China’s trade pledges: empty promises?

This week is an important one for China. Monday marked the start of the first ever China International Import Expo, a six-day trade fair in Shanghai that has been described as a combination of “country exhibitions, company exhibitions and forums to promote free trade and an open global economy”. In a keynote speech at the exhibition, Chinese President Xi Jinping said that the event “demonstrates China’s consistent position of supporting the multilateral trading system and promoting free trade” and “is a concrete action by China to advance an open world economy and support economic globalisation”.

However, it is not only the expo itself that is significant. President Xi’s address served as an opportunity for the leader of the world’s most populous nation to make the case for his country’s commitment to opening up its economy.

China, according to the President, is set to “unswervingly follow a win-win strategy of opening-up” and “adopt high-quality policies to advance trade and investment liberalisation and facilitation”. To achieve this the country will, he explained, step up efforts in five areas. It will “stimulate the potential for increased imports”, “continue to broaden market access” and “foster a world-class business environment”. Additionally, it will “explore new horizons of opening-up” and “promote international cooperation at multilateral and bilateral levels”.

“We will take further steps to lower tariffs, facilitate customs clearance, reduce institutional costs in import and step up cross-border e-commerce and other new forms and models of business,” President Xi said in a statement sure to be of interest to economists given the trade war that has been waged of late between the East Asian nation and the second-biggest export economy globally, the US. While discussing the second area, he claimed that in the coming decade and a half, China’s import of goods and services is expected to exceed $30tr and $10tr respectively.

The speech was also a chance for President Xi to deliver a message to the world. Noting the current resurgence of unilateralism and protectionism, he spoke of how “economic globalisation faces headwinds” and how multilateralism and the system of free trade are under threat. Openness and co-operation are needed to foster steady world recovery, he argued, claiming that these two concepts will stay vital for continued human progress. He added that it is important for every nation to “open wider and expand the space for mutually beneficial co-operation” and “pursue innovative growth and speed up the transformation of growth drivers” as well as “pursue inclusive development for the benefit of all”.

In a pointed barb at protectionism and a ‘Me First’ attitude to trade, President Xi argued that “efforts to reduce tariff barriers and open wider will lead to interconnectivity in economic co-operation and global trade, while the practices of beggaring thy neighbour, isolation and seclusion will only result in trade stagnation and an unhealthy world economy”.

Analysing the address

Analysts, unsurprisingly, have pored over the details of President Xi’s address. According to Bloomberg, the President’s goods and services import prediction is “in line with China’s previous pledges on opening its economy and fostering consumption”, though “the pledge on goods imports is higher than a promise President Xi previously made, to buy $24tr”. However, Bloomberg claims that the comment doesn’t “move the needle very far on trade policy — the government has already cut tariffs this year and said it would do so again”.

“The big-ticket import pledge is actually not that much more than China is doing already,” it added. “President Xi didn’t announce any new stimulus measures, despite signalling last week that further measures were oncoming as the economy slows.”

Meanwhile, Marex Spectron analyst Alastair Munro said in a note: “[President Xi’s] reiteration of plans to further cut taxes [and] import $30tr of goods over the next 15 years, coupled with a distinct lack of details around any further stimulus measures, leaves the market disappointed.”

“President Xi pledged lower import tariffs and moves to make it easier for foreign firms to access the economy,” added Robin Brant from BBC News. “But, as is often the case, it lacked specific timings. He also didn’t address the core US complaints about Chinese trade, including the alleged theft of intellectual property from US firms and the special terms China gives to its state-run companies. There was definitely no sign that China is about to cave in the escalating trade war.”

Trade war remains

So far in 2018, around 50% of imports from China into the US have been slapped with tariffs, with the North American nation threatening to target all imports. According to the White House, the taxes are in response to China’s “unfair” trade policies – which US President Donald Trump blames for helping generate a massive trade deficit — and alleged intellectual property theft. The US administration also wants American companies to be given better access to China’s markets by the nation.

At the start of November, President Trump said on Twitter that himself and President Xi had had a “very good” phone conversation and that trade discussions with China were progressing “nicely”. He also said that he planned to meet President Xi on the sidelines of a G20 summit in Argentina, though this was soon upgraded to a “meeting plus dinner” at the request of President Trump, which China has tentatively agreed to, according to the South China Morning Post. Also at the beginning of the month, President Trump had reportedly asked US officials to prepare a draft trade deal with China, though three senior administration officials soon said that there was no indication of an imminent trade deal, despite some progress behind the scenes. Later, President Trump’s economic advisor Larry Kudlow said that the President had not asked his Cabinet to put together the agreement.

Given that progress with the US appears on shaky ground, it’s perhaps no surprise that in his trade expo speech, President Xi said that China would accelerate negotiations on both a China–EU investment deal as well as a regional free trade deal for China, Japan and South Korea.

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