Did Chinese President Xi Jinping just blink in trade war stand-off with US?

The latest promises made by President Xi Jinping to open up China’s economy were billed by state media as part of a long-term strategic policy, but portrayed by a senior adviser in Washington as the political equivalent of Xi having blinked in response to the rising threat of a trade war between the two countries.

In his keynote speech at the Boao Forum for Asia on Tuesday – his first to a foreign audience since starting a second term as leader – Xi pledged to open China’s doors “wider and wider” to the world.

The most notable pledges were the easing of foreign ownership limits in the financial and automotive industries, lower tariffs on imported cars, and improved protection for intellectual property rights.

China pledges to open up financial markets amid threat of US trade war

The financial sector changes were later confirmed by Yi Gang, the newly appointed head of China’s central bank, who said foreign investors would be allowed to hold up to a 51 per cent equity stake in brokerage firms, futures companies and fund management firms.

Just hours after Xi’s speech, US President Donald Trump took to Twitter to say he was “very thankful” for the concessions made. On Monday, he had tweeted his frustration at the imbalance between US and Chinese tariffs on car imports.

Despite Trump’s gratitude, in an interview on US radio his top economic adviser Larry Kudlow was less magnanimous in his summing up of Xi’s speech, though he remained upbeat.

“I don’t know what the code is in China, but [Xi] may have blinked three times,” he said. “All of the things that we’ve been saying are wrong. He addressed in his speech in a positive way, that change is coming. And he said it’ll come sooner rather than later.”

In contrast, China’s state media described Xi’s promises as simply the next stage in the country’s economic restructuring and reform, albeit with the caveat that countries that “frequently launch trade wars against other countries” would not benefit from it.

“China’s reform and opening up is entirely autonomous, and it is gradually expanding and progressing according to its own timetable and road,” People’s Daily said in a commentary published on Tuesday.

“Some people believe that China’s new measures for opening up are forced by the pressure of a trade war. This is clear that they do not understand a strategic choice and the internal logic of China’s development.”

Beijing has described the trade dispute with Washington as a battle between multilateralism and unilateralism. At the same time, Trump has been seen withdrawing America from its global leadership role, after exiting both the Paris Agreement on climate change and the Trans-Pacific Partnership.

While more contained than his address at the Davos Economic Forum last year, in his speech on Tuesday Xi again sought to portray China as a champion for globalisation and the existing international order.

“Open or closed, forward or backward, humankind is facing new major choices,” he said, in a veiled swipe at Trump’s protectionist “America first” policy. “Economic globalisation is an irreversible trend of the times.”

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Xi reiterated the message when he met businessmen and forum organisers in Boao on Wednesday, saying China would continue to “take a more active part in global governance, and work with the rest of the world to deal with challenges more effectively.”

Trump said in a tweet on Wednesday that his focus was on “fair trade with China” as well as his upcoming summit with North Korean leader Kim Jong-un.

Stock markets in the US rallied overnight after Xi’s speech on Tuesday, which some analysts said was intended to de-escalate the tit-for-tat trade conflict after the Trump administration had threatened to impose tariffs on US$150 billion worth of Chinese goods, many of them hi-tech products.

Zhang Baohui, a specialist in Chinese politics and international relations at Lingnan University in Hong Kong, said Xi’s address was strategic in that it allowed China to save face at home, while paving the way for trade negotiations with the US to prevent any further escalation of the trade spat.

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“This is their way to signal to the United States without losing face … since we are willing to do this, we were already planning to do this,” he said.

“For domestic purposes, it’s a very good tool that doesn’t create an image that China is yielding because of American pressure.”

However, Bates Gill, a professor of Asia-Pacific security studies at Macquarie University in Sydney, said that the stock market reaction might been overexuberant as Xi had not said anything “new or bold” in his speech.

“Xi Jinping’s strategic intention here is to put things into a holding pattern, to buy time, and to potentially move down the pathway of negotiation and avoid a trade war,” he said.

“The question is whether Washington will accept more delay and continue with the rhetoric rather than action.”

China last week showed it was willing to hit back against the threat of punitive action by the US, by announcing proposals for retaliatory tariffs on a further US$50 billion worth of US goods.

According to Du Lan, an assistant research fellow at the China Institute of International Studies in Beijing, while Xi’s speech was generally well received in the US, until there was further evidence of China’s opening up, the threat of an all-out trade war would not go away.

“The purpose of this round of pressure from the US was mainly to force China to make concrete commitments and measures,” she said.

“But China has shown it is willing to meet hard with hard … While the possibility of a trade war is small, in the long-term, the US will continue to suppress the development of hi-tech in China, and competition between the two in these areas will only get increasingly fierce.”

Xi Jinping must now meet challenges to deliver on Boao promises

Zhang Zhexin, a research fellow at the Shanghai Institutes for International Studies, was more upbeat, saying that now that Trump had got at least some of the answers he wanted from Xi, trade war tensions should ease.

“China’s strategy has been to move step by step with its reform, while maintaining its bottom line and not yield to unreasonable pressure,” he said.

“The next step is for both sides to negotiate on specific issues, including the scope of two-way investments, effective ways to improve the trade balance, and measures for ensuring intellectual property protection.

“It is not very likely that Trump will take on a stance or action that will escalate the trade dispute.”

Following Trump’s “thank you” tweet, White House Press Secretary Sarah Sanders said that until Washington saw “concrete steps and concrete action” from China, the planned tariffs for Chinese goods would go into force.

In Beijing, Chinese foreign ministry spokesperson Geng Shuang said on Wednesday that the heads of state and other senior figures who attended the Boao Forum agreed that China’s commitment to opening up was clear.

“[They said] it is time for the US to respond.”