Xi Jinping

China’s dilemma in trade war talks with US: making concessions without looking weak

  • Beijing is walking a tightrope around its messaging, aware that concessions could give rise to domestic political problems and cause controversy
  • The government is buffeted by the winds of nationalism it kicked up early in the trade war
PUBLISHED : Thursday, 13 December, 2018, 11:56pm
UPDATED : Friday, 14 December, 2018, 1:50am

As the leaders of the world’s two biggest economies sat down to dinner in Buenos Aires on December 1, hopeful of reaching a truce in the months-old trade war, Chinese President Xi Jinping kicked off the talks with a 30-minute monologue, according to American officials there that night.

Yet for several days after the meeting, the world – and especially the Chinese people – had little confirmed knowledge of what Xi had said, or whether his remarks had helped de-escalate the tariff war between China and the United States, a confrontation that had destabilised global markets.

Those few days highlighted China’s dilemma: the need to make concessions while trying not to look weak in the eyes of the world.

While the White House immediately published a list of China’s concessions, ranging from a promise to buy more American goods to agreeing to start addressing the forced transfer of US technology to Chinese joint venture partners, it was not until Wednesday morning that China finally acknowledged that the parties had agreed to a 90-day pause in the trade war.

By that time, the Chinese trade team had returned from the Argentine capital and the Dow Jones index of 30 of the world’s most popular and widely held stocks had plunged in a massive sell-off that stripped away 3.1 per cent of its value amid uncertainty over the results of the bilateral Buenos Aires talks.

The White House had said China would buy a “very substantial amount” of farm, energy, industrial and other products from the US and open talks on the forced transfer of US technology and on intellectual property theft.

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Beijing eventually did confirm those areas were indeed a focus of the negotiations – but only four days afterward, and in far more constrained language than Washington had used to describe the extent of the concessions.

While Chinese and American analysts said they expected Beijing to continue to be cautious in how it revealed the progress of the talks, the general view was that it was in China’s interest to reconfirm its commitment to long-needed market reforms.

Doing so has become trickier for Beijing, given the headwinds of nationalism it kicked up in the early days of the trade war.

Wang Yong, director of the Centre for International Political Economy at Peking University, called the trade negotiations complicated and “highly sensitive”.

“The concessions, if over-interpreted, could give rise to problems in China’s domestic politics and cause controversy,” he said. “Three months of negotiation time is fairly short, [so] there’s no need to cause unnecessary trouble in public opinion.”

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On December 3, the US embassy in Beijing posted a Chinese version of the White House’s statement regarding the Buenos Aires sit-down on WeChat, the most popular social media platform in China. But Chinese internet censors intervened to prevent the document from being widely shared.

“For social media, all articles related to the US press release about the ... agreement have been censored, except those posted on the official website, WeChat or Weibo account of the US embassy in Beijing,” a Beijing-based source familiar with the mainland’s media operations said.

For many, the incident brought back memories of how former Chinese premier Zhu Rongji was slammed by hawks in China as a “traitor” when he tried to negotiate China’s entry to the World Trade Organisation (WTO) in the late 1990s.

David Zweig, a political-science professor at the Hong Kong University of Science and Technology, said he doubted Beijing wanted “anyone to know what kind of concessions [China made to the US]” in the latest talks.

“Zhu Rongji … didn’t want the Chinese to know what concessions he had made in 1999 to get into the WTO, and then [when] the US published the concessions on the USTR website, Zhu almost lost his job,” Zweig said, referring to the United States trade representative’s office.

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“They know they’ll have to make some serious concessions, but they just don’t want them to be known, and certainly not in the midst of the negotiations,” he said. “They certainly don’t want to let it be known when they make concessions.”

Wu Qiang, a Beijing political analyst, said the Chinese government’s tough stance in the trade battle with Washington – reflected in its strident state media commentaries and foreign ministry statements – had put it in a difficult position.

While the Chinese government’s official tone on the trade war has softened in the past two months, a number of tough remarks from Beijing and its state media continue to resonate.

