Commentary
By Trenton Marsolek
In the News
China, US prepare for final push in trade talks, as dates set for Beijing, Washington meetings
Sarah Zheng
South China Morning Post, March 21
“Trade officials from China and the United States will be going all out to reach a deal when they meet in Beijing next week, but the two sides still have obstacles to overcome, analysts said.”
“US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will be in the Chinese capital on March 28 and 29, after which Vice-Premier Liu He, the head of China’s negotiating team, will travel to Washington in early April, the Chinese commerce ministry announced on Thursday.”
EU leaders to discuss stronger shield against Chinese influence
Robin Emmott and Philip Blenkinsop
Reuters, March 20
“The European Union will weigh a more defensive strategy on China on Thursday, signaling a possible end to the unfettered access Chinese business has enjoyed in Europe but which Beijing has failed to reciprocate.”
“With China’s Xi starting a tour of France and Italy, EU leaders — who have often been divided over China — want to present a united front ahead of an EU-China summit on April 9. According to a draft April summit statement seen by Reuters, the EU is seeking deadlines for China to make good on trade and investment pledges that have been repeatedly pushed back.”
A Forgotten Italian Port Could Become a Chinese Gateway to Europe
Jason Horowitz
The New York Times, March 18
“President Xi Jinping is in Rome to make a state visit, as Italy is expected to become the first G7 nation to participate in China’s One Belt, One Road Initiative. The Italian port city of Trieste offers a more direct trade route for Chinese goods to access central Europe due to its central location and access to railroads.”
“However, the United States and other European Union members are concerned that a deal with China, citing BRI as an economic and potential military threat. Supporters in Italy say that there is little to worry about as Italian law prohibits foreign acquisition and the laying of Chinese debt traps (preventing what happened to the port of Piraeus in Greece).”
“The city of Trieste has a lot to gain from an influx of Chinese capital, and China has even more to gain from Trieste’s deep ports, favorable customs regulations, and direct access to trains. However, fully embracing the Belt and Road Initiative is likely to complicate efforts to bring other investment to the city and hamper relations with the United States.”
China’s Premier Acknowledges Economic Slowdown, Promising Tax Cuts
Keith Bradsher
The New York Times, March 15
“Li Keqiang’s acknowledgement that China’s economy is slowing down was one of the clearest messages yet from a top Chinese government official. Premier Li announced that the answer to combating this slowdown is cutting corporate taxes and deregulation, not ramping up government spending as has occurred previously.”
“He also tried to address the concerns raised by the US and its allies about whether Chinese tech companies (such as Huawei) might act as an extension of the state and spy for the Chinese government. He denied any claims that the government has asked Chinese companies to engage in espionage, noting that it is against Chinese law and norms.”
“Premier Li also dismissed concerns relating to the foreign investment law, which has been criticized for having vague language and lacking a clear path for implementation. “We will treat both domestic and foreign-invested enterprises as equals,” Li said.”
Lighthizer Casts Doubts on China Trade Talks as ‘Major Issues’ Go Unresolved
Alan Rappeport
The New York Times, March 12
“President Trump’s top trade negotiator raised doubts on Tuesday that a trade agreement with China was within reach, saying that “major issues” must still be resolved and that it was impossible at this point to predict success.”
“Robert Lighthizer, the United States trade representative, told lawmakers on the Senate Finance Committee that he could not predict when, or even if, a deal would be reached but said that he hoped the negotiations were in the “final weeks.””
“Mr. Lighthizer said there would be no agreement if outstanding issues were not resolved in “a way that’s beneficial to the United States.””
Top U.S., Chinese Trade Negotiators Decide on Next Step in Call
Miao Han
The Bloomberg, March 11
“China’s Vice Premier Liu He and his American counterparts decided on arrangements for the next stage of trade talks, state-run Xinhua News Agency reported.”
“Liu, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin also held specific negotiations over critical issues about the wording of an agreement in the phone call this morning, Xinhua said, without giving further details.”
U.S.-China Trade Deal Isn’t Imminent So No Summit Date Set, Envoy Says
Lingling Wei and Jeremy Page
The Wall Street Journal, March 8
“The U.S. and China have yet to set a date for a summit to resolve their trade dispute, the U.S. ambassador to China said Friday, as neither side feels an agreement is imminent.”
