GLGA Lecture Hall - Splendid Replay | He Liping: Essence, Influence and Future Prospect of Sino-US Trade Disputes

2018-09-21 14:56:25  Source:GLGA Lecture Hall   Author:He Liping

Abstract 

On the afternoon of September 20, 2018, the fourth session of GLGA Lecture Hall was successfully held at the Innovation and Development Center, Green Legal Global Alliance. Today, we have our keynote speakers here, He Liping, expert member of the Chinese Economists 50 Forum, and director of the Institute of International Finance, BNU Business School, and Zhou Kaibo, head of the PPP Project Promotion Office of the International Cooperation Center, National Development and Reform Commission. The Secretariat of the Green Legal Global Alliance will first publish the series of exclusive speeches by professor He Liping on "De-leverage", "Sino-US trade war" and prospect forecast of China's economic development. Today, it will highlight the "Sino-US trade war", elaborate its essence and comprehensive impact, and share some views on China's economic development in the days ahead. The Secretariat of the Green Legal Global Alliance will conclude core opinions on the "Sino-US trade war" of professor He Liping, and pay close attention to high-quality development of China's economy centering on the Sino-US trade war. 

Review on important events regarding the "Sino-US trade war" 

There are three economic indicators, i.e., domestic investment, consumption and export. The investment has decreased, the export changed radically, and only the consumption remained a relatively stable growth. As a whole, it is on a downward trend. Why? By now, we have to talk about the Sino-US trade relations. The US is now our largest exporter. According to our statistical data, our value of exports to the US each year reaches more than USD300 billion, which is denied by the US, claiming that it is more than USD500 billion by counting that value from Hong Kong. If the US is right, that figure only accounts for 25% of the total value of exports (USD2 trillion) to the US each year. In the event that the trade is greatly affected, it will also have a strong effect on our value of exports. 

Currently, it has been getting worse. Ten years ago, it was caught in the Sino-US trade disputes. Shortly after we joined the WTO, China and the US enter into negotiations every year in many regards. Trump took office in 2017. In April of the same year, the Sino-US summit meeting was held in Florida, when the Sino-US 100-day plan was worked out; in July, the Chinese media suggested that China had fulfilled its promise after 100 days. However, the US made Section 301 investigation against China one month later. There is a big difference. We feel that Sino-US trade relations are on a good trajectory, while the other side thinks that this figure enjoys sustained growth. It always feels that the quarrel is controllable since it never witnesses such fierce situations by the ministers. In November last year, the Sino-US summit meeting was held in Beijing, in which, China intended to increase its goods purchase of USD250 billion over the next few years. Consequently, China and the US reached economic and trade cooperation in all aspects, and established good relations with a promising future. For the moment, however, there have been misunderstandings between the two sides. The ministers did not make any actual concession, therefore, there is an increasing disputes. In March, the tariffs were increased, with two rounds of increase in the middle period. 

Multiple negotiations were failed to be reached due to concrete factors. The US wanted that specific commitments could be made, which were likely to be achieved. In November this year, the Sino-US summit meeting would be held where G20 would gather together. The G20 Summit would be presided over in Argentina in November, and the Sino-US leaders would meet each other then. In this connection, it'd better have expectations all through. 

Since President Trump has no interest in inauthentic matters, the previous negotiation model is no longer in point. At the very beginning, he, without thorough consideration, asked a relatively high price, fully showing businessman characteristics.  While, China wished to continuously follow the previous model negotiated with 10 or even 20 ministers. 

China intended to increase its goods purchase, but was unwilling to make some concrete decisions on policy regulation. We hold the opinion that even though Trump stands down in the general midterm election, this may remain the case. Recently, I have met with Robert Zoellick, governor of the World Bank, and two members of United States Congress in Beijing and Tianjin respectively. They agreed that if China expects Trump to step down or the Republican Party loses enormous advantage in the midterm election in November, relevant policies must be adjusted. However, this is fantasy. Personally, I, upon investigation, feel that Trump's policy is totally immune to elections or midterm election (I am not an expert after all). Even American scholars told me that if Trump steps down and the Democratic Party takes office, there would have tougher trade policy demands towards China. Therefore, it does not work in this respect. 

What is the impact brought by the Sino-US trade war? What about its future prospect? 

