Archive for ‘trade war’

15/06/2019

Lessons from an old trade war: China can learn from the Japan experience

  • In the last half of the 20th century US worries about a rising Japan led to tariffs and technology mistrust
  • Differences in the Chinese experience may predict a different outcome
Toshiba was one of the companies affected by US actions to prevent the rise of Japan in a trade war that echoes in today’s tensions between the US and China. Photo: Reuters
Toshiba was one of the companies affected by US actions to prevent the rise of Japan in a trade war that echoes in today’s tensions between the US and China. Photo: Reuters
If history is a mirror to the future, the similarities between the spiralling technology stand-off between China and the US and the economic wars waged by the US with Japan – which peaked in the 1980s and 1990s – may be instructive. But there are differences between the two which may predict a different outcome.
The US-Japan economic tensions started in the 1950s over textiles, extended to synthetic fibres and steel in the 1960s, and escalated – from the 1970s to 1990s – to colour televisions, cars and semiconductors, as Japan’s adjusted industrial policy and technology development moved it up the industrial chain.
Boosted by government support, Japan’s semiconductor industry surpassed the US as the world’s largest chip supplier in the early 1980s, causing wariness and discontent in the US over national security risks and its loss of competitiveness in core technologies.

The Reagan administration regarded Japan as the biggest economic threat to the US. Washington accused Tokyo of state-sponsored industrial policies, intellectual property theft from US companies, and of dumping products on the American market.

The US punished Japanese companies for allegedly stealing US technology and illegally selling military sensitive products to the Soviet Union. It also forced Japan to sign deals to share its semiconductor technologies and increase its purchases of US semiconductor products.

“The Trump administration is using similar tactics against China that were used against Japan in the 1980s and 1990s,” said an adviser to the Chinese government, on condition of anonymity, adding that the US was continuing its hegemony to curtail China’s tech development and was trying to mobilise its allies to follow suit.

After talks to end the US-China trade faltered last month, Huawei – a global leader in the 5G market – is now standing at centre stage of a protracted technology stand-off between Beijing and Washington, which has grown increasingly wary of the rising competitiveness of Chinese tech companies.

Zhang Monan, a researcher with the Beijing-based China Centre for International Economic Exchanges, does not foresee an easing of the rivalry between the US and China.

“The current US-China conflicts are more complicated than those between the US and Japan,” she said.

“The US will only get more intense in its containment of China and the tech rivalry won’t ease, even if China and the US could reach a deal to de-escalate the trade tensions.”

Huawei is at the centre of a technology stand-off between Beijing and Washington. Photo: AP
Huawei is at the centre of a technology stand-off between Beijing and Washington. Photo: AP

Back in 1982, the US justice department charged senior officials at Hitachi with conspiracy to steal confidential computer information from IBM and take it back to Japan. IBM also sued Hitachi. The two companies settled the case out of court and Hitachi paid 10 billion yen (US$92.3 million) to IBM in royalties in 1983, while accepting IBM inspections of its new software products for the next five years.

Toshiba, a major electronics producer in Japan, and Norway’s Kongsberg Vaapenfabrikk secretly sold sophisticated milling machines to the Soviet Union from 1982 to 1984, helping to make its submarines quieter and harder to detect. This transfer of sensitive military technology in the middle of an arms race between the US and the Soviet Union was not revealed until 1986.

The US issued a three-year ban on Toshiba products in 1987 and the company ran full-page advertisements in more than 90 American newspapers apologising for its actions.

In 1985, the US imposed 100 per cent tariffs on Japanese semiconductors. A year later, in its five-year semiconductor deal with the US, Japan agreed to monitor its export prices, increase imports from the US, and submit to inspections by the Office of the United States Trade Representative.

A display of chips designed by Huawei for 5G base stations on show at the China International Big Data Industry Expo. Photo: AP
A display of chips designed by Huawei for 5G base stations on show at the China International Big Data Industry Expo. Photo: AP

This was followed by a second five-year semiconductor deal in 1991, in which Japan agreed to double the US market share in Japan to 20 per cent. In yet another bilateral semiconductor deal in 1989 Japan was required to open its semiconductor patents to the US.

Meanwhile, the US government boosted its efforts to help American businesses cement their industrial leverage in the chip sector and unveiled rules to protect its domestic chip industry.

The two countries were irreconcilable in 1996 on how to measure their respective market share. Overall market circumstances had also changed by then, with the US becoming competitive in microprocessing, and South Korea and Taiwan emerging as strong rivals to Japan.

Its dominance in semiconductors lost, Japan reached out to Europe for a range of cooperative technology deals.

Cooperate, don’t confront: academic advises Beijing on trade war tactics

“History can tell that high technology matters greatly to national security strategies. It is not a process of mere market competition. It follows the law of the jungle,” Zhang said.

The US has intensified its investment scrutiny by rolling out the Foreign Investment Risk Review Modernisation Act last year, which extends the regulation to key industrial technology sectors.

Zhang predicted the US would continue to contain China’s technological development in key sectors such as AI, aerospace, robots and nanotechnology – all of which are of great importance to Beijing.

The US has said Chinese tech giants Huawei and ZTE present a national security risk. Last April it cut US supplies to ZTE, citing violations of sanctions against Iran and North Korea. The ban was removed three months later after ZTE paid US$1.4 billion in fines.

It was a wake-up call for China to develop its own core technologies. The subsequent US ban on Huawei added to the urgency to do so, observers said.

Wang Yiwei, a professor in international relations with Renmin University, said China had to develop its own hi-tech know-how while continuing the opening up process.

“China has paid a price to learn whose globalisation it is,” he said.

“We may see some extent of disengagement with the US in technology and dual-use sectors, but China can speed up cooperation with European countries, and other countries such as Israel, to offset the risks from the US.”

In December, the US filed criminal charges against Huawei and its chief financial officer Sabrina Meng Wanzhou, alleging bank fraud, obstruction of justice and technology theft.

The squeeze continued last month with the US blacklisting Huawei, restricting its access to American hi-tech supplies and putting pressure on its allies to freeze the company out of the 5G market. So far, those allies, including Germany and Japan, have remained hesitant about meeting the US request and refrained from siding with either country.

Chinese foreign ministry spokesman Geng Shuang said on Monday that Huawei had obtained 46 commercial contracts in 30 countries as of June 6, “including some US allies and some European countries that the US has been working hard to persuade out of the contracts”.

For Zhang, the differences between Japan’s experience of US concerns of technological advancement and China’s may offer some hope for Chinese ambitions.

“Dependent on US for security protection, Japan was limited in [its ability to] push back and was already a developed country,” she said.

“But China has huge domestic market potential to address the imbalance [between] economic and technology development. This remains a big attraction to multinational companies, which would enable China to integrate into global innovation and technology cooperation, but China has to figure out how to dispel the doubts on its growth model.”

Source: SCMP

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03/06/2019

Inside China’s state-owned industrial park in Vietnam, Beijing’s image trumps trade war profits

  • China-Vietnam (Shenzhen-Haiphong) Economic and Trade Cooperation Zone is only Chinese state-owned industrial park in Vietnam
  • Venture has attracted increasing interest since start of US-China trade war, but operators say first duty is to support Xi Jinping’s trade initiative
A total of 16 of the 21 Chinese companies that have relocated to the China-Vietnam (Shenzhen-Haiphong) Economic and Trade Cooperation Zone did so after the start of the US-China trade war. Photo: Cissy Zhou
A total of 16 of the 21 Chinese companies that have relocated to the China-Vietnam (Shenzhen-Haiphong) Economic and Trade Cooperation Zone did so after the start of the US-China trade war. Photo: Cissy Zhou
Until the middle of 2018, business was slow for the only Chinese state-owned industrial park in Vietnam, located in the northeastern manufacturing hub of Haiphong and wholly-owned by the Shenzhen city government.
US President Donald Trump’s tariffs on Chinese goods enacted last year changed that, with 16 of the 21 Chinese companies that have relocated to the China-Vietnam
(Shenzhen-Haiphong) Economic and Trade Cooperation Zone – many of them electronic device manufacturers – having done so since the start of the trade war.
However, profit-making was never the top priority for the park’s operators, which took over the reins from private investors after a series anti-Chinese riots raged through southern and central Vietnam in May 2014 forced the owners to abandon the project.
Protesters set fire to other industrial parks and factories and attacked Chinese workers, killing more than 20 people and injuring more than 100.