““A date hasn’t been finalized” for a meeting between President Trump and Chinese leader Xi Jinping, Terry Branstad, the U.S. envoy to Beijing, said in an interview with The Wall Street Journal. He said preparations for such a meeting aren’t yet under way either.”
“Mr. Branstad said negotiators need to further narrow the gap in their positions, including on enforcement of an eventual deal, before summit arrangements are made. Mr. Branstad’s remarks add to growing doubt that Washington and Beijing can speedily resolve their yearlong trade battle that has rattled global markets and businesses.”
China Pushes Ahead With New Foreign-Investment Law
Chao Deng
The Wall Street Journal, March 8
“China’s legislature made scant changes to a proposed law on foreign investment criticized by business groups as vague, as Beijing hurries the bill’s passage to ease trade tensions with the U.S. while leaving key complaints unaddressed.”
“The latest draft took another step forward Friday, being formally introduced to the country’s ceremonial legislature, which is all but certain to pass it next week when its annual session ends.”
“Once passed, the law will replace three separate statutes governing foreign companies and promises to better protect proprietary technology and make goods produced in China by foreign companies eligible for government procurement.”
“By doing so, trade experts and foreign business groups said, Beijing is trying to show it intends to provide a fairer business environment and answer criticisms by the Trump administration that Chinese policies favor domestic firms. In drafting the law, though, Chinese legislators left crucial sections shorn of details, meaning critical issues like business approvals, appeals processes and security reviews won’t be resolved until regulators address them.”
Huawei Sues U.S. Government Over What It Calls an Unfair Ban
Paul Mozur and Austin Ramzy
The New York Times, March 6
“The Chinese electronics giant Huawei sued the United States government on Wednesday, arguing that it had been unfairly and incorrectly banned as a security threat.”
“The lawsuit will force the government to make its case against the company more public, but it could also leave Huawei vulnerable to deeper scrutiny of its business practices and relationship with the Chinese government.”
““The U.S. Congress has repeatedly failed to produce any evidence to support its restrictions on Huawei products,” Guo Ping, Huawei’s rotating chairman, said in a statement announcing the filing of the lawsuit. “We are compelled to take this legal action as a proper and last resort.””
US-China trade war suspicions have had a chilling effect on Beijing’s Thousand Talents Plan
Jun Mai and Kristin Huang
The Wall Street Journal, March 6
“China has cooled on its flagship talent recruitment plan after relations between Beijing and Washington frayed and the United States began to view the scheme with suspicion, a Chinese government adviser and programme beneficiary said.”
“Thousand Talents is a state-sponsored scheme set up in 2008 to lure the world’s brightest minds, mainly Chinese researchers who have been educated or employed overseas, and particularly those with expertise in technology.”
“Thousand Talents was once a high-profile project and state media fussed over participants. However, as China and the United States fight a tariff war, it has become a source of friction, with allegations that researchers stole US technology for the Chinese government.”
China Expects a ‘Tough Economic Battle’ in 2019 as Debt Legacy and Trade Standoff Bite
Bloomberg, March 5
“China lowered its goal for economic growth and announced a major tax cut, as policymakers seek to pull off a gradual deceleration while grappling with a debt legacy and the trade standoff with the U.S.”
“The gross domestic product growth target released Tuesday morning in Premier Li Keqiang’s annual work report to the National People’s Congress was set at a range of 6 to 6.5 percent for 2019. The shift to a band from the previous practice of using a point figure gives policy makers room for maneuver and compares with last year’s “about” 6.5 percent goal.”
“The lower bound of the GDP target would be the slowest pace of economic growth in almost three decades, a consequence of China’s long deceleration as policy makers prioritize reining in debt risks, cleaning up the environment and alleviating poverty. Warning of a “tough economic battle ahead,” Li announced tax cuts worth 2 trillion yuan ($298 billion) for the year.”
Philippine Official, Fearing War With China, Seeks Review of U.S. Treaty
Jason Gutierrez
The New York Times, March 5
“The Philippines’ top defense official said on Tuesday that the government should review a decades-old treaty with the United States, its longtime ally, to avoid provoking a potential armed conflict with China in the disputed South China Sea.”
