[INFZM] Li Wei: Expand Exports Will Benefit China

I paid two investigatory visits to Washington before the Spring Festival because the U.S. was brewing a strategic transformation against China. This year, I keep warning the U.S.-China economic and trade relations.

There are four friction points in the U.S.-China economic and trade relations.

The first one is the raw material industry represented by iron and steel. The U.S. has always implemented anti-dumping and anti-subsidy policies against China because it deems China’s export price is too low. Trump is elected president because four states that supported the Democratic Party have turned to the Republican Party. They are Pennsylvania, Wisconsin, Michigan and Ohio, all traditional manufacturing areas.

The second one is intellectual property. Development of the service industry rests with the intellectual property protection, such as the paid access to New York Times, and high technology and business model. The 7-month “U.S. Section 301 Investigation” (Note: Section 301 of the Trade Act of 1974) is about to finish, and it’s directed at intellectual property. Once it affirms China infringes upon intellectual property, the U.S. will impose penalty duties. Now, the U.S. is brewing a penalty duty on $60 billion Chinese products.

The third one is the safety review of Chinese investments and mergers and acquisitions in the U.S., mainly in high-tech field and financial service sector. The U.S. is enhancing the function of the Committee on Foreign Investment in the United States (CFIUS) through legislation. CFIUS is a trans-departmental body initiated by the Department of the Treasury, with only dozens of staff, and it was unable to conduct a large-scale safety review. But it's now provided with "both financial and human resource support" to intensify the safety review of Chinese investments and mergers and acquisitions in particular.

The last one is the criticism of Chinese economic system. The U.S. says China doesn’t develop the market-oriented economy, which is the principle of WTO.

In fact, major changes have been witnessed in Chinese and American economic structures since the globalization. The U.S. has lost manufacturing and only possesses the service industry. In Trump’s opinion, however, WTO makes naturally for China because all WTO’s principles are designed to safeguard the free trade of manufacturing while China is the greatest manufacturing power that takes up a fourth of the world’s output value.

What the U.S. needs is the free trade of the service industry, and an example is that China can import Hollywood's movies, medical service, information and financial service with freedom. Many large financial institutions in China are paying close attention to U.S.-China relations because they care about their competitive environment. Chinese banking has been highly saturated, so the U.S. takes a fancy on China's commercial insurance market, on which the vast middle class has heavy medical and elderly care needs based on the social insurance and housing fund system.

I don’t agree with the trade war between China and the U.S. because China benefits from the trade between both sides. The reason for the “class struggle” in the U.S., such as the Occupy Wall Street Movement, the most famous one, is that their middle class broke down and then, transfer along with manufacturing to China.

Aware of this, China should deal with the trade war gently and unhesitatingly, expand the trade between both sides, and also give the U.S. more benefits on the premise that China’s benefits aren’t sacrificed. To realize his goal of reducing $100 billion trade deficit, Trump can either cut down American imports from China, which is bad for both sides, or increase Chinese imports from the U.S.

Frankly speaking, it’s impossible for China to increase imports by $100 billion in a short time as it has bought 25% of Boeing’s aircraft and 62% of soybeans. But China may increase imports by $50 billion in 1 or 2 years. Feasible measures include expanding agricultural import, and opening the meat market, natural gas and other energy resources market, and automobile and luxury goods market, and we won’t have to shop crazily like a Daigou (overseas personal shopper) every time we go abroad.

China has arrived at a strategic pass transferring from export-oriented economy to domestic demand-oriented economy. Why rely on the U.S. and not cultivate the huge domestic market? We also need to enjoy more foreign resources cheaply, which will improve our production efficiency and life quality. Now, we should have a new viewpoint that import makes for China and China is more in need of consumption upgrading instead of foreign exchange reserve.

It’s as well a very important diplomatic strategy. Small Southeast Asian countries won’t rely on China until they can make money in the Chinese market. To be a global leader, China should attract them to make money here.

(The author is Research Fellow of National Academy of Development and Strategy and Associate Professor at School of International Studies of Renmin University of China)

The article was originally published in INFZM.com.