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China-USA: Deal or Illusion?

ARTICLES - 26 November 2018

Symbols matter. On the eve of the U.S. mid-term elections, President Xi Jinping skillfully inaugurated the China International Import Expo in Shanghai, the first of its kind ever staged in the country. Xi’s goal was to demonstrate Beijing’s willingness to remain open to the world especially in trade areas, while in the US the Trump Administration sticks to a hard line, and remained unlikely to negotiate no matter what results of the Congressional elections would be.

With the Republicans relinquishing control of the House of Representatives (at least 39 seats were won by Democrats), the impact on Sino-American relations will be minimal. Power remains in the White House and in the hands of U.S. Trade Representative Robert Lighthizer.

Democrats and Republicans seem to agree on many issues with regard to China.

Democrat Nancy Pelosi, who will probably become the new Speaker of the House of Representatives, has long made China one of her main battles, particularly in the field of human rights. Beijing has been concerned about this state of affairs for months: Democrats and Republicans seem to agree on many issues with regard to China, including Taiwan; the militarization in the South China Sea; intellectual property issues; the lack of access to the Chinese market; and the risks raised by technology transfers to Chinese companies.

In Shanghai, Xi Jinping used an old Maoist slogan reflecting the current state of mind, stressing that Chinese state-owned enterprises should "rely on their own strengths". Such a concept is no less than an extension of the "Made in China 2025" plan, which aims at achieving high performance in artificial intelligence, robotics, semiconductors, electric cars, etc. – either alone, or through technology transfers. "Protectionism is on the rise and advanced technologies are more difficult to acquire, forcing us to rely on our own strengths," said the Chinese leader. Indeed, President Donald Trump has also strengthened the power of the Committee on Foreign Investment in the United States (CFIUS), which has blocked several Chinese takeovers in recent months. Chinese investments in the United States have fallen by 92% since January.
The discourse on China has become considerably more radical in Washington since Vice President Mike Pence's speech a few weeks ago. The Administration now presents China as a "strategic competitor", in other words an adversary. A message fuelled by many American media and think tanks whose tone have hardened over the course of trade sanctions, despite repeated criticism of Donald Trump’s policies on other issues.

“China bashing” may be in the making, especially at Congress across the political spectrum, but few advocate in Beijing’s favor. The Administration draws its arguments from American companies based in China, which have long pointed out the difficulties encountered, in a number of sectors, when attempting to thrive on the Chinese market. Some are speaking increasingly openly about shifting part of their manufacturing base to other Asian countries, such as Vietnam or Thailand.

The Americain Administration now presents China as a "strategic competitor", in other words an adversary.

In Shanghai, Xi insisted that China could open its market by importing more in the next 15 years, for example by liberalizing its financial sector. For the time being, international banking circles remain very cautious on this subject. They feel the Chinese economy’s slowdown does not represent the best time to take a stake in a Chinese bank. The country’s GDP growth rate is officially at 6.5%. It is highly likely that the Trump-Xi meeting on November 30, on the side of the G20 in Argentina, will focus on these commitments, which would allow the US President to make an announcement. However, few in Washington are considering a rapid solution to the Sino-American conflict, which goes far beyond trade issues, and includes Chinese expansionism in the South China Sea.
Although a breakthrough is not impossible (in case China makes concessions), there is every reason to believe that the Xi-Trump meeting will not produce results. In a telephone conversation with Chinese Vice Premier Liu He, Treasury Secretary Steven Mnuchin seemed to have set the bar too high for real negotiations to begin. Washington is threatening to impose additional trade sanctions on Chinese products from January, targeting all Chinese imports. It is possible this last set of sanctions will not happen, thanks to the Xi-Trump meeting, although no major outcome is to be expected.


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