While any commercial organisation would be thrilled at the rush of manufacturing firms into Vietnam, for the park’s operators, the first duty is to showcase the Chinese government’s top international economic cooperation project, the Belt and Road Initiative.

[They] requested that we make this industrial park a showcase for the Belt and Road Initiative, so that when our top leaders pay state visits to Vietnam, they can come to our park Chen Xu

The Shenzhen arm of the State-owned Assets Control and Supervision Commission (SASAC), which oversees all city owned companies “has requested that we make this industrial park a showcase for the Belt and Road Initiative, so that when our top leaders pay state visits to Vietnam, they can come to our park”, Chen Xu, vice general manager at the Vietnam-China Economic and Trade Cooperation Park (VCEP), told the South China Morning Post.
The Chinese industrial enclave in Vietnam is part of a largely untold story of the trade war. The common narrative is that Chinese and international firms are fleeing China to avoid paying tariffs, setting up in low-cost hubs in Vietnam and elsewhere in Southeast Asia, but the picture is more nuanced than that.

In Haiphong, a part of the Chinese government is actively encouraging firms to come to Vietnam, armed with US$200 million in investment capital and with a vision of creating 30,000 jobs by the time the entire three-phase project is completed in 2022.

The then-private VCEP project was suspended after the 2014 riots, and after the local government in Vietnam said it would reclaim the land unless it resumed, the Shenzhen government “decided to fully take over the project”, according to VCEP general manager Zhang Xiaotao.

Newcomers must now buy land from the park and build their facilities themselves as the original buildings have already been rented out. Photo: Cissy Zhou
Newcomers must now buy land from the park and build their facilities themselves as the original buildings have already been rented out. Photo: Cissy Zhou

“Our evaluation then was that we could not make a profit out of this project. Then why did we still take it over? We have to serve the Belt and Road Initiative, as it is a national strategy,” Zhang added. “In fact, we surrender part of our profit [because] we sell the land [in the park] at a lower price and with better facilities than in neighbouring industrial parks. We are still in the red based upon the current land price. Our bosses understand the situation and ask us at least not to lose money.

“To make a profit is of course the priority of any company. But we are different, we are not a pure commercial project.”

Furthermore, it is a commonly held assumption that China is only open to losing low-end, labour intensive and high-polluting industry, as it looks to upgrade its manufacturing profile domestically. And while there is certainly truth to that as examples of low-value Chinese manufacturing plants litter Vietnam, VCEP is keen to avoid that persona.

Because of the need to maintain a relatively high-profile, the park does not welcome labour-intensive manufacturers such as shoes factories, because “it is bad for our image”, Chen said. Instead, it is focused on hi-tech engineering – exactly the kind of industry China is desperate to nurture on its own soil. In this sense, the Shenzhen-Haiphong facility represents something of a paradox.

With 1,500 people currently employed, it is some way from reaching its 30,000 goal, but the number of Chinese manufacturers wanting to set up factories in the park is now about eight times what it was before the trade war started last July, according to both Chen and Zhang. Newcomers must now buy land from the park and build their facilities themselves as the original buildings have already been rented out.

The relatively poor state of the surrounding infrastructure has also led VCEP to spend 30 million yuan (US$4.3 million) on a new road and bridge linking the park to the national highway in Haiphong.

“We could not wait for the Vietnamese government to build the infrastructure. They don’t have the money and their efficiency is low, so we built it ourselves,” said Li Meng, a member of VCEP’s Strategic Investment Department, who said it took less than nine months to finish the project.

The cost of the bridge was more than triple what it would have cost in China as “the efficiency is much lower here and we needed to import a lot of material from China due to lack of material in Vietnam”, Li added

“Every inch of the road and the bridge linking the national highway in Haiphong to VCEP is paved with renminbi.”

The Vietnam-China Economic and Trade Cooperation Park has a vision of creating 30,000 jobs by the time the entire three-phase project is completed in 2022. Photo: Cissy Zhou
The Vietnam-China Economic and Trade Cooperation Park has a vision of creating 30,000 jobs by the time the entire three-phase project is completed in 2022. Photo: Cissy Zhou

TP-Link, the Shenzhen-based Chinese manufacturer of computer networking products, has rented a plant in the park and will start testing its equipment in July. The company, the world’s largest provider of consumer Wi-fi networking devices, has bought an additional 140,000 square metres of land in the park to expand production.

When TP-Link bought the land in late-2018, the price was between US$75 to US$80 per square metre, Chen said. Now, six months later, the price has risen to US$90 per square metre. This is indicative of the huge spike in interest in manufacturing in Vietnam caused by the trade war. Data from Vietnam’s Foreign Investment Agency shows that Vietnam attracted US$16.74 billion in foreign capital over the first five months of 2019, a year-on-year increase of 69.1 per cent. Of this, 72 per cent was invested in the processing and manufacturing sectors.

“Chinese local governments are, of course, unhappy with the increasing number of manufacturers who are relocating to Vietnam, but President Xi has clearly put forward the Belt and Road Initiative, which local governments cannot disturb. So local governments are not encouraging manufacturers to relocate, but they dare not try to stop them,” said vice-general manager Chen.

The Chinese inflow has also met with opposition in Vietnam, although far from the scale of the deadly riots of 2014.

“Some local [Vietnamese] media have been demonising China, with local prime time TV news talking about fake Chinese meat and poisoned food and hyping these cases. High-ranking Chinese officials have asked the Vietnamese government to guide public opinion in the right direction,” Chen added.

General manager Zhang added that the Vietnamese authorities have also become more sensitive to investment from China, a view reflected by Lam Thanh Ha, a senior lecturer at the Diplomatic Academy of Vietnam university which operates under the management of Vietnam’s Ministry of Foreign Affairs. “Overreliance on foreign cash in general and Chinese capital in particular may pose risks for Vietnam in terms of exchange rate fluctuations and external influences,” Ha warned.

“As production is generally dependent on transnational supply chains, foreign enterprises in Vietnam are often deeply engaged in both import and export processes, leaving the Vietnamese economy vulnerable to global economic conditions,” Ha added.

In a 

commentary published

by the Post earlier in May, Ha warned that Vietnam should avoid “becoming China’s dirty industrial backyard”, although Zhang had the opposite view.

“We are not shifting all our low-end industries to Vietnam, which would be irresponsible. China is trying to help Vietnam with sincerity, even if we don’t make a profit, we still want to proceed with the project,” he said.
Source: SCMP
23/05/2019

U.S. Navy again sails through Taiwan Strait, angering China

WASHINGTON (Reuters) – The U.S. military said it sent two Navy ships through the Taiwan Strait on Wednesday, its latest transit through the sensitive waterway, angering China at a time of tense relations between the world’s two biggest economies.

Taiwan is one of a growing number of flashpoints in the U.S.-China relationship, which also include a bitter trade war, U.S. sanctions and China’s increasingly muscular military posture in the South China Sea, where the United States also conducts freedom-of-navigation patrols.

