China feels pressure as the clock ticks in trade talks

Beijing

CHINESE President Xi Jinping's trade war strategy is getting more complicated, with slowing growth and disagreements about his approach within the Communist Party adding new battlefronts, according to analysts.

With the clock ticking since Dec 1 on a 90-day deadline to reach a deal with the United States, China has only made superficial peace offerings as it tries to buy time to shore up its economy, analysts said.

The lack of a clear direction suggests dissent from within the party leadership "since the summer", Jean-Pierre Cabestan, a political science professor at Hong Kong Baptist University, told AFP.

There are "fierce divisions" in the leadership on "how to handle the trade war with the US and how to relaunch reforms, and whether to relaunch reforms or not". he said. "I don't think they've settled the disputes."

Mr Xi vowed on Tuesday to press ahead with reforms as the party celebrated the 40th anniversary of its landmark "reform and opening up" policy.

But Mr Xi, who has accumulated titles to become China's most powerful leader since Mao Zedong, warned that no one would "dictate" China's development path and that it would "resolutely not reform what shouldn't and cannot be changed".

Steve Tsang, head of the China Institute at the School of Oriental and African Studies in London, said that the lack of a regular autumn plenum of the party's Central Committee - a platform to discuss reforms - signalled that Mr Xi was "avoiding such issues" and "suggest he is feeling pressure over the trade war and the slowing economy".

"As Mr Xi takes charge of practically all major policy areas, discomfort in the upper echelons of the party over the trade war and the economy cannot but imply discomfort with the direction he was leading China."

Data last week showed that consumer spending grew at its slowest pace in 15 years in November while factories eased up.

Growth is expected by the government to ease to around 6.5 per cent this year, down from 6.9 per cent in 2017.

Over the weekend, a prominent economist told a university forum that the lack of clear trade strategies have led to an uncertainty among investors.

"What is the fundamental problem? Fear of policy uncertainty, fear that the government is not trustworthy," said Xiang Songzuo, an economics professor at the elite Renmin University.

Censors have since taken the speech off Chinese social media, and references to it can no longer be found on the Twitter-like Weibo.

Measures to stabilise growth are expected to top the agenda this month at the party's annual Central Economic Work Conference, which sets the policy direction for next year, the state-run Global Times reported.

Mr Tsang said that plans to reduce risks in the financial system and tackle pollution and poverty - priorities set for 2018 - have been shelved, at least in part, to support economic stability and growth, due to the roiling trade spat.

The US is seeking a massive reduction in its trade deficit with China as well as deeper reforms in Beijing to stop the alleged theft of intellectual property and further open the economy to foreign companies.

China has been promising changes for years, but reform has been slow.

As the two sides prepare for face-to-face talks, China has resumed soya bean purchases and has suspended extra tariffs on US cars that were imposed as part of tit-for-tat measures.

But those steps are merely reverting to pre-tariff trade patterns rather than actual reforms, financial advisory firm Northern Trust wrote in a research note.

The US has also voiced concern about "Made in China 2025", an ambitious plan to dominate key high-tech industries.

While Beijing has toned down the rhetoric about the programme, the government is likely to be reluctant to put its pet project on the negotiating table.

"There are some cosmetic changes being made to the language of 'Made in China 2025', but it remains to be seen to what extent fundamental changes will be made to this development strategy," said Louis Kuijs, head of Asia economics at Oxford Economics.

The truce has put a temporary halt to an increase in tariffs on US$200 billion worth of Chinese goods and a threat of duties on the remaining US$246 billion in Chinese products that the US imports each year.

"In reality, Beijing is using the deal between Xi and Trump to buy time, hoping that the 90 days deal will in fact last longer," Mr Tsang said.

But it appears that China is gearing up for a bruising. "Beijing (is) focused on exploring what price would satisfy Trump enough to ease off on the trade war," Mr Tsang said. "It is also calculating that its pain threshold is much higher than that of the US." AFP