Weeks after Washington launched the first round of punitive tariffs on Chinese exports in July, Ministry of Foreign Affairs spokeswoman Hua Chunying warned “some Americans” against playing “Don Quixote in the 17th century” – meaning the administration of US President Donald Trump needed to back off from its attempt to do something impossible in the style of the hero of the Spanish novel published in the early 1600s.

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Those remarks, however, sharply contrasted with China’s real strategy in the trade talks, which Wu described as “suing for peace” – “paying a high price in exchange for a truce in the trade war”.

“It is hard to just turn [a situation] about like that,” said the former Tsinghua University political scientist.

But Beijing’s hard-nosed stance also aroused the ire of the public in China, Wu said.

In recent months, an increasing number of liberal scholars – and even former officials – have spoken out against the government’s handling of the trade war.

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Sheng Hong, a liberal who belongs to an elite club of economists co-founded by Vice-Premier Liu He, said last month that the trade war was between China’s most powerful interest group on one side, and “the US and the people of China … on the other”.

The interest group to which Sheng was referring was comprised mainly of state-owned enterprises controlled by the central government.

China’s former chief trade negotiator Long Yongtu, who nailed down China’s deal to enter the WTO, also slammed Beijing’s decision to impose punitive tariffs on US soybeans – intentionally targeting constituencies supportive of Trump.

Beijing, mindful of these responses, has tailored its public messaging on possible concessions to the US carefully.

In each of its statements about potential compromises in its dealings with the US, Beijing has repeated that these are not concessions. The increased buying of US agricultural and energy products is to meet the “growing demands of the Chinese people”. Possible changes in market access and intellectual property protection were for the benefit of both Chinese and American companies, it said.

Meanwhile, Beijing had agreed to lower tariffs on US-made cars to 15 per cent from 40 per cent and was planning to replace “Made in China 2025”, the industrial modernisation strategy targeted by Washington, The Wall Street Journal reported this week. The Chinese government has yet to confirm either detail.

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As Beijing tiptoes around the storyline it is presenting to the world and its domestic audience, China watchers said Beijing could seize the opportunity to use the narrative to reinforce an encouraging message on market reform and other issues important to the West.

“While nationalist sentiment is certainly an important source of feedback to Xi Jinping, it’s not the final arbiter of official policy,” said Jude Blanchette, senior adviser and China practice lead at the Crumpton Group.

“There is lots of room for Beijing to credibly signal to the outside world that it’s serious about reform without looking like it’s caving to international demands,” he said.

“Targeted market liberalisations can be unveiled as a part of China’s own domestic economic self-help package, and the 40th anniversary of reform and opening offers a fortuitous opportunity to do this.”

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Beijing is set to celebrate on December 18 the 40th anniversary of its opening up to the West, a move that launched a period of explosive economic growth when the country was left with little but debris in the wake of chairman Mao Zedong’s Cultural Revolution.

The historic date will be commemorated in a top-level gathering that will employ protocols similar to those used in past celebrations of the milestone.

For instance, in 2008, for the 30th anniversary of the opening up, then president Hu Jintao repeated Beijing’s commitment to market reform at an event that was attended by 6,000 political and economic elites.

The observance of the 40th anniversary will coincide with the holding of the Communist Party’s annual year-end Central Economic Work Conference.

The annual gathering of hundreds of officials from central ministries and regional governments is intended to build a consensus and chart economic policies for the country’s most important economic issues, from growth to structural reform.

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But Shi Yinhong, an international relations professor at Renmin University in Beijing and an adviser to the Chinese government, said China needed more than words to be convincing in its intention to fully open up its markets to the West – no matter how the 90-day trade war truce ended.

“With or without the trade war, China needs to deepen and broaden its reforms,” he said. “The narrative is fine, but China has said a lot in the past. It has completed certain targets while leaving others undone. And the United States is now really looking at what China does.”

When it finally implements those reforms, Beijing will have more in mind than merely meeting the demands of the US, the Crumpton Group’s Blanchette said.

“The Communist Party can only reform so much without imperilling its hold on power. That’s the core contradiction that stands at the heart of the current frictions between China and much of the developing world,” he said.

“There’s a long list of reforms that Beijing can unveil, but the key unknown is: can the party make manifest reforms without putting itself out of a job?”