The voyage will be viewed by self-ruled Taiwan as a sign of support from the Trump administration amid growing friction between Taipei and Beijing, which views the island as a breakaway province.

The transit was carried out by the destroyer Preble and the Navy oil tanker Walter S. Diehl, a U.S. military spokesman told Reuters.

“The ships’ transit through the Taiwan Strait demonstrates the U.S. commitment to a free and open Indo-Pacific,” Commander Clay Doss, a spokesman for the U.S. Navy’s Seventh Fleet, said in a statement.

Doss said all interactions were safe and professional.

Chinese Foreign Ministry spokesman Lu Kang said Beijing had lodged “stern representations” with the United States.
“The Taiwan issue is the most sensitive in China-U.S. relations,” he told a daily news briefing in Beijing.
Taiwan’s Defense Ministry said the two U.S. ships had sailed north through the Taiwan Strait and that they had monitored the mission.
Taiwan President Tsai Ing-wen said there was no cause for alarm.
“Nothing abnormal happened during it, please everyone rest assured,” she wrote on her Facebook page.
U.S. warships have sailed through the Taiwan Strait at least once a month since the start of this year. The United States restarted such missions on a regular basis last July.
The United States has no formal ties with Taiwan but is bound by law to help provide the island with the means to defend itself and is its main source of arms.
The Pentagon says Washington has sold Taipei more than $15 billion in weaponry since 2010.
China has been ramping up pressure to assert its sovereignty over the island, which it considers part of “one China” and sacred Chinese territory, to be brought under Beijing’s control by force if needed.
Beijing said a recent Taiwan Strait passage by a French warship, first reported by Reuters, was illegal.
China has repeatedly sent military aircraft and ships to circle Taiwan on exercises in the past few years and worked to isolate it internationally, whittling down its few remaining diplomatic allies.
The U.S. Defense Intelligence Agency released a report earlier this year describing Taiwan as the “primary driver” for China’s military modernization, which it said had made major advances in recent years.
On Sunday, the Preble sailed near the disputed Scarborough Shoal claimed by China in the South China Sea, angering Beijing.
The state-run China Daily said in an editorial on Wednesday that China had shown “utmost restraint”.
“With tensions between the two countries already rife, there is no guarantee that the presence of U.S. warships on China’s doorstep will not spark direct confrontation between the two militaries,” it said.
Source: Reuters
10/05/2019

Trade war: Trump raises tariffs on $200bn of Chinese goods

The US has more than doubled tariffs on $200bn (£153.7bn) worth of Chinese products, in a sharp escalation of the countries’ damaging trade war.

Tariffs on affected Chinese goods have risen to 25% from 10%, and Beijing has vowed to retaliate.

China says it “deeply regrets” the move and will have to take “necessary counter-measures.”

It comes as high-level officials from both sides are attempting to salvage a trade deal in Washington.

Only recently, the US and China appeared to be close to ending months of trade tensions.

China’s Commerce Ministry confirmed the latest US tariff increase on its website.

“It is hoped that the US and the Chinese sides will work together… to resolve existing problems through co-operation and consultation,” it said in a statement.

Tariffs are taxes paid by importers on foreign goods, so the 25% tariff will be paid by American companies who bring Chinese goods into the country.

Chinese stock markets rose on Friday, with the Hang Seng index up less than 1% and the Shanghai Composite more than 3% higher.

However, earlier in the week stock markets had fallen after US President Donald Trump flagged the tariff rise on Sunday.

The US imposed a 10% tariff on $200bn worth of Chinese products – including fish, handbags, clothing and footwear – last year.

The tariff was due to rise at the start of the year, but the increase was delayed as negotiations advanced.

What will be the impact of the tariff rise?

The US-China trade war has weighed on the global economy over the past year and created uncertainty for businesses and consumers.

Even though Mr Trump has downplayed the impact of tariffs on the US economy, the rise is likely to affect some American companies and consumers as firms may pass on some of the cost, analysts said.

Deborah Elms, executive director at the Asian Trade Centre, said: “It’s going to be a big shock to the economy.

“Those are all US companies who are suddenly facing a 25% increase in cost, and then you have to remember that the Chinese are going to retaliate.”

China's Vice Premier Liu He (C) poses for a photo with US Treasury Secretary Steven Mnuchin (R) and US Trade Representative Robert Lighthizer (L) at Diaoyutai State Guesthouse in Beijing on March 29, 2019Image copyright GETTY IMAGES
Image caption US and Chinese officials have held several round of talks in an attempt to strike a deal to end the trade war.

In a statement, the American Chamber of Commerce in China said it was committed to helping both sides find a “sustainable” solution.

“While we are disappointed that the stakes have been raised, we nevertheless support the ongoing effort by both sides to reach agreement on a strong, enforceable deal that resolves the fundamental, structural issues our members have long faced in China.”

French Finance Minister Bruno Le Maire warned that the trade dispute escalation threatened jobs across Europe.

“There is no greater threat to world growth,” Mr Le Maire told CNews. “It would mean that trade tariffs go up, fewer goods would circulate around the world… and jobs in France and in Europe would be destroyed.”

Presentational grey line

‘Serious escalation’ of the trade war

Analysis box by Karishma Vaswani, Asia business correspondent

No breakthrough, and no deal – just, more tariffs.

With this move, US President Donald Trump has effectively dealt a fresh blow to not just the Chinese economy – as he had presumably hoped – but also to US’s.

The previous set of tariffs of 10% on $200bn of Chinese goods have to some extent been absorbed by American importers, but economists say a 25% tariff will be much harder for them to stomach.

They will almost certainly have to pass on that cost to American consumers – and that means higher prices.

Make no mistake, this is a serious escalation – and the trade war between the world’s two largest economies is back on.

This means the rest of us should be prepared for more pain ahead.

Presentational grey line

How will the tariff increase affect negotiations?

Despite this week’s escalation in tensions, talks were held between Chinese Vice-Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Thursday.

A White House spokesman said US officials had agreed with the vice-premier to resume talks on Friday morning, according to media reports.

Even though there had been growing optimism about progress in trade talks recently, sticking points have persisted throughout.

These have included issues around intellectual property protection, how fast to roll back tariffs and how to enforce a deal.

Analysts say the Chinese are still willing to negotiate to retain the moral high ground and because they recognise the importance of solving the trade war.

“A trade war will be bad for China, both the real economy and the financial markets. It will also be bad for the world economy,” said Gary Hufbauer of the Peterson Institute for International Economics.

“Better for China to play the role of conciliatory statesman than angry retaliator.”

Why are the US and China at odds?

China has been a frequent target of Donald Trump’s anger, with the US president criticising trade imbalances between the two countries and Chinese intellectual property rules, which he says hobble US companies.

Some in China see the trade war as part of an attempt by the US to curb its rise, with Western governments increasingly nervous about China’s growing influence in the world.

Both sides have already imposed tariffs on billions of dollars worth of one another’s goods. The situation could become worse still, as Mr Trump has also warned he could “shortly” introduce 25% duties on $325bn of Chinese goods.

What exactly sparked the US president’s latest actions, which apparently took China by surprise, is unclear.

Ahead of the discussions, Mr Trump told a rally China “broke the deal” and would pay for it.

How the trade war has played out

The International Monetary Fund said the row poses a “threat to the global economy”.

“As we have said before, everybody loses in a protracted trade conflict,” the body which aims to ensure global financial stability said in a statement, calling for a “speedy resolution”.

Source: The BBC

30/04/2019

Trade war: What you need to know about US-China talks

An aerial view of a port in Qingdao in China's eastern Shandong province on March 8, 2019.Image copyright GETTY IMAGES

The US and China are due to begin a fresh round of talks in Beijing on Tuesday as they edge closer to resolving their damaging trade dispute.

