“Don't listen to what Xi Jinping says, but look at what he does

The EU Calls on Xi Jinping to Put His Words into Action
Reuters

The European Union urged China on Wednesday to make "concrete progress" in opening its markets to global investment, after Xi Jinping decried protectionism in a speech at the recent World Economic Forum in Davos, Switzerland.

"A speech is a speech and actions are actions," said Hans Dietmar Schweisgut, EU Ambassador to China, adding that he would be "surprised" if Xi was able to translate words into action.
At Davos last week, Xi called for "inclusive globalization" and for global unity, saying "self-isolation will benefit no-one," two days before the inauguration of U.S. President Donald Trump.
During that week, China's cabinet issued measures to further open the economy to foreign investment, including easing limits on investment in banks and other financial institutions.
No further details were provided, nor a timetable for their implementation.
So far, the EU has not seen "sufficient signs that China will be willing to grant reciprocity of market access to European companies," Schweisgut told reporters in Beijing.
In June 2016, the European Chamber of Commerce in China warned that foreign companies face an increasingly hostile environment in China, with fewer than half its members saying they planned to expand operations in the world's second-largest economy.
Billionaire investor Wilbur Ross, Trump's choice for commerce secretary, has called China the "most protectionist" country in the world, and said China's officials "talk much more about free trade than they actually practice."
Trump has previously criticized China's trade practices and threatened to impose punitive tariffs on Chinese imports.
China has said it is confident it can resolve trade disputes with the new U.S. government, though some state media and government advisors have warned that U.S. aircraft manufacturers, automobile companies and agricultural products could be caught in the cross-fire of increased trade tensions.
When asked whether Europe saw any opportunities in China's warnings of punitive measures against the U.S., Schweisgut said this was "interesting speculation" but that he did not know enough about Trump's trade policy plans to comment.

The just war: Donald Trump is right to take action against China

Using the rules of the World Trade Organisation to combat Chinese mercantilism is not protectionism

By David Green

It’s a mistake to think of Donald Trump as a protectionist, as Boris Johnson will have discovered during his recent visit to New York.

Theresa May has said that some protectionist instincts are starting to creep in and that the UK should be a champion of free trade. 

Her remarks are widely interpreted as a reference to policies planned by Donald Trump, but his plans can just as easily be seen as a defence of a rules-based international trading system. 

One of the 28 pledges made in his Contract with the American Voter was to ‘identify all foreign trading abuses that unfairly impact American workers’ and to use ‘every tool under American and international law to end those abuses immediately’. 

Using the rules of the World Trade Organisation (WTO) to combat Chinese mercantilism is not protectionism. 

