China stays on guard against protectionist action from Trump

Beijing is anxioulsy waiting to see if the new US president’s anti-China stance translates into punitive measures and is considering ways to mitigate the possibility.

China’s President Xi Jinping delivers a speech during the first day of the World Economic Forum, on January 17, 2017 in Davos. Fabrice Coffrini / AFP

Beijing // The US president Donald Trump’s inaugural speech has concerned Chinese officials that his past threats about imposing restrictions on Chinese business was not merely election rhetoric and he might actually implement them.

Chinese state media claims he is using political issues such as Taiwan and the South China Sea as “bargaining chips” to extract business advantages for the United States from authorities in Beijing.

“If you listen to the speech, it’s clear that China and Mexico are his biggest targets. You can expect something to happen. It’s no time for Beijing to relax,” Christopher Balding, a professor of finance at the HSBC School of Business at Peking University in Shenzhen, tells The National.

The new president did not specifically name China or reiterate his earlier statements that China was stealing American jobs and that he would impose a 45 per cent tax on Chinese goods. But he came very close.

“For many decades, we’ve enriched foreign industry at the expense of American industry …,” Mr Trump said in Washington at the weekend.

“Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.”

In response, the Chinese premier Li Keqiang announced China could soon ease restrictions on its own version of the US “green card” fearing that Mr Trump’s strategy would persuade highly skilled Americans it was time to pull out of China. Mr Li’s government will “relax market access, attract more foreign investment and learn advanced technologies and management”, Mr Li says. The move would make it easier for foreigners to apply for permanent residency in an attempt to attract more talented workers to the country, the authorities said.

The government is considering revising the regulations to apply for permanent residency with “more flexible and pragmatic application standards”, the Organisation Department of the Central Committee of the Communist Party said.

China’s president Xi Jinping, who spoke at the World Economic Forum (WEF) in Davos, Switzerland a few days before Mr Trump’s inaugural speech, underlined the dangers of following protectionist policies that had been promised by Mr Trump during election campaigning. Mr Xi candidly discussed the dangers of a trade war for all countries but displayed no sign of nervousness about Mr Trump’s threats to impose crippling restrictions on Chinese exports and investments.

“Pursuing protectionism is like locking oneself in a dark room. Wind and rain may be kept outside, but so is light and air,” Mr Xi said. Becoming the first Chinese president to address the WEF, he emphasised the value of doing business with China, which forecasts imports valued at US$8 trillion, and investments of $750 billion across the world, in the next five years.

Some economists feel Beijing need not be too worried about the “Trump effect”.

“China is a very big economy and it can handle the new challenges if Trump goes ahead and implements what he has been talking about,” says Kerry Brown, a professor of Chinese Studies and the director of the Lau China Institute at King’s College in London. “Xi Jinping clarified China’s position that all countries would be hurt by a trade war.

“China would prefer to wait and watch what kind of actions Trump would take after he becomes president. It would then decide on soft or hard responses,” Prof Brown says.

In recent days, Beijing has announced new measures to try to convince foreign investors that China offers a better environment for investments than they may find elsewhere. The state council, which is the Chinese cabinet, has relaxed entry controls for overseas banks, securities brokerages and futures and insurance companies. It has also lifted restrictions in rail transport equipment manufacturing, motorcycle production, fuel ethanol, and oil and fat processing.

China will support foreign companies setting up research and development centres and strengthen cooperation with domestic peers, and will allow them to join national science and technology programmes, the state council says.

Chinese social media reacted in very different ways to Mr Trump’s first speech as president, with some saying he poses a serious threat and others rejecting his statements as bluff and bluster.

A more extreme subject hotly debated on Weibo, a Chinese platform similar to Twitter, is whether Mr Trump will usher in an American version of the Chinese “cultural revolution” that saw wide ranging atrocities and suppression of the educated elite during a bout of intense populism from 1966 to 1976, unleashed under Mao Zedong, then the chairman of the Communist Party of China.

Writing on Weibo, Dai Xu, a former Chinese air force colonel, commented that responding with words is not enough. “What we should do right now is to get ourselves prepared and start thinking about how to respond [to Trump]. Action is the most resonant language.”

The official Xinhua news agency tried to placate the new American leader after his inauguration saying: “As a renowned and savvy businessman, the new leader in Washington knows more than anyone else the merits of a sound China-US partnership. Therefore, he surely knows that investment from Chinese businesses benefits the US economy and could help create more jobs for the country.” Xinhua tried to underline China’s usefulness to Washington saying it is best suited to persuade North Korea to shed its nuclear arms ambitions. It also said Chinese companies can be a source of job generation in the US.

The China Daily newspaper produced a more positive spin saying that suppression of Chinese exports by the US would force local companies to upgrade their production systems and ultimately benefit them.

“Officials with China’s National Development and Reform Commission [the main economic planning agency in China] may thank the Trump administration if it can help China offload obsolete, unsustainable industrial capacity quicker,” the paper said.

Mr Xi’s assurances to US entities in China seem borne out in a 2017 Business Climate Survey released by the American Chamber of Commerce (AmCham) in China last week. About 72 per cent of US companies surveyed in China feel positive that a strong bilateral relationship between the US and China is critical for business. In fact, 69 per cent say they are planning new investment in China this year, rebounding slightly from last year’s 68 per cent, which was the lowest level since the global economic crisis of 2008.

“The country remains an important market for most multinationals, but we are seeing a significant shift in what foreign businesses are prioritising,” says Stephen Shih, a partner at management consultancy Bain, which worked with AmCham to compile the survey. “Innovation in China and operational efficiency will need to be at the top of the agenda for companies in 2017. More companies will also be re-evaluating the role of China in their global portfolio of markets.”

Still, Mr Trump, who has taken US car companies to task over their production facilities in Mexico, is expected to make it difficult for American firms to invest heavily in countries such as China.

Some US companies are worried that his actions will result in a US-China trade war, significantly affecting their business. One third of the respondents in the AmCham survey expressed fears that the relationship would deteriorate, although 50 per cent felt there will be no changes.

“Beijing has said if Trump cracks down, they will go after foreign firms. So that’s got to be a concern. They are tapering their investment plans, but I think they’re cautiously optimistic that a lot of these problems will get worked out in the future,” Prof Balding says.

Indeed, it seems the mood of US companies is actually increasingly optimistic. The AmCham survey showed that 58 per cent of US companies in China expect their 2016 revenue will have increase, a figure up from 55 per cent the previous year. Similarly, the 68 per cent of companies that said their China operations were profitable last year was up from 64 per cent in 2015.

Whether they remain similarly upbeat in a few months time remains to be seen.

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