BEIJING — Since the 2009 global financial crisis hobbled most of the world’s developed countries, China has been the economic locomotive pulling the rest of the world behind it.

As the economies of Europe, the U.S. and Japan stagnated, China went from strength to strength. It surpassed its Asian rival to the east a decade ago in total gross domestic product to become the world’s second-largest economy, with its sights trained squarely on the United States.

Indeed, judged by what economists call purchasing power parity — the idea that services such as a haircut are valued equally — Beijing already can claim the title of the world’s largest economy.

But the sputtering Chinese-driven train appears to have pulled into the station. Growth targets have been slashed. Exports have fallen. Debt levels are rising. Some economists even say China is in a recession.

“It is true that China’s economy has encountered new, downward pressure,” Chinese Premier Li Keqiang told reporters last week at the conclusion of the annual National People’s Congress gathering in Beijing. Faced with growing pressures within and without, the government said it plans to create more than 11 million jobs this year to avoid a politically disruptive slowdown.

Mr. Li used unusually stark language to describe the challenges China faces. He said government planners at all levels need to “turn the blade inward” and “cut our own wrists” to carry out the sacrifices needed to keep the economy afloat.

In the long-run competition between the U.S. and China for economic supremacy, JP Morgan Chase CEO Jamie Dimon said he is betting on the U.S.

“It isn’t like the Chinese have a free ride for the next 20 or 30 years,” Mr. Dimon said in an interview this week with CNN.

A recent visit to China reveals how a confluence of factors — not least the Trump administration’s trade war and demands for deep changes in the way the Asian giant does business — has put the nation’s economic model, so successful over the past 40 years, in real peril.

The ‘world’s factory’

In 1978, Deng Xiaoping and his fellow reformers in the ruling Communist Party inherited an economy — and society — all but ruined by Mao Zedong.

In the 19th century, China was one of the world’s richest, most productive economies. But by the end of Mao’s disastrous 27-year reign of collectivization, state command and brutality, the country was deeply impoverished, barely able to feed itself. During the grim, ironically named Great Leap Forward, a period of mass collectivization that lasted from 1958 to 1962, tens of millions died of starvation as China’s agricultural sector was devastated.

Deng commenced China’s “reform and opening-up,” a shift still widely celebrated in China — a bright red sign flying in Tiananmen Square marks the recent 40th anniversary of the inauguration of the policy. While retaining strict political control, Deng legalized entrepreneurship and liberated the peasants who had been forced onto Mao’s collectivized farms. Perhaps most crucial, Deng permitted foreign investment, though only as part of joint ventures with Chinese companies.

It was that last decision that many credit with providing the underpinning for the wildly successful Chinese development model of the subsequent four decades. Foreign investors found China to be an enticing manufacturing base, boasting a massive workforce willing to work for pennies on the dollar.

Factory investment surged along with exports. Chinese exports, produced for a fraction of the cost of goods produced in other countries, were able to compete on price if not quality. China’s 2001 entry into the World Trade Organization only served to further China’s emergence as the world’s factory floor, signaling profound disruptions in the economies across Asia, Europe and the Americas.

Meanwhile, the Chinese government recirculated the cash it vacuumed up from overseas exports into investment. During the 2009 financial crisis, Beijing’s leaders had the firepower to unleash a massive construction boom that kept the economy humming even as much of the world fell into a recession.

The United States, as the world’s largest consuming nation, has been a particularly attractive target for Chinese exports. In 2006, the U.S. imported $343 billion worth of Chinese products. By 2017, that number had leaped to $522.9 billion, according to U.S. government data.

China was steadily moving up the supply chain.

No longer just the world leader in producing cheap plastic junk, China had top exports in 2017 that included mobile phones, computers, computer parts and integrated circuits. U.S. exports to China that year amounted to a mere $187.5 billion, resulting in a $335.4 billion trade gap.

It is this severe trade imbalance that President Trump has sought to redress by imposing tariffs on scores of Chinese exports — so far targeting about $250 billion worth of Chinese imports — hitting various sectors such as solar panels, washing machines and dental fillings.

The tariffs serve two purposes for the economic nationalist president. For one, they encourage manufacturers to set up shop in the U.S. by undercutting China’s competitive cost advantage.