The discussions will be led by US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.

Talks have dragged on for months, with both sides struggling to agree on key issues.

The trade war has hurt the economy and challenged the multilateral system that has governed world trade for decades.

There has been cautious optimism surrounding the talks in recent months but also a sense that both sides remain divided on some points.

How did we get here?

The US, which accuses China of unfair trading practices, imposed tariffs on $250bn (£193.2bn) worth of Chinese products last year.

Beijing has retaliated with duties on $110bn worth of American products.

Tariffs on $200bn worth of Chinese goods were due to more than double at the start of the year, rising from 10% to 25%.

But both countries agreed to suspend tit-for-tat tariffs after they struck a truce in December, and began negotiations to work towards a deal.

US President Donald Trump recently said the US and China had agreed on “a lot of the most difficult points” but that “we have some ways to go”.

What are the sticking points?

Sticking points in negotiations in recent months have included how a deal would be enforced, issues around intellectual property protection, and how fast to roll back tariffs.

Gary Hufbauer from the Peterson Institute for International Economics in Washington said enforcement was a crucial issue, but remained optimistic about the prospect of a deal.

“China will make lots of promises, the US remains sceptical on implementation,” he said.

Still, he expects a deal to be announced by mid-May. The latest round of talks are expected to be followed by further negotiations in Washington on 8 May.

The US accuses China of stealing intellectual property and wants Beijing to make changes to its economic policies, which it says unfairly favour domestic companies through subsidies. It also wants China to buy more US goods to rein in a lofty trade deficit.

Mr Xi addressed some of these concerns last week at the Belt and Road forum in Beijing ahead of the trade talks.

He said China would boost efforts to secure intellectual property protection, increase imports of goods and services and ensure a fair trading environment for firms.

But what makes trade negotiations particularly difficult to resolve is the fact they are part of a broader power struggle between the world’s two largest economies.

China’s growing influence has put many Western governments – and particularly the US on the defensive. Some in China see the trade war as part of US efforts to curb its rise.

Against this backdrop, there is a view that the trade deal will not put an end to a US-China rivalry, which is already playing out in the technology sector.

What’s at stake?

The trade war is already having an impact on the world economy.

International Monetary Fund chief economist Gita Gopinath said the escalation of US-China trade tensions was one factor that had contributed to a “significantly weakened global expansion, especially in the second half of 2018.” The IMF cut its growth forecast for this year by 0.2 percentage points to 3.3%.

The Organisation for Economic Cooperation and Development (OECD) also said tariffs imposed by the US and China last year had slowed economic growth in the world’s two largest economies.

Beyond the tangible economic fallout, some fear the trade war is challenging the multilateral system which has governed global trade for decades, including through the World Trade Organisation (WTO).

“The system is already fragile. An all out trade war, in which both sides break their WTO commitments, will be very damaging,” Mr Hufbauer said.

Source: The BBC

08/04/2019

China pledges to remove ‘unreasonable barriers and restrictions’ to help SMEs amid trade war

  • The mainland government will also seek to create a level playing field for businesses, most of which are privately-owned, in terms of market entry and regulation
  • Small and medium-sized firms are vulnerable to trade disputes and an economic slowdown even though they contribute the majority of growth and employment
China plans to make it easier and cheaper for businesses to access credit through subsidies and certain bank loans, according to a comprehensive policy guidelines jointly released by the Central Committee and the State Council on Sunday. Photo: Alamy
China plans to make it easier and cheaper for businesses to access credit through subsidies and certain bank loans, according to a comprehensive policy guidelines jointly released by the Central Committee and the State Council on Sunday. Photo: Alamy
China will “remove all sorts of unreasonable barriers and restrictions” to help small and medium-sized enterprises which are seen as vital to help employment and economic growth amid the trade war with the United States.
Beijing plans to make it easier and cheaper for businesses to access credit through subsidies and certain bank loans, according to a comprehensive policy guidelines jointly released by the Central Committee of the Communist Party of China and the State Council on Sunday.
The mainland government will also seek to create a level playing field for businesses, most of which are privately-owned, in terms of market entry and regulation.

“Small and medium-sized enterprises is an dynamic power for national economic and social important and is critical for expanding employment, improving people’s livelihood, and to foster innovation,” the guidelines said. “For now, they are facing problems of rising production costs, difficulty in obtaining credit and insufficient capabilities to innovate – these issues demand high attention.”

China will “remove all sorts of unreasonable barriers and restrictions, trying to ensure fair competition and provide sufficient market in terms of market entry, licensing, bidding and the military-civil infusion,” it added.

While most of the policies are not completely new, the move to pull them together into a larger policy document, which will serve as a guideline for local authorities, shows China’s intention to stabilise the domestic economic situation as its trade disputes with the US continues.

Beijing has also designed a variety of financial policy tools, including targeted required reserve ratio cuts and the use of small and medium-sized enterprise loans as collateral for medium-term lending facilities granted by the central bank, meaning banks will have more incentives to offer financing.

To further boost lending, it will also offer some exemptions for interest received from value added tax, while also providing tax breaks for small firms and start-ups, a lower social security contribution ratio and an increase in government procurement, according to the guidelines.

Small and medium-sized enterprises is an dynamic power for national economic and social important and is critical for expanding employment, improving people’s livelihood, and to foster innovation.New guidelines

The need for the Chinese government to support small businesses became even more obvious last summer when it began its trade was with the US. Small private businesses are more vulnerable to trade disputes and an economic slowdown than state-owned enterprises, which are often bigger and enjoy favourable treatments from the government and banks, even though they contribute the majority of growth and employment.
Employment is the top priority on the agenda of Premier Li Keqiang this year, as shown in his government work report revealed last month. China has vowed to create 11 million new urban jobs this year and cap the surveyed urban unemployment rate at 5.5 per cent.
Morgan Stanley economists noted that China’s real gross domestic product growth may slow to 6.2 per cent in the first quarter.
“The main drag is slower investment growth, led by property construction and manufacturing [capital expenditure] amid still-subdued export and business sentiment,” Morgan Stanley economists Robin Xing, Jenny Zheng and Zhipeng Cai said.
The National Bureau of Statistics is due to release the first quarter economic data on April 17.
Source: SCMP
10/03/2019

China central bank pledges more policy support as bank lending slides

BEIJING (Reuters) – China’s central bank on Sunday pledged to further support the slowing economy by spurring loans and lowering borrowing costs, following data that showed a sharp drop in February’s bank lending due to seasonal factors.

The central bank is widely expected to ease monetary policy further this year to encourage lending especially to small and private firms vital for growth and job creation.

The central bank’s “prudent” monetary policy will emphasize on counter-cyclical adjustments, said People’s Bank of China (PBOC) Governor Yi Gang, using a phrase that implies the need to fight an economic slowdown.

“The global economy still faces some downward pressure and China faces many risks and challenges in its economy and financial sector,” Yi said at a press conference on the sidelines of the country’s annual meeting of parliament.

There is still some room for the PBOC to cut reserve requirement ratios (RRRs), although the amount of room is less compared with a few years ago, Yi said.

Chinese banks made 885.8 billion yuan ($131.81 billion) in net new yuan loans in February, down sharply from a record 3.23 trillion yuan in January, when several other key credit gauges also picked up modestly in response to the central bank’s policy easing.

Yi said combined January-February new loans and total social financing (TSF), a broad measure of credit and liquidity in the economy, could paint a more accurate picture as they showed a rise of 374.8 billion yuan and 1.05 trillion yuan from a year earlier, respectively.

DEBT DEFAULTS

Analysts say China needs to revive weak credit growth to help head off a sharper economic slowdown this year, but investors are worried about a further jump in corporate debt and the risk to banks as they relax their lending standards.