With these differences and factors, the future prospect of Sino-US trade disputes is not looking that good. But we should have a positive attitude since we have the head of state who can make proper decisions. The relative impacts are as follows: China has accelerated its delivery schedule for American exported products. We have a "fake" excellent value of trade since some of the goods may be transported to the US via Hong Kong or the third country. With long-term contracts under normal conditions, the contract-constrained enterprises must accelerate the delivery schedule to avoid tariff changes. On September 24 and January 1, 2019, there were 10% and 25% tariffs accordingly, and low tariff can be enjoyed during this period. Therefore, the exported products are delivered in a hurry. The US ship loaded with soybeans arrived in a Chinese port, and had to make delivery prior to June 1. At present, the value of trade is favorable. 

Nowadays, many Chinese- and foreign-invested enterprises, including some supply chain operators, have withdrawn from the Chinese Mainland to avoid trade war. It isn't all about the ongoing trade war, but in turn, it makes things worse. 

Some Chinese enterprises start looking for alternative import sources. Due to the high cost, American agricultural products will not access to the Chinese market. While American enterprises are seeking for sources of supply beyond China. The overall international trade flow has now undergone certain rapid changes, and some of them are even distorted. 

Long-term impact: China's exports will go down. The cost of import, especially some products related to US production, will go up; foreign enterprises in China will make some structural adjustments; adjustments on the domestic manufacturing supply chain will be accelerated; China's foreign investment will also experience some changes. Today, China is not engaged in the trade war but is highly affected. Our investment (including operation) in many developed countries is under restrictions. Such being the case, the enterprises will re-consider their investment in developed countries such as the US. 

For domestic prices, the RMB exchange rate is under certain pressure. Under the trade war, we could take this opportunity to adjust domestic measures on reform and opening up. Eventually, even the solution and time are not clear, I personally feel that the trade dispute will be resolved. Then what will we do? We will take measures to lower our tariff rate and non-tariff barrier. Only 2% tariff is collected on automobiles entering the US. How much does the US collect on the contrary? The US requires the EU to collect 10% tariff. Previously, the tariffs on China's vehicles and parts are 25% and 20% respectively, which are later reduced to 20% and 15% respectively. Even so, the US recons that such a figure is far behind 2%, therefore, China should reduce the tariffs to 5%. However, it cannot be archived straight away, and it may work on tariff reduction by stages, namely, to 10% this year, and to 5% next year. But I think it is unlikely to happen even for three or five years, since it takes time to open the domestic market. Now, there are different industries in the domestic market, including medical service. According to a recent report, the Exxon Neftegas Limited intends to make investments in Guangzhou because the Chinese government would open the gasoline retail market there. Comparably, making investments in Guangzhou used to be fairly tough, and now it brings great opportunities for enterprises with open market. Actually, many markets in China are nominally open towards foreign-invested enterprises. We will also reduce trade protection, increase intellectual property protection, and speed up the construction of corporate compliance cultures. Today, I will not discuss them in details. 

The future prospect still cannot be predicted. Nowadays, Sino-US trade war will be declined after next year due to structural changes. If the Sino-US trade disputes are virtual or settled, I think our export trade will still remain a slow growth as the domestic labor cost increases. The overseas market demands make no difference based on lower export trades in India and Vietnam, and market changes in developed countries. Domestically, we used to rely on high investment with high liability and leverage ratio, which gets nowhere in today's world. 

Another impact of the Sino-US trade war 

Consumption. The opening up of some industries under the Sino-US trade war will help boost our consumption. In general, for the most profound aspect of the whole structural transformation of the economy, there must be numerous issues encountered during China expands its domestic consumer market and brings about a prosperous economy. I will mention two points here: firstly, there are two well-established markets. Now, the majority of farmers enjoy a relatively low-priced market where cheaper goods and food can be purchased. Secondly, due to the rapid development of China's economy in the past few years, there also appear a number of high-income groups who enjoy private chartered airplane and yacht services. However, such services with firm development potential are inaccessible to the middle class whose salary has been talked about by the National Development and Reform Commission recently. Affordable and reliable products and services provided are quite insufficient in China. 

If we pay a high price on products and services which cannot meet our expectation, it indicates that they are short of reliability. China's consumer market could be better improved in the fields of medicine, medical care, and food, which requires the Chinese government to make some concrete decisions on policy regulation. This is how I understand the high leverage ratio and the Sino-US trade war for reference only. Thank you!