“His statement comes just days after the visiting American secretary of state, Mike Pompeo, personally assured President Rodrigo Duterte of Washington’s support for the Philippines in the South China Sea.”
China Expects 2019 Economic Growth of 6% to 6.5%
Lingling Wei
The Wall Street Journal, March 4
“China lowered its economic growth target this year to between 6% and 6.5%, bowing to a deepening slowdown that can’t be quickly arrested without aggravating debt levels that are already high.”
“Opening the annual session of China’s legislature on Tuesday, Premier Li Keqiang laid out plans to fend off risks in the economy and keep the nation’s jobless rate steady. Chief among the remedies to prop up growth: increasing deficit spending, launching new tax cuts and other fee reductions for businesses—totaling 2 trillion yuan, or 2% of China’s $13 trillion economy—and boosting bank lending to small and private companies by 30%.”
Articles and Analysis
Boeing’s Crisis Strengthens Beijing’s Hand
Richard Aboulafia
Foreign Policy, March 20
“The Civil Aviation Administration of China was one of the first national air-safety authorities to ground the Boeing 737 Max 8 jetliner after the devastating recent Ethiopian Airlines crash. But the decision may have been driven by more than just the safety of that aircraft. Beijing may be sensing an opportunity.”
“In the flurry of news coverage of the crash, one fact about Boeing’s 737 Max has been largely forgotten. The aircraft is on a list of U.S. goods to be purchased as part of a negotiated settlement to the U.S.-China tariff and trade rules standoff.”
“That means China’s decision to ground the Max, and more recently the threat to cut it from the settlement altogether, gives Beijing more leverage to get a better deal. After all, for Boeing, a China order right now would be a huge endorsement of the Max; having the Max excluded would spread an even darker cloud over what is currently the company’s most important product.”
Testing times for China and Xi Jinping
The Japan Times, March 20
“Virtually every measure of economic activity shows weakness. Cellphone shipments marked double-digit declines in January, as did car sales (the seventh straight monthly fall) and the number of unsold houses is at its highest level in two years. The Purchasing Manager’s Index, a respected measure of factory activity, has plummeted to its lowest level in three years. To adjust, companies have begun to lay off workers.”
“A slowdown is especially worrisome for the Chinese leadership because most Chinese have only known economic opportunity. They have not faced a downturn or real hardship. In the past, the Chinese government had real firepower to goose a slowing economy. When the great recession struck in 2008, Beijing spent an estimated $586 billion to compensate for slowing demand, Now, however, debt is mounting and has reached $34 trillion, nearly 2½ times the size of the entire economy.”
In Search of ‘Real’ Data on China’s Economy
Dmitriy Plekhanov
The Diplomat, March 19
“Information about economic activity is a key ingredient for policymaking and business decisions. However, official statistics in China have long been criticized for lack of transparency, data collection problems at the grassroots level, and frequent data manipulation. The inadequacy and insufficiency of official statistics have created a desperate need for alternative data.”
“In an attempt to meet the market demand for data, investment banks, academic researchers, and media have raced to deliver their own estimates on various aspects of the Chinese economy (the banking and financial system, real estate markets, consumer markets, etc.). However, the recent advent of new technologies can be a game-changer for the industry. It has created new opportunities for data collection in China and produced a plethora of indicators that are capable of satisfying the growing demand for quantitative measures of economic activity.”
The U.S. quietly made a big splash about the South China Sea
Zack Cooper
The Washington Post, March 19
“On March 1st, US Secretary of State Mike Pompeo reaffirmed America’s support of the Philippines in the Pacific amidst growing concerns of a China-Philippines conflict. Signed in 1951, the US-Philippines mutual defense treaty commits the allies to act in case of an armed attack in the Pacific. However, it has long been disputed whether or not the South China Sea counts as “in the Pacific.””
“Some in the Philippines viewed the vague language of the treaty and the lack of clarification from the US besides stating their commitment was ‘ironclad’ as abandonment. Now, there is the risk that the US will become entrapped in an unwanted conflict as China may test this new US “red line.””
China’s Slowdown Broadens, Despite Government Bid to Bolster Growth
Liyan Qi, Lin Zhu and Grace Zhu
The Wall Street Journal, March 14
“China’s economy continues to slow, with industrial activity and home sales cooling in the first two months of the year, despite a rebound in investment driven by Beijing to shore up growth.”
