China economy

China shrugs off fears Donald Trump tax cuts will lure away investors

Government adviser says China’s huge market and potential outweigh Trump tax cuts and other factors that might challenge its competitiveness to lure overseas capital

PUBLISHED : Monday, 23 October, 2017, 12:35pm
UPDATED : Monday, 23 October, 2017, 9:47pm

China is not worried about US President Donald Trump’s tax cut plans because it still has advantages to retain and attract foreign investment, a senior foreign economic policy adviser to the Chinese leadership said.

Long Guoqiang, a vice-president at the Development Research Centre of the State Council, told the South China Morning Post there was no need to worry about an exodus of China manufacturing because only a small part might relocate to the US.

“Even if some factories move to the US, it will not lead to a hollowing out in China,” Long said. “Every country has its own advantages and there’s no need to worry that all businesses will flow to the US after tax cuts there.”

Trump’s drive to overhaul the US tax code cleared a critical hurdle on Thursday when the Senate approved a budget measure that will allow Republicans to pursue a tax cuts package without Democratic Party support. Tax burdens on US businesses are expected to be cut significantly if the tax reforms go through.

China promises more market access for foreign players

China is watching Trump’s tax cut plan closely. The decision last year by Cao Dewang, the Chinese vehicle glass tycoon, to set up plants in the US to lower costs has stirred heated debate over whether China’s tax regime is killing businesses and turning foreign investors away. The electronics firm Foxconn’s plan to set up a factory in the US state of Wisconsin is also perceived by many analysts as another sign of China’s weakening competitiveness.

Long said China’s economic upgrading and its vast market potential would continue to make the country an ideal destination for investment.

“We never worry about losing attractiveness [for foreign investors] because we have the unparalleled advantages of a vast market, a rapidly growing market and an upgrading market,” Long said.

In the latest sign of China’s success in wooing investment, the electric car maker Tesla has reached an agreement with Shanghai officials to set up a manufacturing plant in the city’s free trade zone, according a Wall Street Journal report published last month.

Long also said China was a promoter of globalisation, not its leader, and was still more comfortable exerting its influence through international platforms such as the G20 group of nations.

“There is more than one big power … in global governance,” Long said. “China may promote certain agendas, but it’s not right to see China as the leader of globalisation.”

China under the leadership of President Xi Jinping has been revamping its economic diplomacy, launching the massive Belt and Road investment and trade initiative and creating its own institutions with other nations.

China’s pledge to open its market for trade and investment must be honoured on the ground

Xi has portrayed himself as a firm believer in “free trade” and globalisation as US President Donald Trump adopts a more protectionist economic policy and Britain is leaving the European Union.

Xi said during his speech opening the Communist Party Congress in Beijing last week that China would try to promote an “inclusive, balanced and win-win” process of globalisation.

Long said China was the contributor and beneficiary of globalised trade and investment and it believes the globalisation process will “deepen”, despite rising anti-globalisation sentiment.