Nor is his promise to declare China a currency manipulator on his first day in office.
Free trade is defended because it can be mutually beneficial but, rather like toleration, it only works if everyone plays by the same rules. 
Toleration of aggressively intolerant groups gives them an advantage.
In the same way, free trade only makes everyone eventually better off if we are all looking for mutual benefits.
The outcome will not be beneficial to everyone if one nation treats trade as a kind of substitute for war and aims to gain advantage at the expense of others in order to achieve economic and military superiority. 
Historically this attitude was called mercantilism.
Is it correct to describe China as mercantilist?
Economists argue that prosperity comes from a combination of the division of labour and trade between independent firms.
They claim the same for the international division of labour, but often forget the preconditions for their model to work.
Companies must be genuinely independent, which means they must make ends meet and so must be efficient to survive.
Competition encourages a search for efficiency.
Some argue that world prices are the measure of efficiency but this claim ignores today’s realities. Often world prices are not market prices and this is especially true of Chinese export prices.
China manipulates its currency by forcing exporters to save their US dollars in the form of Chinese government bonds denominated in dollars. 
The dollars are used to buy US Treasury bonds and other US assets, thus pushing up the exchange rate of the dollar. 
China prevents the free negotiation of wages; indeed it represses trade unions. 
Its companies do not meet international accounting standards, which are designed to promote transparency. 
It subsidises exports, contrary to WTO rules, and it imposes import tariffs contrary to WTO rules. 
It has weak environmental regulations, thus reducing its costs. 
It has weak health and safety laws that, despite their inadequacy, are frequently not enforced. 
It has state owned companies that subsidise exports, directly and indirectly. 
It has state owned banks that provide undisclosed subsidies. 
Its government offers land at low undisclosed rents. 
Private companies are not genuinely private, but require a political patron to survive.
The aim of the system is to bolster the power of the Communist party, a brutal authoritarian dictatorship. 
This is the exact opposite of America, where private wealth helps to empower opposition to the government of the day.
For example, Jeff Bezos, the founder of Amazon, recently bought the Washington Post newspaper, which campaigned against Donald Trump.
If he had tried to do the same thing in China he would be lucky to still be alive.
There is not the slightest chance in China of building up a media group to criticise the government, let alone to create a viable government in waiting.
It’s true that money can be used in America to cajole public opinion and ‘buy’ votes, but not just for one party.
In the West, wealth upholds freedom and democracy.
China is not a free society. The more economically powerful it gets the more it threatens the free world. If its firms are not state owned they are state dominated.
There is no genuine private ownership; there is state authorised discretion.
The aim of economic activity is to keep power in the hands of the Communist party. 
There are no checks and balances.
The more we promote Chinese prosperity at our own expense the more we endanger liberty itself.
Currency manipulation is a longstanding problem. 
Keynes warned of the dangers during the long negotiations leading up to the Bretton Woods agreement at end of World War Two. 
His warnings were ignored and by the 1980s there was strong concern about Japanese currency manipulation.
In 1985, under the Plaza Accord, measures were taken to force up the price of the yen.
Today it’s China that is getting away with it and action is long overdue. 
No one who advocates free trade should ignore this problem. 
Some economists talk as if world prices are the result of competition between independent organisations in a rules based system, when they are not.
Calling for free trade while ignoring economic realities is like calling for deregulation of financial services before 2008. 
It’s what led to the 2008 crash.
The problem is not just low-wage competition.
Chinese cheating also takes market share from low-wage countries. 
Today the problem we face in the West is not competition from low-wage economies but mercantilism, and the challenge is how to make a reality of the rules-based order we have.
That is what we should champion.
Not the pretence that all we need to do is eliminate barriers.
It is misleading to portray free trade and protection as the only two alternatives.
The top priority is to act against nations with long-standing trade surpluses that are the result of mercantilist manipulation.
The UK’s policy towards China is an economic and political blunder.
Theresa May has been talking about a ‘golden era’ for China-UK relations and has promoted investment by Chinese companies in the UK as if it were like any other inward investment.
The reality is that no company in China is genuinely private. 
Any chief executive who fails to comply with the wishes of the Communist party will soon find the secret police calling. 
Any significant private organisation in China can only function with a political patron. 
Letting Chinese companies take over UK businesses is like letting the Chinese government take them over. 
We don’t want our own Government to nationalise our companies, because we fear the abuse of power, and yet we stand by and clap our hands when the Chinese government takes them over. 
Even Germany has become alarmed at the extent to which China is taking over its famous Mittelstand of high-tech world-beating companies.
The German government recently stopped the takeover of the technology company Aixtron, when it looked as if one Chinese company cancelled an order, which pushed down the share price of the German supplier, so that a second Chinese company could buy Aixtron for less.
The German economics ministry has warned that in 70 per cent of the twenty largest recent takeovers, the purchasing Chinese company was majority-owned by the Chinese government.
The Government showed awareness of the dangers when it suspended the decision on the Hinkley Point nuclear reactor, but its determination lasted about five minutes.
We should now stand shoulder to shoulder with the Americans to uphold the rules-based system of international trade and act against currency manipulation.

Sina Delenda Est

As Trump prepares for office, concerns about China’s unfair trade and investment practices intensify
By Simon Denyer

A Chinese laboorer works at an unauthorized steel factory, foreground, on Nov. 4, 2016, in Inner Mongolia, China. 

BEIJING — Around the world, concerns are mounting about China’s unfair trade and investment practices. 

How Donald Trump responds could have a far-reaching impact on the global economy and financial markets.
Trump has threatened to declare China a currency manipulator, but experts say he has little legal or economic basis to take such a step. 

He has also threatened to impose a tariff of up to 45 percent on Chinese imports if Beijing doesn’t “behave,” a move that could lead to a trade war and damage the economies of both nations.
Yet he is not alone in sounding the alarm about unfair competition and a playing field sharply tilted in China’s favor. 

