Will Beijing follow through on industrial reform? That’s the next big question in the US-China trade war

Sarah Zheng
Will Beijing follow through on industrial reform? That’s the next big question in the US-China trade war

The next stage for China-US trade talks will be the creation of a framework to verify China’s commitment to structural industrial reform, a move that could be a stumbling block in ending the trade war between the two countries, analysts said.

The assessment came after delegations wrapped up their talks on Wednesday, when the US negotiators challenged China on a series of grievances.

China’s Ministry of Commerce said the talks laid a foundation for resolving their disputes, as both sides had in-depth discussions about structural economic problems.

It said there was progress on structural economic issues during the latest trade talks with the US, but insisted an enforcement framework would be the responsibility of both countries.

“The Chinese side also believes that the implementation mechanism is important,” Gao Feng, commerce ministry spokesperson, said at a press briefing.

“Both sides have the responsibility in fulfilling that.”

The ministry said the talks, which included in-depth discussions about structural economic problems, laid the foundation for resolving their disputes.

Analysts say the next stage will likely be the creation of a framework to verify China’s commitment to structural industrial reform, a move that could be a stumbling block in ending the trade war between the world's two largest economies.

A statement on Wednesday evening from the United States trade representative body said the meetings were part of a push to achieve “needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture”.

The US side gave no indication as to what, if any, agreements had been made during the latest round of talks, but its statement said the US pushed for verification and enforcement of earlier agreements.

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The two sides held intense discussions at the vice-ministerial level from Monday to Wednesday in Beijing. The delegations were led by Chinese vice-commerce minister Wang Shouwen and deputy US trade representative Jeffrey Gerrish.

Both nations will continue their negotiations, and Vice-Premier Liu He is expected to visit the US soon. Analysts say the timing of his trip could indicate the effectiveness of the latest talks.

Julian Evans-Pritchard, senior China economist at Capital Economics, said while it was relatively simple to track changes in Chinese purchases of US goods, it would be difficult to create a verification framework for China's follow-through on structural changes.

“The lesson of the past few years is that, even in cases where China has opened up on paper, removed restrictions to foreign investment for example, that has not really balanced the playing field in practice, with a lot of sort of indirect ways where the Chinese government can favour state firms and domestic firms,” Evans-Pritchard said.

And while Beijing might offer piecemeal measures on its structural reform, it would not be likely to abandon its core industrial policy, including its “Made in China 2025” plan, or those that favoured domestic firms over foreign ones, he said.

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“That does not necessarily mean that there will not be a deal because it seems to me that the US side, and [US President Donald] Trump in particular, appears much more keen on reaching a deal, even if it’s not the deal that they originally wanted,” Evans-Pritchard said. “If the deal is much more narrow in scope, then that will make it much easier to monitor the implementation … of what is agreed.”

Analysts stressed that Beijing would not be likely to acquiesce to the US on issues central to its national interests, even while it was unclear what agreement the talks would yield.

Wei Jianguo, who was China’s vice trade minister until 2008, said the latest talks laid a promising foundation for negotiations, but warned against creating the impression that the US was imposing enforcement of Chinese commitments.

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“There will be more reform measures in 2019, but China will implement them in accordance to its own needs for reform instead of caving in to US demands,” Wei said, citing the possibility of reduced subsidies for Chinese state-owned enterprises, better regulations against forced technology transfer and intellectual property protections.

“But the bottom line is that China won’t cede to demands that would threaten national sovereignty and national security in areas such as cyber, food, energy and development.”

Shi Yinhong, a China-US relations specialist with Beijing’s Renmin University, said friction would come with US demands for China to cut subsidies to state-owned enterprises.

Shi said Trump had not raised the issue over the past two months, but expected it would be addressed again in trade talks when other issues, such as purchasing more US products, were tackled.

Additional reporting by Jane Cai

This article Will Beijing follow through on industrial reform? That’s the next big question in the US-China trade war first appeared on South China Morning Post

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