China can take a tougher stance in trade talks with US at G20, economists say

Frank Tang

China’s strong economic resilience means trade negotiators will be able to take a harder line during upcoming talks with Washington, according to researchers at a Chinese think tank.

But they warned that Beijing should not go too far with retaliatory measures because the ultimate aim was to “bring the US back to the negotiating table”.

The comments came just days before Chinese President Xi Jinping and his US counterpart Donald Trump are due to meet during the Group of 20 summit in Japan to try to find an end to the year-long trade war.

China is seen to be running out of ammunition in the prolonged trade battle, even though it imposed retaliatory tariffs on US$60 billion of American goods this month and has introduced an “unreliable” entities list that could be used to punish US businesses.

David Li says the direct impact of the trade war is “very limited and it’s controllable”. Photo: David Wong

There are also concerns that the trade war could weigh heavily on China’s economy and even cause social instability. But in a report released on Sunday, a think tank at Tsinghua University in Beijing said the country’s economic fundamentals remained sound and that China could sustain growth by doubling its middle-income population from the current 400 million to 800 million in 15 years.

As for the trade war, the researchers from the Academic Centre for Chinese Economic Practice and Thinking, led by David Li Daokui, said China could start a “new round of reform and opening up” to handle “an adverse current of anti-globalisation and [efforts to] contain China’s development”.

But they said China should be “patient and restrained” in dealing with Trump, and refrain from resorting to nationalistic economic policies.

“We should take the moral high ground and keep promoting globalisation,” the report said. “Our retaliation is not a purpose but a means, and our ultimate purpose is … to bring US decision makers back to the negotiating table.”

“We should take the moral high ground and keep promoting globalisation. Our retaliation is not a purpose but a means, and our ultimate purpose is … to bring US decision makers back to the negotiating table

Academic Centre for Chinese Economic Practice and Thinking

Speaking at a seminar in Beijing on Sunday, Li said China’s economy was expected to grow by 6.3 per cent this year, which is within the government’s target range of 6 per cent to 6.5 per cent. “The direct impact of the trade war is very limited and it’s controllable,” Li said.

A former central bank policy adviser, Li said China no longer relied on exports for growth, citing the country’s shrinking trade surplus in GDP.

China’s economic indicators in May painted a bleak picture for growth after Washington raised tariffs to 25 per cent on US$200 billion of Chinese goods, banned US parts sales to Huawei Technologies and added a number of Chinese firms to a trade blacklist.

Industrial production grew by 5 per cent last month – a 17-year low – while fixed-asset investment from January to May expanded at a slow pace of 5.6 per cent. Although exports returned to growth of 1.1 per cent because of front-loading ahead of the US tariff increase, an 8.5 per cent drop in imports was another sign of sluggish domestic demand.

Li said both Xi and Trump had the political will to reach a trade agreement, or at least a temporary deal, but warned that Washington needed to learn from last month’s breakdown in negotiations.

“Their legal focus outweighed the strategic thinking, and there was an overemphasis on legal terms and punishment clauses,” he said. “It will damage the atmosphere if they continue to be preoccupied with these clauses – it’s not the Chinese way of thinking.”

Also speaking at the seminar, Gao Shanwen, chief economist at Essence Securities and a key member of the China Finance 40 Forum, said the trade war had put pressure on the economy, which, if measured in real terms, was already at its lowest point in the past four decades.

“Nearly everyone agrees that we should have a new round of reform and opening up to cope with the situation. In the face of big pressure at home and abroad, the government needs to make some changes,” he said.

Timothy Stratford, chairman of the American Chamber of Commerce in China, said at the same event that the “best scenario” was for Trump and Xi to say “we are good friends, we’re going to instruct our negotiators to go back and continue negotiations”.

He said it would be “a wonderful outcome” if the two sides could reach a deal before October 1, but that would be “very difficult”.

More from South China Morning Post:

This article China can take a tougher stance in trade talks with US at G20, economists say first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2019.