U.S. tightens exports to China’s chipmaker SMIC, citing risk of military use
Wang Qishan is a confidant of President Xi Jinping and his views tend to represent Politburo policy. Before being brought out of retirement, the 70-year-old vice-president ran the day-to-day operation of Xi’s anti-corruption campaign as secretary of the Central Commission for Discipline Inspection.
Known as one of China’s economic reformers, Wang is nevertheless a tough cookie who pushes the Party line.
On Tuesday, he warned about the dangers of “right-leaning populism” and “unilateralism” at a business forum in Singapore before reiterating Beijing’s view that a “solution” to the trade war with the United States can be found.
“The Chinese side is ready to have discussions with the US on issues of mutual concern and work for a solution [that is] acceptable to both sides,” Wang told more than 400 business and political leaders at Bloomberg’s New Economy Forum. “China will stay calm and sober-minded and embrace greater openness to achieve mutual benefit and win-win results.”
Twenty-four hours earlier, buzzwords such as “mutual benefit” and “win-win” had echoed around the National Convention and Exhibition Center in Shanghai when Xi lifted the curtain on the inaugural China International Import Expo.
But while his speech was full of promises of further “opening” up the economy, Wang’s address contained a strong warning to President Donald Trump’s administration.
“China rejects Cold War mentality and power politics [and will not] be bullied and oppressed by Imperialist powers,” he said, referring to the “Century of Humiliation,” which started in 1840 and ended in 1948.
Yet despite the thread of steel running through his speech, the message had a familiar ring just weeks ahead of Xi’s planned meeting with Trump at the G20 Summit in Buenos Aires.
Before then, the world’s two largest economies will hold high-level talks in Washington on Friday with Secretary of State Mike Pompeo and Defence Secretary Jim Mattis sitting down with Chinese Politburo Member Yang Jiechi and Defence Minister Wei Fenghe.
Rising trade tensions will be close to the top of the agenda.
“We’re going to see these two sides continue to dig in their heels – both sides still think they have the upper hand,” Scott Kennedy, the deputy director of China studies at the Center for Strategic and International Studies, a Washington think tank, told Bloomberg Television.
“For President Trump, even though he’s signaling that it’s possible they want a deal, there’s actually no monster benefit to him economically or politically. So, I think they’ll continue to do this dance and all of us will continue to watch,” he added.
It is a different story for Xi with the economy now resembling a slow waltz as opposed to a quick-step following a raft of statistics.
Earlier this week, data showed that the pace of growth in the services sector was decelerating. Factory activity has also been hit while third-quarter GDP growth has fallen to levels not seen since the 2009 Great Recession.
Domestically, this comes at a time when Beijing is realigning the economy from low-cost production to high-tech manufacturing, coupled with an expansive services industry and a more sophisticated consumer sector.
Externally, the economy is being buffeted by tariffs on Chinese imports, worth more than US$250 billion, entering the US. Trump has also threatened to impose duties on the remaining goods and products worth another $258 billion, citing “unfair practices” and “intellectual property violations.”
In response to economic headwinds and a massive sell-off in mainland markets, Beijing has rolled out a stimulus-inspired package. During the past nine months, nearly $3 trillion has been wiped off the Shanghai Composite Index and $1.1 trillion off Shenzhen.
This, in turn, has hit the spending power of more than 150 million middle-class investors and squeezed the services and retail industries.
Defrosting the Cold War has become a priority. “It is our firm belief that China and the US will both gain from cooperation and lose from confrontation,” Vice-President Wang said in Singapore.
Behind the scenes, Xi’s government is waging another battle, but this time against debt.
The People’s Bank of China in its 2018 Financial Stability Report revealed that 10% of the country’s 4,000 banks failed stress tests, illustrating the challenges facing the $45 trillion financial system.
“Future tasks remain formidable as institutional and structural adjustment take time to mitigate potential risks,” the report stated.
Local government and corporate debt problems have become a recurring nightmare for the PBOC, which is China’s de facto central bank, in a changing global landscape.
“In the days to come, the risk factors affecting and undermining global financial stability are mounting. In particular, the rise of trade protectionism worldwide, and economic and trade frictions initiated by the US. [They] will have negative repercussions on the macroeconomy and financial markets at home and abroad,” the study added.
Risks that Wang and his boss know only too well.