.
US Trade Representative Robert Lighthizer speaks during a House Ways and Means Committee hearing in Washington on February 27, 2019. Lighthizer said America was pushing for a trade deal with China that included “significant structural changes” to the Asian nation’s economic model. Photo: Bloomberg

The world’s two largest powers represent the yin and yang of political statecraft: the US provokes in order to win, China constricts in order to stabilise.

Stability was stressed 29 times in China’s Central Economic Work Conference report in December. The six broad categories of stability for 2020 are employment, finance, trade, foreign direct investment, investment, and growth expectations.

As meteoric growth ends, can China find a way out of its lost decade?

The state-backed Institute of Economic Research at Renmin University predicted at the end of last year that China’s 2020 GDP growth target would be in the 5.5-6 per cent range. Stable growth delivers stable employment, which bolsters the Communist Party’s legitimacy. A trade deal is essential to delivering stability in these two areas.

If the intent of the trade war was to eliminate China’s state capitalism, that outcome has been defeated. China has become more mesmerised by state control and an economic ecosystem decoupled from the US.

That the public sector will continue to dominate the Chinese economy became clear at the fourth plenum of the 19th Communist Party Central Committee in October. “China will make its state economy stronger, better and bigger,” China’s trade negotiator Liu wrote in an article published in People’s Daily.
The Xi era is increasingly predicated on “socialist characteristics”. The government had vowed to eradicate poverty by 2020, a tough socialist battle to win. However, socialist policy continues to deliver on the technology front – 4G services covered 99 per cent of the Chinese population at the end of 2018.

‘Made in China 2025’ 2.0? Beijing aiming to cut reliance on key imports

A statement issued at the end of the Central Economic Work Conference said the country must make contingency plans to cope with economic challenges. These plans would not point China towards greater economic liberalisation, but less.

The economic contingency plan for 2020 will primarily anticipate a technologically and structurally decoupled world order. Government offices and institutions have been ordered to remove all foreign computers and software by 2022. A US$29 billion state-backed fund was created to invest in domestic semiconductor development to reduce the country’s reliance on foreign chips.

The sentiment within China towards the partial trade deal is cold. The contrast between how much the US is talking up the trade deal and how far China has moved beyond it is striking.

Last year, Trump wanted only a “good deal” or no deal at all. In October, he yielded to China’s two-track proposal to the trade negotiations, which draws a line between negotiations on trade and foreign affairs. China’s pragmatic approach saw the US’ principled insistence on addressing structural issues disintegrate.

“The highest art of war is to win without fighting,” says The Art of War. China won’t confront the US or increase hostilities. It will simply chart its course towards economic dominance.

Dr Shirley Ze Yu is a political economist, an Asia fellow at the Ash Centre, Harvard Kennedy School, and a former Chinese national television (CCTV) news anchor

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