U.S. officials say the tariffs have been useful for pressuring Beijing to change its behavior on other fronts, including North Korea, intellectual property theft, forced technology transfers and myriad other restrictions on foreign companies operating in China. Chinese companies operating in the U.S. market are not subject to such restrictions.

Despite widespread skepticism among economists that Mr. Trump’s tariffs are simply taxes on American consumers, there is strong evidence that they have had some success in hobbling the Chinese export-oriented development model.

Gordon Chang, a longtime China watcher and author of “The Coming Collapse of China,” said Chinese exporters are absorbing more than 80 percent of the costs of U.S. tariffs related to intellectual property theft and forced technology transfers.

“It makes sense that desperate Chinese exporters are willing to pay a good portion of the tariffs to preserve market share,” Mr. Chang said.

But even as Chinese economic officials try to stave off the effects of the U.S. tariffs, exports have swooned. Chinese exports to the United States were down 14.1 percent in the first two months of 2019 compared with the previous year. The falloff has dragged down the Chinese economy as a whole.

The trade dispute has “negatively impacted consumer confidence,” said Jake Parker of the U.S.-China Business Council in Beijing.

Target shooting

For years, the Chinese economy was essentially the world’s most successful target shooter.

Each year, the central government would set a “target” for GDP growth. And each year, like clockwork, the economy would hit the bull’s-eye — or so the official data said. In the heady three decades after Deng’s reforms took hold, GDP growth routinely topped 10 percent. Even since 2010, the target range was still a lofty 8 percent while U.S. annual growth never topped 3 percent.

But this year, the government has set a target of just 6 percent GDP growth, which is evidence of a stark slowdown.

Even the 6 percent growth may be a mirage, whatever the official numbers show.

Tony Nash, managing partner at economic forecasting firm Complete Intelligence with deep experience in China, called the Beijing government’s official figures “a Potemkin village, simply presented for the impression.”

“This is done because the expectations of 8 percent growth, for example, was set more than a decade ago in order to create enough jobs for the workforce,” he said. “That’s a high bar to achieve, but it’s also a higher expectation to overcome.”

Michael Pettis, a finance professor at Peking University, said he estimated that Chinese real GDP growth is only about half of what official figures indicate.

In Baoding, an industrial city about 100 miles southwest of Beijing, an industrial park manufacturing solar panels continues to operate despite the financial woes of Yingli Solar, one of the world’s biggest panel manufacturers. (Solar panels are targeted by Mr. Trump’s tariffs.)

In the midst of a major debt restructuring, Yingli is likely now serving only the domestic market and thus would be hit by any reduction in domestic investment. The company declined to speak to the media.

Still, like many other Chinese cities, Baoding has the appearance of a boomtown regardless of the underlying health of the economy. Cranes are everywhere. Glistening new malls stacked with Western stores are packed with shoppers.

Foreign firms continue to chase China’s vast consumer market. Pan Chenyin, China manager at Fireworks, a digital technology company that helps promote consumer brands, observed that “with the growing of the middle class, domestic consumer consumption is taking up a considerable amount of China’s economy.”

Despite the U.S.-China trade hostilities, he said, “I feel the spirit is high.”

Mr. Pan reports that leading consumer brands continue to increase their spending in China and that his firm is seeing 20 percent year-on-year growth — even in the midst of the slowdown.

Consumer focus

That is encouraging news for China’s economic planners, who are hoping to use the export slowdown to achieve their long-held goal of turning the country into more of a consumer-driven economy that is less dependent on exports and investments. Particularly with exports in trouble, China is “dependent on increasing investment for growth,” Peking University’s Mr. Pettis said. But the heavy influence of the government on the economy continues to hold China back.

“Because so much of that investment is ‘wasted’ on nonproductive or unnecessary infrastructure and real estate projects, and on excess capacity … debt is rising so much faster than their ability to service the debt.”

To get consumers to buy more, the Chinese government recently cut the national sales tax. But there is much more it could do, Mr. Pettis said. He suggested that local governments “lower fees for residents, for example car licenses, electricity, water … or lower costs for public transportation” to spur consumption.

One looming thundercloud is the possibility that Mr. Trump will increase tariffs. That would hurt exports further and depress consumer confidence.

