Dhaka, Bangladesh
China plays nice with foreign investors as trade war heats up

China plays nice with foreign investors as trade war heats up

Business Desk BEIJING, July 12: Long accused of protectionist tactics that make it a difficult place for foreign firms to operate, China is trying to reverse that narrative amid an escalating trade war with the United States, green-lighting huge investments and portraying itself as a champion of openness. But critics argue that despite its attempt to claim the moral high ground as U.S. President Donald Trump threatens to apply more tariffs on Chinese imports, Beijing’s recent moves to make it easier for foreign businesses to set up operations also effectively acknowledges that it has had discriminatory market barriers. This week, China agreed to a $10 billion petrochemicals project by Germany’s BASF that will be the first such plant in China that is wholly foreign-owned, not a joint venture. It also approved a huge new wholly-owned Shanghai factory for U.S. electric car maker Tesla Inc, and a $2.3 billion joint venture organic light-emitting diode plant to be built by South Korea’s LG Display Co Ltd. Responding to the Trump administration’s latest plan to slap 10 percent tariffs on an extra $200 billion worth of Chinese imports, Assistant Commerce Minister Li Chenggang said on Wednesday that China would not close itself to U.S. business. “I want to stress that the Chinese government’s attitude to support business cooperation between the two countries will not change, its determination to push forward reforms and improve the business environment will not change, and its stance of opposing unilateralism and supporting multilateralism will not change,” Li said at a business forum in Beijing on Wednesday. “They go low, we go high,” he said, in an apparent jab at Trump as he borrowed a phrase used by former U.S. First Lady Michelle Obama in the 2016 U.S. election campaign. The recent investment announcements came as Premier Li Keqiang this week visited Germany. The two countries signed commercial accords worth 20 billion euros ($23.5 billion), including the BASF agreement. Chinese state media framed such cooperation in the context of the increasingly bitter trade dispute with Washington. “The trade war should push China and the EU to cherish mutual cooperation, because this increasingly scarce cooperation is becoming more valuable,” China’s nationalist tabloid, the Global Times, said in an editorial on Wednesday. As the threats in the trade dispute have increased, so too have signals from Beijing that it means to follow through on reforms. Chinese officials insist there is no link, and that it will open up at its own pace. Rising costs are also frustrating to foreign manufacturers in China. In recent weeks, China has issued a shorter list of areas closed to foreign investment, and committed to easing or eliminating foreign equity caps in sectors that include banking, insurance, securities, the auto industry, as well as in shipbuilding and aerospace. But the string of announcements come at a time when there has been slowing foreign investment into China and more vociferous complaints about Beijing’s market barriers and the difficulty of doing business in the world’s second-largest economy. And Beijing is still holding up at least one major takeover involving foreign companies - U.S. chipmaker Qualcomm Inc’s deal to buy Netherlands-based NXP Semiconductors. That has been waiting approval from China’s antitrust regulator for months, leading to speculation among investors that the deal is being held hostage to the trade dispute with Washington. Years of lackluster follow-through by China on its reform pledges has left what many in the foreign business community call “promise fatigue”. Business leaders have been warning that if China didn’t take real measures to address a lack of reciprocal market openness, it would sow retaliatory sentiment among its largest trading partners. And trade hardliners, particularly in the United States, had argued that Beijing would not make good on its pledges until other countries began imposing costs upon Beijing. European Union Chamber of Commerce in China President Mats Harborn on Tuesday called Trump’s tariffs the “sledgehammer approach”, but said the root cause of what China has termed the “largest-scale trade war” in economic history began in China. “The reason we are where we are is because the Chinese leadership did not proceed as quickly as we wanted as a trade community,” Harborn told a news briefing. Some in the U.S. business community, while rueing the damage caused by Trump’s tariffs, privately say Beijing’s recent emphasis on accelerating reforms may not be a coincidence. “Tariffs are biting. The Chinese are less confident internally than externally. They have never been tested this way,” a U.S. industry source told Reuters, asking to not be named given the sensitivity of the matter. Beijing has begun downplaying Made in China 2025, the state-backed industrial policy that has provoked alarm in the West and is core to Washington’s complaints about the country’s unfair trade practices. Propaganda authorities have also issued unusually strict rules limiting local media coverage of