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China economy

Chinese researchers call for more reform and opening up to avoid escalation of trade war

  • Some Chinese officials have adopted a ‘war mentality’ that is damaging investor confidence and market sentiment, analyst says
PUBLISHED : Friday, 21 December, 2018, 5:57pm
UPDATED : Friday, 21 December, 2018, 10:48pm

Beijing should refine its strategy for its upcoming trade talks with Washington by making substantial domestic reforms and further opening up its economy, to prevent tensions from spilling over into non-trade sectors and plunging the world’s two largest economies into a long-term rivalry, a group of state researchers said on Thursday.

The suggestions, made at a conference at Renmin University, came ahead of expected formal trade talks in January and amid a 90-day truce in the tariff dispute negotiated by Chinese President Xi Jinping and US President Donald Trump.

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There is still considerable doubt that a trade deal can be reached by the March 2 deadline, as many thorny topics, including the protection of intellectual property rights, forced technology transfers, the “Made in China 2025” hi-tech industrial strategy and state subsidies for domestic industries, have yet to be tackled.

The difficulty of reaching a deal was underlined on Thursday when the US Department of Justice accused China of a broad campaign of cyber espionage to gain commercial advantage.

Qu Fengjie, head of the external economy research institute at the National Development and Reform Commission – China’s top economic planning agency – said the trade war actions by the US, such as putting tariffs on US$250 billion worth of Chinese goods and increasing scrutiny of Chinese deals, were partly due to the “blind confidence” of Beijing officials, citing in particular comments by high-profile advocates about the country’s “Belt and Road Initiative” in state media.

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But the attitude of those same officials had now become a “war mentality”, fuelling market dismay since the two nations began their tit-for-tat tariff dispute, she said.

“We were relatively slow to foresee [the US actions] … and underestimated [the Trump administration’s] determination. Also, policy support was not well prepared,” Qu said.

Washington’s criticism had also exposed vulnerabilities in the world’s second-largest economy, such as the bottlenecks in basic scientific research, she said.

“We must listen [to foreign criticism] and reflect on the shortcomings of our opening up. To move ahead with real reforms and opening up is one of the solutions.”

Di Dongsheng, deputy dean of the school of international studies at Renmin University, said that placing large orders for American goods alone would not be enough convince the US to lift its tariff threat. Beijing must focus on what Trump really wanted, he said.

“It wasn’t until September that [Chinese] decision-makers realised previous countermeasures were wrong,” he said.

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Beijing’s retaliation, including putting hefty tariffs on US soybean farmers in states that supported Trump in the 2016 election, escalated tensions and increased the burden on domestic buyers. As part of China’s efforts to restore mutual trust, state-owned China Grain Reserves Corp said on Wednesday it had resumed buying of US soybeans.

Zong Liang, chief researcher with the state-owned Bank of China, said the Chinese government should seek to confine its dispute with the US to economic and trade issues to avoid a full-scale rivalry.

It should maintain the steady growth of the national economy and prevent systematic financial risks caused by cross-border capital flows, he said.

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Qu, who helped draft the trade war countermeasures employed by the Chinese government, said that according her calculations, the direct impact of the trade war on the Chinese economy had so far been limited. The tariffs had trimmed just 0.18 percentage points from the growth rate of gross domestic product, while unemployment had risen by 0.14 percentage points, or 1.1 million workers.

But the damage done to investor confidence and market sentiment was much worse, she said, even before the possible extension of trade tariffs to all Chinese goods imported by the US.