ZTE case signals ties with US at turning point

By Shen Jianguang Source:Global Times Published: 2018/4/19 22:43:44

Illustration: Luo Xuan/GT


On Monday US time, the US prohibited domestic companies from selling components to ZTE for seven years. This news has increased the possibility that Sino-US trade friction will widen into a science and technology war. How should China respond? Is this a turning point in the Sino-US relationship?

The ban was issued because ZTE allegedly violated an agreement reached with the US government for having illegally sold goods to Iran. The administration of former US president Barack Obama didn't make a big deal of this issue and ZTE quickly faded from the spotlight. In contrast, the Trump administration's penalties are obviously an overkill. Such heavy punishment - only because the company dismissed four senior employees without disciplining the other 35 - is astonishing, untenable and excessive.

ZTE may be forced into a desperate situation where no parts can be purchased and no technical support can be provided. Considering that ZTE is a typical State-owned high-technology enterprise, it explains the motivation of the US to curb the rise of high-tech companies in China.

The apparent contrast between the attitudes of two governments toward Chinese companies reflects the profound changes in their relations and the escalating tension between China and the US. Even in 2015, I already noticed obvious changes in Sino-US diplomacy and expected that along with the significant increase in China's overall strength there would be increasing bilateral friction in the traditional security field as well as in areas like trade and the economy.

However, since the Trump administration began, friction has increased beyond expectations. It seems that relations are at an inflection point.

The game between China and the US will be different in the short, medium and long terms.

In the short term, trade disputes are an important weapon. This reflects both Trump's campaign pledges and efforts to consolidate political resources.

In the medium term, globalization has led to a gradual decline in the position of US manufacturing and a corresponding loss of employment, while China's manufacturing has leaped to the top of the world. Curbing the rise of China's manufacturing industry is Trump's way to make the US great again.

In the long term, beyond the economic sphere, the US may take comprehensive countermeasure against China. But it is not only about Trump. No matter who is the US president, tensions will continuously increase.

Judging from the current situation, the extension of the trade war to a technology war might be a turning point in bilateral relations. The US has blocked technology-based enterprises and questioned the Made in China 2025 plan. All this escalated aggression toward China can be persuasive evidence.

The US has undergone profound changes in its attitude toward China, especially in the technology industry, where it has an absolute advantage. This seems to be related to the rapid development of China over the past 10 years, which has stirred concern over the potential threat posed by China to the US' technology dominance. We can see that, in fields such as artificial intelligence, cloud technology and the Internet of Things, China has sprung up and overwhelmed the traditional powers like Germany and Japan. Within just a few years, China and the US have become almost neck-to-neck in some fields.

Therefore, we should pay attention to the ZTE sanctions and treat them as an early warning of major changes in Sino-US relations. In terms of the situation itself, there are several possibilities.

First, ZTE can actively participate in mediation and communication. Second, through mergers and acquisitions, the main business and industrial chain of ZTE can be transferred to other companies.

Third, country-level coordination is also important.

For example, on the morning of Tuesday Beijing time, the Chinese Ministry of Commerce responded to the ZTE ban, saying that it is ready to take necessary measures to safeguard the legitimate rights and interests of Chinese companies. China may even conduct rigorous verification of US-funded enterprises and punish those business entities who violated the laws of China as a counterattack.

Strategically, recognizing the depth of the problem and making detailed policies and preparations is necessary. Due to the unpredictable nature of Trump's policies, being flexible might be one response. At the same time, to prevent him from being too aggressive, further efforts can be made to appropriately counterattack the US so that frequent friction can lead to peace in reverse.

China can determinedly promote a new round of reform and opening-up; rejuvenate the country through science and technology and the Made in China 2025 strategy; encourage innovation; protect property rights, and master core intellectual property and technology of foreign companies through increasing domestic scientific research.

We should emphasize that economic and trade cooperation is a stabilizer and ballast for Sino-US relations. We can also strengthen cooperation with high-technology markets such as European countries and Japan, and continue to strengthen our marketing and internationalization so that wide alliances can be formed. These are also pragmatic policy choices.

The author is managing director and chief economist with Mizuho Securities Asia. bizopinion@globaltimes.com.cn


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