Heated trade talks between China and the United States continue. Treasury Secretary Steven T. Mnuchin and U.S. Trade Representative Robert Lighthizer reportedly are planning another trip to Beijing next week. Mr. Trump has already delayed further tariffs once, but there is a clear concern that the mercurial American president is growing impatient.

Not long ago, there was a sense that Mr. Trump, operating in a slapdash manner and desperate for any form of “win,” would capitulate on the thorniest issues, including technology transfers and intellectual property protections. One official, who spoke in an unofficial and anonymous capacity, was gleeful in predicting that China would stare down the U.S. president and win.

But Mr. Trump’s abrupt exit from the Hanoi talks with North Korean leader Kim Jong-un has shaken that confidence and demonstrated, in fact, that Mr. Trump is willing to walk away from a deal that doesn’t suit him.

Still, the Chinese are putting on a brave face and predicting that the two sides will eventually cut a deal. At the same time, they are sounding a more conciliatory note than they did before the Hanoi summit.

Shen Dingli, a professor at Fudan University, is typically a reliable voice of the Chinese establishment and is known for his hawkish take on Chinese economic relations with Washington. These days, Mr. Shen sounds downright dovish. He is forecasting a “win-win, no-losers outcome” to Mr. Trump’s trade offensive.

“The U.S. will get more and better access to Chinese markets with more equal treatment of competition of export as well as investment,” he said, while “China will be able to maintain its current exports and even increase its exports.”

Source: https://www.washingtontimes.com/news/2019/mar/19/trump-trade-war-slows-china-economy-growth/

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Moscow no longer cares about “European integration or moving towards Europe” instead it is open to an allegiance with the world superpower, according to one leading expert. Tensions continue to rise between the world’s biggest economies following the ongoing trade war between Washington and Beijing, alongside continued talk of a ‘European army’ which threatens to undermine NATO. Bruno Maçães a former Europe minister for Portugal told Politico that talks were already underway behind the scenes between Russia and China.

Mr Maçães said: “In the halls of the Kremlin these days, it’s all about China — and whether or not Moscow can convince Beijing to form an alliance against the West.”

He added: “Russia’s view of China has shifted significantly over the past five years.

“Moscow has abandoned any hope that the Chinese economy is an example it might emulate. Instead, foreign policy experts now talk of how Russia can use China to further its geopolitical goals.”

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THE US and China on Sunday “made new progress” on the issues of trade balance and intellectual property following a phone call involving officials from both countries, China’s commerce ministry said.

Washington and Beijing have been engaged in a bitter trade war but relations but temperatures have cooled since Chinese President Xi Jinping and US President Donald Trump agreed to a 90-day truce.

“On December 21, China and the US conducted a phone conversation at a vice-ministerial level, exchanging views on issues such as trade balance and strengthening intellectual property protection, and made new progress,” the Ministry of Commerce said in a brief statement, as quoted by the AFP.

SEE ALSO: China’s alleged Uighur abuse could strain ties with Muslim countries 

On Wednesday, the two sides discussed “economic and trade issues” which makes Sunday’s phone call the second such engagement in a week.

A lack of fair access for foreign companies in China, as well as rampant theft of intellectual property, have long been a bone of contention for US and European officials with Beijing.

The calls came amid Chinese legislators’ move to consider new laws governing foreign investment in hopes of streamlining existing rules and to prevent the forced transfer of technology.

A Chinese official adjusts a Chinese flag before the start of a meeting between Foreign Minister Wang Yi and Indian Foreign Minister Sushma Swaraj in New Delhi, India, Dec 21, 2018. Source: AFP

According to the official Xinhua news agency, the new “unified law” will replace three existing laws on Chinese and foreign equity joint ventures, non-equity joint ventures and wholly foreign-owned enterprises.

The Standing Committee of the National People’s Congress (NPC) meeting which began Sunday was presented with a draft of the proposed legislation.

SEE ALSO: Why does China keep supporting Burma in the Rohingya crisis? 

If legislated, the new law would bar local governments from restricting market access for foreign firms and from forcing them to transfer technology.

The law will ensure foreign investors would enjoy the same privileges as Chinese companies in most sectors except those excluded on a “negative list”, according to the AFP.