the trade war because of worries that unrestrained reporting could set off panic and roil its already jittery financial markets, sources within Chinese state media have said. And European officials have said Beijing is trying to woo the EU with market access in return for standing with China against Trump’s trade measures, though the Europeans, who share U.S. criticism of China but disapprove of Trump’s tariffs, have largely refrained from taking sides. “By committing themselves to further openness. I think China hopes it can minimize the departure out of China of multinational firms,” said Louis Kuijs, Hong Kong-based head of Asia Economics at Oxford Economics. Meanwhile, China on Thursday said foreign firms operating in China would suffer in a trade war, urging U.S. companies to lobby their government to protect their interests, and said no talks to end the impasse were currently under way. Earlier on Thursday, South Korea warned that its exports of high-tech components could be hurt as the U.S.-China trade dispute escalates, Beijing cut its forecast for soybean imports and the Chinese currency fell as worries about fallout from the simmering conflict grew. “We hope U.S. firms can do more to lobby the U.S. government, and work hard to defend their own interests,” Chinese commerce ministry spokesman Gao Feng told a media briefing. Gao said no negotiations between the two sides were going on currently, adding “The precondition for negotiations is trust. From what I’ve learnt, both sides have not been in touch about restarting talks.” On Wednesday, Beijing said it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 percent tariffs on $200 billion of Chinese goods, a swift escalation after an earlier round of tariffs took effect only on Friday. While Chinese shares regained Wednesday’s heavy losses, with the Shanghai Composite index rising 2.2 percent, the yuan fell against the dollar following the central bank’s weakest daily fixing in nearly a year and Washington’s fresh tariff threats. China has yet to say how it will respond after the fresh round of U.S. tariffs would bring to $250 billion the total of Chinese goods impacted, once the latest list of duties take effect after a two-month comment period. Last year, China only imported about $130 billion of U.S. goods, so to retaliate it might increase the size of the tariffs it imposes or resort to what it calls “qualitative” measures, which U.S. businesses fear could mean reprisals against their China operations. A survey by the American Chamber of Commerce in Shanghai found that most U.S. businesses operating in China oppose the use of tariffs in retaliation for the challenges they face, from an uneven playing field to poor protection of intellectual property rights. The tariffs initiated by U.S. President Donald Trump have also drawn criticism from lawmakers in his own Republican Party, as well as from U.S. trade groups worried about higher costs for businesses and consumers. On Thursday, Beijing cut its forecast for imports of soybeans - the most-valuable crop it buys from the United States - after it imposed a 25 percent retaliatory tariff on an array of agricultural goods, which could inflict pain in Trump-supporting states such as Iowa, Kansas and Texas. China warned that higher prices due to trade conflicts with the United States would curb demand as farmers switch to alternatives for animal feed. Concerns about the knock-on effect of the trade war spread on Thursday, with South Korea, Asia’s fourth-largest economy, warning that components and materials - “intermediate goods” - used in home appliances, computers and communications devices could be caught in the crossfire. South Korea’s trade ministry said the trade war could be “prolonged and spread,” adding that it would prepare responses and scenarios to cope with the economic impact of the trade row. Its finance minister also warned that the dispute would present “serious downward risks” to South Korea’s export-reliant economy if the impact spread globally. “While the trade conflict between the U.S. and China has had a limited impact so far, we can’t rule out the possibility of a slowdown in the Chinese economy and a contraction in world trade should conflict grow and spread into the global market,” Finance Minister Kim Dong-yeon said at a government meeting. OCBC Bank in Singapore estimated that in a scenario where U.S. tariffs apply to $250 billion of Chinese goods, South Korea’s GDP growth could be reduced by 0.3 percentage point while Japan’s growth could be cut by 0.2 percentage point. “China’s closest neighbors, namely Japan, Korea and Hong Kong, are most vulnerable to a U.S.-Sino trade war because they export mostly intermediate goods to China,” OCBC said in a note. South Korea’s central bank on Thursday downgraded its growth outlook for this year to 2.9 percent, from 3.0 percent, after an export boom ground to a halt in June in the face of escalating U.S.-China trade tensions. Major auto producing countries such as South Korea are also bracing for steep U.S. tariffs on autos and auto parts, as Trump has ordered a national security probe into the sector, which is expected to be completed this month. (Inputs taken from AFP, Reuters)

Share |