Trade war: phase one deal raises hopes China will rekindle economic reforms 18 years after joining WTO
- A phase one trade deal with the US could invite necessary external pressure for Beijing to speed up opening and liberalisation, analysts say
- The deal announced last week has prompted comparison with goals China was required to meet in order to join the World Trade Organisation (WTO) in 2001
The phase one trade deal between China and the United States has raised hopes that it will create fresh impetus for Beijing to speed up long-delayed market opening and economic liberalisation measures, analysts said, some of which were first mooted 18 years after the country joined the World Trade Organisation.
The deal has immediately eased trade tensions in the China-US relationship and brightened prospects of global growth, and a few analysts in China say the truce could bring long-term changes to the domestic economy that would be as significant as those ahead of the country’s WTO entry, which created the conditions that powered China’s rise into an economic superpower.
[The deal] would mark significant progress in China’s reform and opening up and has as much importance as China joining the WTO if the deal is implemented
“China has finally decided to turn pressure into action to greatly speed up long-delayed reform and opening up progress … to push aside the conservative establishment and the leftist ideological school,” Ren said.
By agreeing to the deal with the US, China has “corrected its course and won a once in a thousand-year opportunity for economic and social transformation”, Ren added.
In an article about regional economic development published two days after the deal was announced, Xi wrote that China had to tolerate regional imbalances and allow economic activities to be concentrated in a few big city clusters, negating Beijing’s traditional view that all regions must be developed in an even-handed manner to a similar level.
The Chinese government has not yet confirmed any of the deal’s numerical goals announced by the US, but Beijing is trying to highlight that the deal would be conducive to China’s market reforms.
“[The deal] is generally in line with China’s direction of deepening reform as well as China’s inherent demand to promote higher-quality economic growth,” said Liao Min, a vice-finance minister and an aide to Vice-Premier Liu He on Friday as the deal was announced.
“Whether the deal is good should be judged by businesses and the market … the positive reactions to the deal in domestic and overseas capital markets have already given a clear answer. This positive effect will show up in areas of the economy, trade and finance, and that’s why we agreed to the deal.”
Inking a trade deal with the US is a tricky thing in China at present, given the high level of nationalistic sentiment, and there was subtle mockery of the deal among online users in China, with some blaming Beijing for giving away too much to Washington.
When we joined the WTO, there was a debate about whether China had given up too much ground. Looking back now, is there anyone who still think so?
But Liang Yabin, an associate professor of the Institute for International Strategic Studies of the Central Party School of the Chinese Communist Party, told The Beijing News that the notion that Chinese negotiators were too soft in the trade talks and had yielded too much was “short sighted.”
“When we joined the WTO, there was a debate about whether China had given up too much ground. Looking back now, is there anyone who still think so?” Liang wrote in the piece published on Monday.
At the same time, the jury is still out whether China and the US can maintain the goodwill generated by the completion of the deal and whether Beijing will, in the end, be willing to take the steps necessary to change its unique economic model, including reducing heavy state subsidies to favoured businesses and cutting back on the prominent presence of the state-owned sector.
Arthur Kroeber, head of research at research firm Gavekal, called the agreement an “uneasy truce” as the deal “falls far short of achieving the US goal of forcing China to change its state-led economic system” and “will do nothing to stop further escalation of the two countries’ technology war”.
Two decades after the US negotiated the terms of China’s entry into the WTO, there is a debate in Washington whether the US made a mistake by allowing China to become embedded into the global economy without asking for sufficient changes in the Chinese domestic economy at the time.
US trade representative Robert Lighthizer said in an interview with CBS on Sunday that the phase one agreement was part of the effort by Beijing and Washington “to figure out a way to have [the American system and the Chinese system] become integrated”, adding that it is only the first step.
“But ultimately, whether this whole agreement works is going to be determined by who’s making the decisions in China, not in the United States,” he said.
“If the hardliners are making the decisions, we’re going to get one outcome. If the reformers are making the decisions, which is what we hope, then we’re going to get another outcome.”