And there are plenty of options on the table if he wants to show he is tougher than his predecessor.
The American Chamber of Commerce in China, which usually is very measured in any criticism of China, complained this month about a rise in Chinese protectionism and “economic hegemony,” with doors closing to foreign investment, regulations biased against foreign companies, and new national security-related laws breeding “distrust and paranoia.”
The United States “needs to raise its game with the Chinese to drive for a sense of urgency” in dealing with these issues, it said.
But it is not just the treatment of foreign companies in China, and their lack of access to the Chinese market, that has raised tensions.
Chinese companies are also engaged in a state-sponsored buying spree of foreign companies, diplomats and experts say, in sectors identified by the government as key to an industrial modernization strategy known as Made in China 2025.
China has been using the state’s vast financial resources to buy up key foreign innovation and technology, often in sectors where the Chinese economy is largely closed to inward investment.
So as U.S. investment into China slowly declines, Chinese investment into the United States has surged, overtaking money going the other way for the first time in 2015, according to a new report by the Rhodium Group, an economic research consulting firm.
It is a similar story in Europe. 

Trade tensions between China and Germany have ratcheted up this year.
Ambassador Michael Clauss talks of an “unprecedented wave” of complaints by German companies about the problems of doing business here, and a “definite rise in protectionism” — at the same time as China pours billions of dollars into buying German firms, including several of its most innovative high-tech companies.
That has raised deep concerns in Berlin about national security and Germany’s ability to innovate in the future.
“This is not just an American problem,” Clauss said. 

“China has to realize these concerns are real.”
In Washington this month, the U.S.-China Economic and Security Review Commission recommended changing U.S. law to bar state-owned Chinese companies from buying American businesses.
“We don’t want the U.S. government owning large chunks of the U.S. economy, so why do we want the Chinese Communist Party owning large chunks of the U.S. economy?” asked Dennis Shea, the Republican chairman of the bipartisan commission.
So what are Trump’s options?
To judge China a currency manipulator under U.S. law, the Treasury Department would have to determine that it runs a “significant” bilateral trade surplus with the United States, a “material” current account surplus, and is “engaged in persistent one-sided intervention in the foreign exchange market.”
Although China has by far the largest trade surplus with the United States of any country — $356 billion in 2015 — its current account surplus is under 3 percent of gross domestic product, and it has actually been intervening to prop up its currency, not depress its value.
In other words, it met only one of the three criteria last year, the Treasury Department reported. 

“It would be difficult for the new administration to direct the Treasury to say China is a currency manipulator,” said Eric Shimp, a policy adviser at Alston & Bird in Washington, and a former U.S. diplomat and trade negotiator.
Still, Shimp said, a Trump administration could initiate a broader investigation into China’s trade practices and the state subsidies Chinese exporters enjoy.
Across-the-board punitive tariffs are unlikely, not least because they would invite likely Chinese retaliation that could bring down entire industries, experts said. 

But specific measures are possible in specific industries.
In Washington last week, Chinese Vice Premier Wang Yang said that problems in the trade relationship could damage the global economic recovery and that cooperation was “the only right choice.”
Chinese media have warned of canceled orders for Boeing aircraft, depressed iPhone sales and halted corn and soybean imports if a trade war erupted.
Nevertheless, Trump will be looking closely at the steel industry, especially with Dan DiMicco, former chief executive of the steel company Nucor, leading his transition team at the U.S. Trade Representative’s office.
The Obama administration has already imposed heavy anti-dumping and anti-subsidy duties on some types of Chinese steel, but Shimp said broader tariffs on all steel and aluminum imports might be considered under U.S. “global safeguard” rules — if a Trump administration decides that rising imports have caused “serious” economic injury.
“The harm to global industry from China’s excess capacity in steel and aluminum are well known,” said Claire Reade, senior counsel at Arnold & Porter in Washington and former assistant U.S. trade representative for China. 

“If Trump took action to curb this injury, China would not find itself holding the moral high ground in international public opinion. This might temper any reaction.”
Similarly, a blanket ban on investment by Chinese state-owned companies appears unlikely, experts say. 

The Rhodium Group said Chinese firms employ more than 100,000 people in the United States, and experts say there is still an appetite for investment that rescues indebted companies, builds infrastructure and creates jobs.
But experts expect greater scrutiny of who is behind the deals and where the money is coming from.
Trump prides himself on being the consummate dealmaker, and whether his dire warnings were a negotiating tactic remains in question.
“You’ve thrown out the bomb on tariffs, now let’s use that as leverage,” said Christopher Balding, an associate professor at the HSBC Business School in Shenzhen, China.
But there are risks. 

For one, it is far from certain that China will agree to the sort of demands Trump might make: strengthening big state-owned companies is central to its current economic strategy.
The temptation for Trump to show his supporters that he is standing up to China, and Beijing’s desire to stand strong, means that some kind of action-reaction sequence is entirely possible.