Corporate bond defaults hit a record last year, while banks’ non-performing loan ratio notched a 10-year high.

Pan Gongsheng, a vice governor at the PBOC, told the same briefing that China will control the amount of bond defaults in 2019, using both legal and market means.

Pan conceded that bond defaults increased last year, but the level of defaults was not high compared with China’s average bad loan ratio.

Premier Li Keqiang told parliament on Tuesday that monetary policy would be “neither too tight nor too loose”. Li also pledged to push for market-based reforms to lower real interest rates.

Chinese policymakers have repeatedly vowed not to open the credit floodgates in an economy already saddled with piles of debt – a legacy of massive stimulus during the global financial crisis in 2008-09 and subsequent downturns.

Sources have told Reuters the central bank is not ready to cut benchmark interest rates just yet, but is likely to cut market-based rates.

Yi said the downward trend in TSF has been initially curbed and broad M2 money supply growth will be more or less in line with nominal gross domestic product growth in 2019, Yi added.

Central bank data showed growth of outstanding TSF, a rough gauge of broad credit conditions, slowed to 10.1 percent in February from January’s 10.4 percent, versus a record low of 9.8 percent in December.

M2 money supply grew 8.0 percent in February from a year earlier, missing forecasts, the central bank data showed. Yi said China’s macro leverage ratio, or the amount of debt relative to GDP, was at 249.4 percent at the end of 2018, a fall of 1.5 percentage points from a year earlier, Yi said.
Analysts note there is a time lag before a jump in lending will translate into growth, suggesting business conditions may get worse before they get better.
Most economists expect a rocky first half before conditions begin to stabilize around mid-year as support measures begin to have a greater impact.
China’s economic growth is expected to cool to around 6.2 percent this year, a 29-year low, according to Reuters polls.
Growth slowed to 6.6 percent last year, with domestic demand curbed by higher borrowing rates and tighter credit conditions and exporters hit by the escalating trade war with the United States.
Source: Reuters
06/03/2019

Huawei: The story of a controversial company

The African Union headquarters in Addis Ababa is a shiny spaceship-like structure that glistens in the afternoon sun.

With its accompanying skyscraper, it stands out in the Ethiopian capital.

Greetings in Mandarin welcome visitors as they enter the lifts, and the plastic palm trees bear the logos of the China Development Bank.

African Union HQ, Addis Ababa

African Union HQ, Addis Ababa

 

Everywhere, there are small indications that the building was made possible through Chinese financial aid.

In 2006, Beijing pledged $200m to build the headquarters. Completed in 2012, everything was custom-built by the Chinese – including a state-of-the-art computer system.

For several years, the building stood as a proud testament to ever-closer ties between China and Africa. Trade has rocketed over the past two decades, growing by about 20% a year, according to international consultancy McKinsey. China is Africa’s largest economic partner.

But in January 2018, French newspaper Le Monde Afrique dropped a bombshell.

It reported that the AU’s computer system had been compromised.

The newspaper, citing multiple sources, said that for five years, between the hours of midnight and 0200, data from the AU’s servers was transferred more than 8,000km away – to servers in Shanghai.

This had allegedly continued for 1,825 days in a row.

Le Monde Afrique reported that it had come to light in 2017, when a conscientious scientist working for the AU recorded an unusually high amount of computer activity on its servers during hours when the offices would have been deserted.

It was also reported that microphones and listening devices had been discovered in the walls and desks of the building, following a sweep for bugs.

The reaction was swift.

Both AU and Chinese officials publicly condemned the report as false and sensationalist – an attempt by the Western media to damage relations between a more assertive China and an increasingly independent Africa.

But Le Monde Afrique said that AU officials had privately expressed concerns about just how dependent they were on Chinese aid – and what the consequences of that could be.

In the midst of all of this, one fact remained largely unreported.

The main supplier of information and communication technology systems to the AU headquarters was China’s best-known telecoms equipment company – Huawei.

The company says it had “nothing” to do with any alleged breach.

Huawei “served as the key ICT provider inside the AU’s headquarters”, said Danielle Cave of the Australian Strategic Policy Institute, in a review of the alleged incident.

Huawei headquarters in Shenzhen, China

Huawei headquarters in Shenzhen, China

“This doesn’t mean the company was complicit in any theft of data. But… it’s hard to see how – given Huawei’s role in providing equipment and key ICT services to the AU building and specifically to the AU’s data centre – the company could have remained completely unaware of the apparent theft of large amounts of data, every day, for five years.”

There is no evidence to indicate that Huawei’s telecoms network equipment was ever used by the Chinese government – or anyone else – to gain access to the data of their customers.

Indeed, no-one has ever gone on record to confirm that the AU system was compromised in the first place.

But these reports played into years of suspicions about Huawei – that a large Chinese company might find itself unduly influenced by the Chinese government.

Ren and the rise of Huawei

“When I first started out 30 years ago… we didn’t really have any telephones. The only phones we had were those hand-cranked phones that you see in old World War II films. We were pretty undeveloped then.”

Huawei’s founder and chairman Ren Zhengfei is reminiscing to the BBC about the origins of the world’s second-biggest smartphone firm, while sitting in the Huawei headquarters in Shenzhen – a symbol of the success that he’s worked his whole lifetime for.

A long marbled staircase, covered in plush red carpet, greets you as you first walk in.

At the top of the stairs, a giant painting depicts a traditional Chinese New Year scene.

Inside Huawei's Shenzhen HQ

Inside Huawei’s Shenzhen HQ

A few kilometres away in Dongguan, Huawei’s latest campus is even more eye-catching.

The site – designed to accommodate the company’s 25,000 R&D staff – comprises 12 “villages”, each of which recreates the architecture of a different European city, among them Paris, Bologna and Granada.

It’s as if Silicon Valley had been re-imagined by Walt Disney. Long corridors of Roman pillars and picturesque French cafes adorn the campus, with a train connecting the different areas, running through manicured gardens and past an artificial lake.

It’s a world away from the environment that Mr Ren found himself in when he first started the company in 1987. “I founded Huawei when China began to implement its reform and opening up policy,” he says. “At that time, China was shifting from a planned economy to a market economy. Not only people like myself, but even the most senior government officials, did not have the vaguest idea of what a market economy was. It seemed it was hard to survive.”

Ren was born in 1944 in Southern China – a tumultuous, chaotic place, one of the poorest regions in an already destitute country.

For a long time, hardship was all he ever knew.

He was from a family of seven children. “They were very poor,” says David De Cremer, who has co-written a book on Ren and Huawei.

“I think hardship is something that you can see throughout his life, and which he keeps emphasising himself.”

To escape that life of poverty and drudgery, Ren did what many young Chinese men of that era did. He joined the army.

Soldiers from the People's Liberation Army, 1972

Soldiers from the People’s Liberation Army, 1972

“I was a very low-ranking officer in the People’s Liberation Army,” he says. “I served in an ordinary construction project, not a field unit. At the time, I was a technician of a company in the military, and then I became an engineer.”

He left the military in 1983 when China began to downsize its forces, and went into the electronics business.

By his own admission, he wasn’t a great businessman at first.

“I was someone who had been in the military all my life at the time, used to doing what I was told,” he says. “Suddenly, I began to work in a market economy. I was at a total loss. So I too suffered losses, I too was deceived, and I was cheated.”

But he was quick to learn, and was a keen student of Western business practices and European history.

“I did research on what exactly a market economy was all about,” he says. “I read books on laws, including those about European and US laws. At that time, there were very few books on Chinese laws, and I had to read those on European and US laws.”