“In order to further expand opening up, actively promote foreign investment, protect the legitimate rights and interests of foreign investment, and promote the formation of a new pattern of comprehensive opening, the State Council has proposed a bill,” the Standing Committee said is a statement about the meeting posted on the NPC website.

Source: https://asiancorrespondent.com/2018/12/us-china-cool-trade-tensions-after-phone-call/

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BERLIN — German Chancellor Angela Merkel and French President Emmanuel Macron will attempt a pincer movement on Donald Trump, with China emerging as the likely target of their joint effort to avert a trade war with the United States.

The leaders of Europe’s two biggest economies will visit the president in Washington within days of each other this month as the clock ticks down to a May 1 deadline for European Union (EU) proposals to stop the U.S. from imposing tariffs on steel and aluminum.

A possible solution may lie in White House efforts to forge a “trade coalition of the willing” to stand up to China for what it calls unfair trade practices. The move is gaining favour with the government in Berlin as well as with the EU, which handles the bloc’s trade negotiations, while a bruising trip to China earlier this year may make Macron more likely to lend his support.

The EU is just one front in the U.S. attempt to rewrite international trade rules, with Trump on Thursday (April 5) threatening levies on US$100 billion (S$132 billion) of Chinese goods, shortly after Washington and Beijing outlined tariffs on US$50 billion of each other’s imported products. At stake for the EU are the metal tariffs that could take effect as soon as next month, threatening disruption to total trans-Atlantic trade worth some US$720 billion.

“The Europeans are going to have a very tough decision to make, which is, are they going to play this game,” Edward Alden, a Washington-based senior fellow at the Council on Foreign Relations, said in an interview. “That’s just anathema to the beliefs of Merkel and Macron.”

All the same, Merkel, in her fourth term as Germany’s leader, and Macron, elected France’s young president on a pro-EU ticket last year, are both under pressure to deliver something in their talks with Trump to calm trade tensions.

At home, Macron is navigating a raft of economic and labour reforms that will determine his fate. A deadly attack carried out in the German city of Muenster on Saturday was a reminder for Merkel of the domestic security agenda that is dominating her coalition’s early days, and which could topple her yet.

A common thread that is likely to feature leads to China. Merkel and Macron have both made China’s inexorable rise a policy priority, with Macron pledging in January at the end of a trip to China to seek more strategic coordination with officials in Berlin on the issue.

On the trade front, the EU took concrete action on Thursday, asking to join a U.S. dispute against China in the World Trade Organization over the Asian nation’s discriminatory technology licensing rules.

German Economy Minister Peter Altmaier said in an interview with Der Spiegel magazine that he is willing to take joint action with Washington against overcapacity in the steel market, and was looking for a unified approach against intellectual property theft. European Commission Spokesman Daniel Rosario said the EU was having high-level meetings with the U.S. that included discussions on overcapacity.

“One of our proposals to the U.S. side is that we should go into talks on how we can face probably unfair trade practices from China,” Juergen Hardt, who oversees trans-Atlantic coordination for Merkel’s government, told Bloomberg Television on March 23.

Top White House economic adviser Larry Kudlow said on Thursday that a deal on Chinese tariffs could be realised in part by convincing other major economies to call out the Asian nation for unfair trading practices. “Everybody in the world knows that China has not played by the rules for many years,” he said.

Europe is still steadfast in standing behind WTO rules. A response to the U.S. mustn’t involve “softening or weakening in the face of a unilateral decision” taken by Trump, French government spokesman Benjamin Griveaux told reporters in Paris on Wednesday.

A compromise is all the harder as Berlin and Paris have difficulty communicating with the U.S. due to the turnover of staff in the Trump administration. Macron, 40, may be in a better position for diplomatic maneuvering than Merkel, 63. Trump will host the French president and first lady at Mount Vernon, the Virginia estate of the nation’s first president, George Washington, as part of a state visit. Merkel’s trip to meet the president, while still to be firmed up, is understood to have come at her request.

The EU’s two most powerful leaders will aim to “shove the U.S. back into the box” of the global trade system even as Trump seeks concessions as part of a “divide and conquer” strategy with Europe, according to Alden. But in the end, Merkel and Macron “may have no choice but to do this on Trump’s terms,” he said. BLOOMBERG

Source: http://www.todayonline.com/world/trumps-trade-war-against-china-could-see-allies-macron-and-merkel

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