“A range of indicators released by the government on Thursday showed a steepening of the downturn that began last year in the world’s second-largest economy.”
“Value-added industrial output, which measures the economy’s manufacturing, mining, utilities and other output, rose 5.3% in the January-to-February period from a year earlier, slowing from a 5.7% year-over-year increase in December. Home sales by value climbed 4.5% in the two months from a year earlier, sharply down from last year’s 14.7% gain.”
““The data show that the economic slowdown will continue in the short term, ” said Fan Lei, an economist at Sealand Securities. The slowdown in industrial activities, Mr. Fan said, reflected destocking and soft demand.”
China Aims to Placate U.S. With Law Banning Theft of Foreign Trade Secrets
Lingling Wei and Chao Deng
The Wall Street Journal, March 14
“China made last-minute changes to a proposed foreign-investment law, trying to address U.S. complaints about forced technology transfer and bolster a compromise seen as crucial to striking a trade deal with Washington.”
“In the past week, the national legislature quietly amended a draft of the law to tighten up channels used to leak intellectual property. The draft, which is expected to be passed into law Friday, adds language to bar officials from divulging corporate secrets and threatens criminal prosecution for doing so, according to a copy of the draft, dated March 12, reviewed by The Wall Street Journal.”
“By making those changes just before the proposed law goes to vote, Beijing is hurriedly readying a concession aimed at a key U.S. complaint, according to people briefed on the discussions.”
Trump’s Hanoi Walkout Upends South Korean Politics
Frida Ghitis
World Politics Review, March 14
“When President Donald Trump stunned the world last year by agreeing to hold a summit with North Korea’s Kim Jong Un—the first-ever meeting between an American president and a North Korean head of state—it felt like a punch in the gut to South Korean conservatives. Hard-liners on North Korea, they were already roiling from corruption scandals that had brought down President Park Geun-hye with massive protests in 2016 and led to the election of President Moon Jae-in.”
“After Trump’s abrupt decision late last month to walk out of talks with North Korea during his second summit with Kim, he has pulled the rug out from under South Korean liberals, most of all Moon. South Korea’s president, who has pushed for diplomacy with the North, was all set to celebrate what he thought would be a successful summit in Hanoi. Instead, Trump’s moves on North Korea have roiled South Korea’s politics even more. ”
What’s Causing China’s Economic Slowdown
Christopher Balding
Foreign Affairs, March 11
“Last year, China experienced its slowest economic growth in nearly three decades. The trouble seemed to start in the fall. Wage growth has cooled. Surveys show that companies in the manufacturing sector have begun shedding jobs. And imports are down, hurting other major exporting economies.”
“There’s more than one reason for the slowdown. A rapidly aging population, a falling birth rate, a tightening Federal Reserve, and a slowing global economy have combined to put the brakes on China’s economy. Yet Beijing cannot risk a recession. The Chinese government will not allow growth to slow significantly, even if that means storing up problems for the future. ”
Past Events
Hong Kong’s Role in the U.S.-China Relationship
Event hosted by Georgetown University, March 25, 2019
China and U.S. National Security: Gathering Storm?
Event hosted by Hillsdale College Kirby Center, March 26, 2019
Trade Tensions: Cross-Border Investing Between the U.S., China, and Asia
Event hosted by SAIS International Finance Club, March 26, 2019
New Era of Great Power Competition: China-US Trade Conflicts and Intellectual Property Disputes
Event hosted by China Development Student Think Tank, March 26, 2019
Competing Perspectives: How Does the U.S. Maintain a Competitive Edge in 5G?
Event hosted by Confucius Institute U.S. Center, March 26, 2019
The State Strikes Back: The End of Economic Reform in China?