Five years later, he founded Huawei – the name can be translated as “splendid achievement” or “China is able” – to sell simple telecoms equipment to the rural Chinese market. Within a few years, Huawei was developing and producing the equipment itself.

Sometime in the early 90s, Huawei won a government contract to provide telecoms equipment for the People’s Liberation Army.

By 1995, the company was generating sales of around US$220,000, mainly from selling to the rural market.

The following year Huawei was given the status of a Chinese “national champion”. In practice, this meant the government closed the market to foreign competition.

At a time when China’s economy was growing by an average of 10% per year, this was no small advantage. But it was only when Huawei started to expand overseas in 2000, that it really saw its sales soar.

In 2002, Huawei made US$552m from its international market sales. By 2005 its international market contracts exceeded its domestic business for the first time.

Ren’s early days in business instilled in him a desire to protect his company from the whims and fancies of the stock market. Huawei is privately held and employee-owned. This gave Ren the power to plough more money back into research and development. Each year, Huawei spends US$20bn on R&D – one of the biggest such budgets in the world.

“Publicly listed companies have to pay a lot of attention to their balance sheets,” he says. “They can’t invest too much, otherwise profits will drop and so will their share prices. At Huawei, we fight for our ideals. We know that if we fertilise our ‘soil’ it will become more bountiful. That’s how we’ve managed to pull ahead and succeed.”

One story from the early days of the company tells how Ren was cooking for his staff (he loves to cook, or so the story goes). Suddenly he rushed out of the kitchen and announced to the room: “Huawei will be a top three player in the global communications market 20 years from now!”

And that’s exactly what happened. In fact, those ambitions were surpassed.

Today, Huawei is the world’s biggest seller of network telecommunications equipment.

From aspiring to be a company like Apple, it now sells more smartphones than Apple.

But shadows have continued to loom over Huawei’s international success.

Ren and Huawei’s links to the Chinese Communist Party have raised suspicions that the company owes its meteoric rise to its powerful political connections in China. The US has accused Huawei of being a tool of the Chinese government.

It’s an accusation which Ren denies. “Please don’t think that Huawei has become what it is today because we have special connections,” he says. “Even 100% state-owned companies have failed. Do good connections mean you will succeed then? Huawei’s success is still very much due to our hard work.”

The case against

It was 1 December 2018. US President Donald Trump and China’s President Xi Jinping were dining on grilled sirloin followed by caramel rolled pancakes at the G20 summit in Buenos Aires.

They had a lot to discuss. The US and China were in the middle of a trade war – imposing tariffs on each other’s goods – and growth forecasts for both countries had recently been cut as a result. This was adding to the fear of a slowing global economy.

In the event, the two leaders agreed a truce in the trade war, with Donald Trump tweeting that “Relations with China have taken a BIG leap forward!”

Xi Jinping and Donald Trump at dinner, December 2018

Xi Jinping and Donald Trump at dinner, December 2018

But thousands of kilometres north in Canada, an arrest was taking place that would throw doubt on this rapprochement.

Meng Wanzhou, Huawei’s chief financial officer and Ren Zhengfei’s eldest daughter, had been detained by Canadian officials while transferring between flights at Vancouver airport.

The arrest had come at the request of the US, who accused her of breaking sanctions against Iran.

“When she was detained, as her father, my heart broke,” says Ren, visibly emotional. “How could I watch my child suffer like this? But what happened, has happened. We can only depend on the law to solve this problem.”

Meng Wanzhou being driven to court in Canada

Meng Wanzhou being driven to court in Canada

Huawei’s problems were just beginning. Nearly two months later, the US Department of Justice filed two indictments against Huawei and Ms Meng.

Under the first indictment, Huawei and Ms Meng were charged with misleading banks and the US government about their business in Iran.

The second indictment – against Huawei – involved criminal charges including obstruction of justice and the attempted theft of trade secrets.

Both Huawei and Ms Meng deny the charges.

January 2019: Acting US attorney general Matthew Whittaker announces charges against Huawei and Meng Wanzhou

January 2019: Acting US attorney general Matthew Whittaker announces charges against Huawei and Meng Wanzhou

The charge of stealing trade secrets centres on a robotic tool – developed by T-Mobile – known as Tappy.

According to legal documents, Huawei had tried to buy Tappy, a device which mimicked human fingers by tapping mobile phone screens rapidly to test responsiveness.

T-Mobile was in partnership with Huawei at the time, but it rebuffed the Chinese firm’s offers, fearing it would use the technology to make phones for T-Mobile’s competitors.

It’s alleged that one of Huawei’s US employees then smuggled Tappy’s robotic arm into his satchel so that he could send its details to colleagues in China.

After the alleged theft was discovered, the Huawei employee claimed that the arm had mistakenly fallen into his bag.

Huawei claimed that the employee had been acting alone, and the case was settled out of court in 2014. But the latest case is built on email trails between managers in China and the company’s US employees, linking Huawei management to the alleged theft.

The indictment also details evidence of a bonus scheme from 2013, offering Huawei employees financial rewards for stealing confidential information from competitors.

Huawei has denied any such scheme exists.

Meng Wanzhou, photographed in 2014

Meng Wanzhou, photographed in 2014

This is not the first time that Huawei has been accused of stealing trade secrets. Over the years companies like Cisco, Nortel and Motorola have all pointed the finger at the Chinese firm.

But US fears about Huawei are about much more than industrial espionage. For more than a decade, the US government has seen the company as little more than an arm of the Chinese Communist Party.

These concerns have been brought to the fore with the advent of “fifth generation” or 5G mobile internet, which promises download speeds 10 or 20 times faster than at present, and much greater connectivity between devices.

As the world’s biggest telecoms infrastructure provider, Huawei is one of the companies best placed to build new 5G networks. But the US has warned its intelligence partners that awarding contracts to Huawei would be tantamount to allowing the Chinese spy on them.

US Secretary of State Mike Pompeo recently cautioned against Huawei, saying, “If a country adopts this and puts it in some of their critical information systems, we won’t be able to share information with them.”

US Secretary of State Mike Pompeo

US Secretary of State Mike Pompeo

The UK, Germany and Canada are reviewing whether Huawei’s products pose a security threat.

Australia went a step further last year, and banned equipment suppliers “likely to be subject to extrajudicial directions from a foreign government”.

Huawei was not mentioned by name, but Danielle Cave of the Australian Strategic Policy Institute says the company posed a national security risk because of its government links.

She cites an article in Chinese law that makes it impossible for any company to refuse to help the Chinese Communist Party in intelligence gathering.

“Admittedly, what is missing from this debate is the smoking gun,” she says.

“For the average person who has a Huawei smartphone it’s not a big deal. But if you’re a Western government that has key national security to protect – why would you allow this access to a company that is in the political system that China is in?”

For his part, Ren says that Huawei’s resources have never and would never be used to spy for the Chinese government.

“The Chinese government has clearly said that it won’t ask companies to install backdoors,” he says. A “backdoor” is a term used to describe a secret entry point in software or a computer system that gives access to the person or entity who installed it to the inner workings of the system.

“Huawei will not do it either,” he continues. “Our sales revenues are now hundreds of billions of dollars. We are not going to risk the disgust of our country and our customers all over the world because of something like that. We will lose all our business. I’m not going to take that risk.”

Xi’s China

Zhou Daiqi is Huawei’s chief ethics and compliance officer.

He’s been with the company for nearly 25 years, in a number of different positions – chief engineer, director of the hardware department, head of the research centre in Xi’an, according to his biography on the company’s website. He is also understood to combine his high-ranking executive duties with another role – party secretary of Huawei’s Communist Party committee.

All companies in China are required by law to have a Communist Party committee.

