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【Bloomberg】U.S., China Sidestep Discord to Focus on More Balanced Trade

Wednesday,Jul 19, 2017

U.S. and Chinese economic chiefs sidestepped their differences over North Korea and steel imports ahead of a high-level forum in which the Trump administration is seeking clear commitments from China to open its markets.

“There remains serious imbalances which we must work to rectify,” Commerce Secretary Wilbur Ross said Tuesday in Washington at an event organized by the U.S.-China Business Council, a nonprofit group representing more than 200 American companies that do business in China. “It is time to re-balance our trade and investment relationship in a more fair, equitable and reciprocal direction.”

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Ross spoke at the gathering along with U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Wang Yang, a day before the U.S.-China Comprehensive Economic Dialogue, or CED, in Washington. The forum for economic and trade talks was agreed to in April, when President Donald Trump met his Chinese counterpart Xi Jinping in Florida and developed a 100-day action plan. The talks led to China re-opening its markets to U.S. beef and pledging to buy U.S. liquefied natural gas, while allowing greater access to its financial services sector.

The meeting comes amid tensions between the two nations as Trump steps up pressure on China to rein in North Korea’s nuclear program. His administration is also weighing steps to cut steel imports, blaming China’s overcapacity for creating global gluts.

"What matters most with the CED and other forms of dialogues is to get the two sides to sit together and talk, to avoid the mutual abuse triggered by lack of communication," said He Weiwen, deputy director of the Center for China and Globalization(CCG) in Beijing. "The dialogue should cover both the generic rules and the specific deliverables. It should be cooperation-oriented, and to get the things hanging over China-U.S. relations done one by one."

Mnuchin on Tuesday said the U.S. wants specific deliverables from the CED and that the U.S. will use the discussions to push China on lifting foreign ownership restrictions in its financial services industry and to remove hurdles for information and technology sectors.

“China is in the midst of a change to a more sustainable growth model,” Mnuchin said. “We still have work to do with China to achieve a balanced relationship” based on reciprocity.

‘Climb Higher’

The Chinese government has been giving market-oriented policies a larger role in the economy, moving away from a state-led model, with a goal to achieve 6.5 percent average economic growth in the five years through 2020.

“The Chinese economy will continue to grow at medium-high speed and climb higher on the value chain, as China’s traditional industries are transformed and upgraded at a faster pace and emerging industries flourish,” Wang said in a speech at the event.

Xi said China is going to open up more to foreign investors in a meeting with his financial lieutenants on Monday, according to national broadcaster China Central Television. The nation should accelerate easing of restrictions and stake ownership requirements on foreign investment in areas ranging from nursery to e-commerce, and it should also pro-actively expand imports while stabilizing exports, looking into lowering tariffs for some consumer goods, he said.

The U.S. is likely to pressure China to expand imports of agricultural products, electronics and transportation equipment, and China could possibly reduce tariffs on these products, especially that on the automobiles, Industrial Bank Co. economists led by Lu Zhengwei wrote in a research note.

Andy Rothman, Asia investment strategist at Matthews, discusses trade relations between China and the U.S.

While Trump built a positive rapport with Xi during the April meeting at his Mar-a-Lago resort in Florida, there are signs of growing friction as the U.S. pushes China to reduce North Korea’s nuclear threat.

The U.S. president in June said China hadn’t done enough to control North Korea and its nuclear weapons program, though he appeared to brush over differences from that threat and about trade issues during the Group of 20 meeting earlier this month.

In a move that threatened to raise tensions, Mnuchin last month took steps to penalize a Chinese bank, a Chinese shipping company and two Chinese citizens to reduce North Korea’s access to the international financial system. Mnuchin said at the time that the measures were “in no way targeting China” but instead focused on “North Korea’s external enablers.”

The sanctions provoked a furious response from China, with a foreign ministry spokesman saying the measures violated understandings reached during the Mar-a-Lago meetings.

Back Burner

While Trump has put trade tensions on the back burner -- at least publicly -- if his patience runs out on China he could revive the threat of escalating trade spats.

The administration has decisions pending on the national security implications of importing steel and aluminum that could lead to quotas or tariffs, as it blames China for creating excess capacity with production of the metals at record highs.

Wednesday’s CED replaces the Strategic and Economic Dialogue, which was formalized during the Obama administration, and the longstanding Joint Commission on Commerce and Trade. Both have drawn criticism for involving too many people and producing too few results.

The CED is "different only in how it is packed," as every U.S. president likes to put his own stamp on how these dialogues are carried out, Anka Lee, senior director at Albright Stonebridge Group, said in an interview with Bloomberg Television.

He also said that difficult domestic contexts in both nations may exert influence on the conversation. China is bracing for a major leadership reshuffle in the fall and Trump is focusing on the trade deficit, which could cloud his ability to achieve "some of the broader, more ambitious conversations like pushing China to reform the domestic economy," Lee said.

On the sidelines of the talks, Ross met with top chief executives including Alibaba Group Holding Ltd. Chairman Jack Ma, Stephen Schwarzman of Blackstone Group, Tom Hayes of Tyson Foods Inc., General Electric Co. Chairman Jeffrey Immelt and Sinochem Group Chairman Frank Ning.

In their public remarks on Tuesday, Ross, Mnuchin and Wang were focused on areas of cooperation. Mnuchin left out any mention of Chinese investments in the U.S., which has sparked concern from the administration and Congress over China’s interest in purchasing stakes in nuclear weapons businesses, semiconductor companies and other critical infrastructure.

Ross downplayed any friction on Tuesday, saying the U.S.-China relationship is better today than in many decades and the countries have “fundamentally shared objectives.”

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From Bloomberg,2017-07-19
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