Event hosted by SAIS China Forum, April 2, 2019
SAIS Asia Conference: Grand Strategy in the Indo-Pacific
Event hosted by SAIS Asia Programs, April 5, 2019
Integrating air quality, water, and climate concerns into China’s energy strategy
Event hosted by SAIS Energy, Resources, and Environment Program, April 5, 2019
China’s Climate and Energy Policies
Event hosted by SAIS Energy, Resources, and Environment Program, April 15, 2019
Knowledge, Skills, and Technology Transfer in China-Africa Engagements
Event hosted by China-Africa Research Initiative at SAIS, April 15, 2019
Upcoming Events
China and Global 5G: Getting the Questions Right
Event hosted by Wilson Center, March 4, 2019
The Present and the Future: Trade in the Asia-Pacific Region
Event hosted by the Washington International Trade Association, March 5, 2019
Soft Power, Influence, and Strategic Competition in Southeast Asia
Event hosted by the Asia Society, March 6, 2019
A conversation with the Chief of Naval Operations
Event hosted by SAIS, March 6, 2019
How should US and Japan respond to a possible China-Taiwan conflict?
Event hosted by U.S.-Japan Research Institute, March 8, 2019
China’s 21st Century Rise in Historical Perspective
Event hosted by CSIS, March 12, 2019
Commentary
Rethink the Trade War: How America Should Respond to China’s Trade Practices
By Trenton Marsolek
“China is neither an ally or a friend–they want to beat us and own our country.” President Trump tweeted this message in 2011 and his rhetoric remains unchanged eight years later in 2019. Embroiled in a tense trade war with China, the US is determined to emerge from trade negotiations with what it views as fairer trade terms with Beijing. However, any gains achieved from negotiations with China are likely to be only temporary.
China continues to unveil ambitious economic plans such as Made in China 2025, ‘Buy China’ and the One Belt, One Road Initiative with the goal of dominating the global supply chain and expanding its economic influence. These plans fixate on investing in and dominating key sectors such as artificial intelligence, new materials, and aerospace while also developing emerging markets in Africa, the Middle East, and Latin America. America perceives these plans as a significant threat to its industry as demonstrated by the US Chamber of Commerce’s release of an eighty-four page report about Made in China 2025. The Chamber notes in their report that they are “concerned about the growing risk that policies such as MIC 2025 pose for China’s relationships with its key economic and commercial partners, including the United States.”
Instead of publishing inflammatory reports which center on criticizing China’s economic ambitions, the United States should focus its attention on increasing cooperation with China on economic, political, and social fronts. As the second-largest economy, it is only natural that China seeks to change the current world order by overtaking American hegemony, and the US should be prepared to compete by out-innovating China. This competition doesn’t have to be a Soviet-esque space race where each side is motivated by fear and national pride, however. The United States and China can have a friendly competition where each nation cultivates their best talent to tackle important global issues such as climate change and medical research.
Breakthroughs which develop as a result of this friendly competition would benefit both countries as they develop new technologies and industries which lead to new jobs and economic growth. The US would solidify itself as a key trading partner for China if it is at the center of technological breakthroughs and innovation, and the US would not want to isolate itself from a market with nearly 1.4 billion consumers.
A recent example of competitive cooperation between the United States and China is the Chinese-led Chang’e 4 lunar exploration mission. This mission resulted in China being the first country to ever soft land a spacecraft on the far side of the moon and sprout plant life (which died shortly after due to the freezing temperatures). The China National Space Administration (CNSA) cooperated with NASA extensively prior to the mission and was asked to photograph the lander using its Lunar Reconnaissance Orbiter. In a press conference following the mission, the CNSA noted that they intend to cooperate more with the US and other countries on future space endeavors, mentioning the possibility of establishing a space lab with the US and other countries on the moon.
Following the arrest of Huawei executive Meng Wanzhou, there has been a lot of discussion surrounding competition between the US and China to develop 5G networks. The United States has been pressuring its allies to not employ Huawei 5G technology citing security concerns and alleged connections to the Chinese government. However, Huawei is an industry leader in the development of 5G, and instead of trying to isolate the company we should seek to develop a partnership with them instead. If the United States changes its perspective of Huawei from a threat to an opportunity for growth and technological advancement, both the United States and China can benefit.
The trade war is a regressive solution in an ever-changing world where multilateral cooperation is paramount, especially when faced with global challenges such as the effects of climate change. President Trump’s ‘real deal’ with China should focus on increasing cooperation and developing an ally out of an adversary instead of short-term trade gains which are unsustainable assuming China continues to innovate.
Trenton Marsolek is a Research Assistant at the Institute for China-America Studies and an undergraduate at American University in Washington, D.C.