Zhou Daiqi's profile on Huawei's website

Zhou Daiqi’s profile on Huawei’s website

The official line is that they exist to ensure that employees uphold the country’s moral and social values. Representatives of the committee are also often tasked with helping workers with financial problems.

But critics of China’s one-party system argue that they allow the state to exert control on corporate China. And they say the level of this control has increased in recent years.

“[President] Xi Jinping is exerting greater control over the business community in China,” says Elliott Zaagman, who regularly advises Chinese companies on their PR strategy. “As these companies gain power and influence overseas, the party doesn’t want to lose control over them.”

Ren, however, argues that the role of Huawei’s Communist Party committee is far less important than many in the West believe.

“[It] serves only to educate its employees,” he says. “It is not involved in any business decisions.”

In China, most chief executives are Communist Party members.

Every year, they dutifully turn up to the National People’s Congress along with local and national party chiefs, officials and chief executives.

It’s where the big economic decisions are voted on – although no proposal is put forward which hasn’t already been agreed upon.

Still, big CEOs come to show their commitment to the party, and to contribute to working papers that are meant to help the government understand the concerns of the business community.

Being a member of the party is very much a networking opportunity – in the way one would join a business association.

Elliott Zaagman argues that this is a system that demands loyalty.

“There is no separation from the party and the state,” he says.

“The system in China encourages the lack of transparency in companies like Huawei.”

The worry is that these close links mean that if the Communist Party asked a company to do something, they would have no choice but to comply.

And if that company is one that is involved in sensitive global telecoms infrastructure projects, it’s easy to see why Western observers would be worried.

There is no evidence to indicate that Huawei is in any way under the orders of the Chinese government, or that Beijing has any plans to dictate business plans and strategy at Huawei – particularly when it comes to spying.

But the way in which the Chinese Communist Party has robustly defended Huawei has raised questions about how independent the company is of its influence.

For example, Beijing stated that Ms Meng’s detention was a rights abuse .

And while her extradition case to the US was moving forward, China detained two Canadian citizens and accused them of stealing state secrets. Critics say the detentions are linked to Ms Meng’s arrest.

December 2018: Chinese police patrol outside Canada's embassy in Beijing

December 2018: Chinese police patrol outside Canada’s embassy in Beijing

While not commenting on the arrest of the Canadians, Ren says China’s defence of Huawei is understandable.

“It is the Chinese government’s duty to protect its people,” he says. “If the US attempts to gain competitive edge by undermining China’s most outstanding hi-tech talent, then it is understandable if the Chinese government, in turn, protects its hi-tech companies.”

Over the past few years, there have been signs of a bigger push by the government to get private companies, and in particular tech firms, to cooperate with party rules – even when they are firmly resistant.

 A Didi Chuxing logo adorns a building in Hangzhou, China

 A Didi Chuxing logo adorns a building in Hangzhou, China

China’s ride-hailing giant Didi Chuxing’s troubles are an example of the struggles Chinese firms face when they try to uphold their independence in the face of government pressure.

Chinese attitudes to data collection and data privacy are different to those in the West – many people don’t care if businesses have access to their data, arguing that it adds to the convenience of life and work.

Government access to data in China is not the free-for-all that many outside of China assume it to be

Samm Sacks, CSIS

So it wasn’t unusual when, after the murders of two of its passengers by Didi drivers, regulators used the scandal to force Didi to share more corporate data with the government. But Didi resisted – citing customer privacy. Under Chinese law, it had no choice but to comply.

When it did, it handed over “three boxes of data printed on paper, including 95 hard copies for authorities to review”.

According to Samm Sacks of the Center for Strategic and International Studies (CSIS), the case demonstrates that “government access to data in China is not the free-for-all that many outside China assume it to be”.

She says this indicates that there appears to be “a kind of tug of war between the government and companies over data”.

How this plays out will determine how Chinese companies are viewed by foreign governments when they do business overseas.

Companies like Huawei have grown up in a system where to survive and thrive they needed strong links to the Chinese government – there was and is no other choice. But these links could harm their reputation abroad.

“It’s two different systems,” says Zaagman. “Think of it like an electrical outlet. China’s plug doesn’t fit in to the outlets we have in the West.”

What’s at stake

“Basically you want to connect to everything that can be connected.”

Zhu Peiying, head of Huawei’s 5G wireless labs, is showing off devices that can connect to the new technology. From a smart toothbrush that collects data about how well you brush your teeth, to a smart cup that reminds you when you should drink some water, this is a world where everything you can think of is being measured and analysed.

At its most sophisticated, everything in entire cities would be connected – driverless cars, the temperature of buildings, the speed of public transport – the list is endless.

Huawei is thought to be a year ahead of its competitors in terms of its technological expertise and what it can offer customers, according to industry sources.

It’s also thought that the company can offer prices that are about 10% cheaper than its competitors, although critics claim this is because of state support.

Ren dismisses this, saying that Huawei doesn’t receive government subsidies.

He says the real reason behind the US resistance to Huawei is its superior technology.

“There’s no way the US can crush us,” he says. “The world needs Huawei because we are more advanced. Even if they persuade more countries not to use us temporarily we could just scale things down a bit.”

Many analysts say that Huawei’s exclusion from US networks could actually cause the US to fall behind in its 5G capabilities.

“It would mean we wouldn’t be able to participate in any blended network [using Huawei] in Europe or Asia,” says Samm Sacks of CSIS. “That would put us at a significant disadvantage.”

What this would mean in reality is a world of two internets – or what analysts are calling a “digital iron curtain” – dividing the world into parts that do business with Chinese companies like Huawei, and those that don’t.

Because of US pressure on its allies, Huawei has been on an aggressive public relations campaign to win over customers and government stakeholders.

In recent days, Vodafone’s boss Nick Read called on the US to share any evidence it has about Huawei, while Andrus Ansip, the European Commission’s vice president for the digital single market, said in a tweet that he had met with Huawei’s rotating CEO to discuss the importance of being open and transparent, as they explored ways of working together.

But suspicions about Huawei remain.

One security firm reports a sharp rise in inquiries by Asian government clients about Huawei.

“Some have asked us how much they should worry about whether Huawei is really a liability,” says an analyst who consults to Asian governments, on condition of anonymity.

Ren is sanguine about such concerns.

“For countries who believe in them [suspicions about Huawei] we will hold off,” he says. “For countries who feel Huawei is trustworthy, we may move a little faster. The world is so big. We can’t walk across every corner of it.”

But this is about more than just one company or one CEO and his family.

Increasingly, this is perceived as a battle between two world orders, and which one is the future.

In the early days of China opening up, US presidents like George HW Bush espoused the merits of engagement.

“No nation on Earth has discovered a way to import the world’s goods and services while stopping foreign ideas at the border,” he said in a 1991 speech. “Just as the democratic idea has transformed nations on every continent, so, too, change will inevitably come to China.”

1989: George HW Bush in Beijing - he encouraged economic engagement with China

1989: George HW Bush in Beijing – he encouraged economic engagement with China

Previous US administrations believed that economic engagement in China would lead to China following a freer, more “liberal” path.

There’s no denying China has made remarkable strides in the past 40 years. The economy grew by an annual average of 10% for three decades, helping to lift 800 million people out of poverty. It is now the second-largest economy in the world, only surpassed by the US.

Some estimates put China’s economy ahead of America’s by 2030.

It achieved this while maintaining one-party rule and the supremacy of the Communist Party.

But its success has raised concerns that it is only possible with a huge amount of government control over the country’s companies. The fear is that control could be used to achieve the Communist Party’s goals – which are at this point unclear.

“It’s a double-edged sword for China,” says Danielle Cave. “[Because of its laws] the Chinese Communist Party has made it virtually impossible for Chinese companies to expand without attracting understandable and legitimate suspicion.”

Added to this, China has become more authoritarian under Xi Jinping’s rule.

President Xi Jinping 

President Xi Jinping 

“Xi is systematically undermining virtually every feature that made China so distinct and helped it work so well in the past,” writes Jonathan Tepperman, editor in chief of Foreign Policy.

“His efforts may boost his own power and prestige in the short term and reduce some forms of corruption. On balance, however, Xi’s campaign will have disastrous long-term consequences for his country and the world.”

But Ren dismisses this, insisting that China is more open than ever before.

“If this meeting took place 30 years ago,” he says of our interview, “it would have been very dangerous for me. Today, I can be straightforward when answering difficult questions. This shows that China has a more open political environment.”

Still, Ren is hopeful of the direction China will take in the future.

“China has more or less tried to close itself off from the outside world for 5,000 years,” he says. “Yet we had found ourselves poor, lagging behind other nations. It was only in the past 30 years since Deng Xiaoping opened China’s doors to the world that China has become more prosperous. Therefore, China must continue to move forward on the path of reform and opening-up.”

In one of Huawei’s vast campus sites across Shenzen, lies a man-made lake. Swimming in these serene waters are two black swans.

There is a story that Ren put the birds here to remind employees of “black swan” events – unpredictable and catastrophic financial eventualities that are impossible to prepare for. He dismisses this as an urban myth, but it’s hard not to read something into it.

For Huawei, and Ren, these are highly uncertain times with no way of telling what lies ahead.

Source: The BBC

25/02/2019

Trump to delay further tariffs on Chinese goods

Donald Trump and China's Vice Premier Liu He in the Oval OfficeImage copyrightAFP
Image captionPresident Trump met China’s Vice Premier Liu He on Friday

President Donald Trump has announced that the US will delay imposing further trade tariffs on Chinese goods.

The rise in import duties on Chinese goods from 10% to 25% was due to come into effect on 1 March.

Mr Trump said both sides had made “substantial progress” in trade talks, which sent Chinese stocks up nearly 5%.

He added that he was planning a summit with Chinese President Xi Jinping in Florida to cement the trade deal if more progress was made.

A report from China’s official news agency Xinhua also noted “substantial progress” on specific issues such as technology transfer, intellectual property protection and agriculture.

Mr Trump’s decision to delay tariff increases on $200bn (£153bn) worth of Chinese goods was seen as a sign that the two sides are making progress on settling their damaging trade war.

Last week, Mr Trump noted progress in the latest round of negotiations in Washington, including an agreement on currency manipulation, though no details were disclosed.

Sources told CNBC on Friday that China had committed to buying up to $1.2 trillion in US goods, but there had been no progress on the intellectual property issues.

What has happened in the trade war so far?

Mr Trump initiated the trade war over complaints of unfair Chinese trading practices.

That included accusing China of stealing intellectual property from American firms, forcing them to transfer technology to China.

The US has imposed tariffs on $250bn worth of Chinese goods, and China has retaliated by imposing duties on $110bn of US products.

Mr Trump has also threatened further tariffs on an additional $267bn worth of Chinese products – which would see virtually all of Chinese imports into the US become subject to duties.

US and China's tariffs against each other

The trade dispute has unnerved financial markets, risks raising costs for American companies and is adding pressure to a Chinese economy that is already showing signs of strain.

It has also stoked fears about the impact on the global economy.

Last year, the International Monetary Fund warned the trade war between the US and China risked making the world a “poorer and more dangerous place”.

Source: The BBC

23/02/2019

Trump says he’s inclined to extend China trade deadline and meet Xi soon

WASHINGTON (Reuters) – President Donald Trump said on Friday there was “a very good chance” the United States would strike a deal with China to end their trade war and that he was inclined to extend his March 1 tariff deadline and meet soon with Chinese President Xi Jinping.

“I think that we both feel there’s a very good chance a deal will happen,” Trump said.

Liu agreed there had been “great progress”.

“From China, we believe that (it) is very likely that it will happen and we hope that ultimately we’ll have a deal. And the Chinese side is ready to make our utmost effort,” he said at the White House.

The Republican president said he probably would meet with Xi in March in Florida to decide on the most important terms of a trade deal.

 

Optimism that the two sides will find a way to end the trade war lifted stocks, especially technology shares. The S&P 500 stock index reached its highest closing level since Nov. 8. Oil prices rose to their highest since mid-November, with Brent crude reaching a high of $67.73 a barrel. [.N] [O/R]

CURRENCY AGREEMENT

Trump and Treasury Secretary Steven Mnuchin said the two sides had reached an agreement on currency. Trump declined to provide details, but U.S. officials long have expressed concerns that China’s yuan is undervalued, giving China a trade advantage and partly offsetting U.S. tariffs.

Announcement of a pact aimed at limiting yuan depreciation was putting “the currency cart before the trade horse,” but would likely be positive for Asian emerging market currencies, said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

“How can you agree to avoid excessive Chinese yuan depreciation or volatility if you have not made an agreement on trade that could have huge FX implications?” Ruskin asked in a note to clients.

In a letter to Trump read aloud by an aide to Liu at the White House, Xi called on negotiators to work hard to strike a deal that benefits both country.

Trump said a deal with China may extend beyond trade to encompass Chinese telecommunications companies Huawei Technologies and ZTE Corp.

The Justice Department has accused Huawei of conspiring to violate U.S. sanctions on Iran and of stealing robotic technology from T-Mobile US Inc.

Chinese peer ZTE was last year prevented from buying essential components from U.S. firms after pleading guilty to similar charges, crippling its operations.

MEMORANDUMS NO MORE

Trump appeared at odds with his top negotiator, U.S. Trade Representative Robert Lighthizer, on the preliminary terms that his team is outlining in memorandums of understanding for a deal with China. Trump said he did not like MOUs because they are short term, and he wanted a long-term deal.

“I don’t like MOUs because they don’t mean anything,” Trump said. “Either you are going to make a deal or you’re not.”

Lighthizer responded testily that MOUs were binding, but that he would never use the term again.

Reuters reported exclusively on Wednesday that the two sides were drafting the language for six MOUs covering the most difficult issues in the trade talks that would require structural economic change in China.

Negotiators have struggled this week to agree on specific language within those memorandums to address tough U.S. demands, according to sources familiar with the talks. The six memorandums include cyber theft, intellectual property rights, services, agriculture and non-tariff barriers to trade, including subsidies.

An industry source briefed on the talks said both sides have narrowed differences on intellectual property rights, market access and narrowing a nearly $400 billion U.S. trade deficit with China. But bigger differences remain on changes to China’s treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft of U.S. trade secrets.

Lighthizer pushed back when questioned on forced technology transfers, saying the two sides made “a lot of progress” on the issue, but did not elaborate.

The United States has said foreign firms in China are often coerced to transfer their technology to Chinese firms if they want to operate there. China denies this.

The U.S. Chamber of Commerce on Friday urged the U.S. government to ensure the deal was comprehensive and addressed core issues, rather than one based on more Chinese short-term purchases of goods.

China has pledged to increase purchases of agricultural produce, energy, semiconductors and industrial goods to reduce its trade surplus with the United States.

China committed to buying an additional 10 million tonnes of U.S. soybeans on Friday, U.S. Agriculture Secretary Sonny Perdue said on Twitter. China bought about 32 million tonnes of U.S. soybeans in 2017. The commitments are a “show of good faith by the Chinese” and “indications of more good news to come,” Perdue wrote.

China was the top buyer of U.S. soybeans before the trade war, but Beijing’s retaliatory tariffs on U.S. soybeans slashed business that had been worth $12 billion annually.

Source: Reuters

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