Realistic view needed to resolve China-US trade woes

Source:Global Times Published: 2019/11/12 20:58:42

Hans-Paul Bürkner Photo: Li Qiaoyi/GT

Editor's Note:

China-US trade tensions have dominated headlines over the past year, sparking discussions on how to end the woes and economic bruising. While remaining optimistic, one needs to be realistic in that there isn't a quick fix for this prolonged conflict between the world's two largest traders.

Describing himself as "a big believer in China," Hans-Paul Bürkner (Bürkner), chairman of Boston Consulting Group (BCG), urged a realistic outlook when resolving the trade conflict in an exclusive interview with Global Times reporter Li Qiaoyi (GT) in Beijing on Friday.

Voicing approval for an open approach China has taken to address the changing global economic landscape, Bürkner hopes for more opening-up progress in the pipeline.

GT: How effective would a phased approach be to mending the trade rift between China and the US? What are the odds that a comprehensive trade deal will be signed?

You need to find a solution. You cannot expect one big deal to solve everything. So, taking a step-by-step approach is important. The key is to talk to each other, negotiate, find the first solution, and then you keep on talking about the next issues. We should not expect the trade conflict to end over the next year or in a few months. It will take quite a while and issues will always arise, and there may be some open questions where the two sides disagree. This will go on for quite a while. 

We have experienced trade conflicts and tensions not just between China and the US, but with many countries for many years. We have this between Japan and South Korea, between Malaysia and India, and between the US and Europe. 

The situation between China and the US involves more conflict than the world has seen before, but eventually we'll resolve it because this is the best way for both. China will benefit and the US will benefit too. Otherwise, everybody will lose.

There will be a trade deal. There will be one deal after another, and one issue after another will be resolved but it can take a lot of time. 

GT: What is the impact of China-US trade tension on global supply chains? 

Bürkner: Clearly what [we have seen happen] is imports from China into the US have come down significantly, whereas the US now has more imports from Southeast Asia, Europe, and Mexico. There has been a shift. Chinese companies have also shifted some of their production to other parts of the world including Southeast Asia. Some Japanese, South Korean, and European companies have tried to avoid this. But supply changes take time to rearrange. Very few have moved production back to the US. They [will] move to other parts in Asia, and maybe Mexico. The ultimate objective of re-shoring and bringing things back to the US is not an easy goal to achieve. Companies around the world have to rethink their supply chains. But it's not just because of the trade conflict. You have to rethink your supply chains all of the time because of changing costs. You want to be faster responding to changing customer needs; you have to be closer to home. And because of technological advances, economies of scale and scale advantages may not be as significant.

Manufacturing is a very complex system and you need many suppliers if you want to produce something. In order to make it work, you need to have those suppliers in one country. There is a very dense group of suppliers in China with good quality, proven systems, and replicating this in the US and anywhere else in the world is not easy. 

GT: Is the tech world already split in two amid the trade woes? What are the implications of China-US competition within the global tech innovation arena?

First, you should not underestimate Ericsson and Nokia. There are also tech companies in Europe operating in 5G. So, it's not just the Chinese and the Americans, but the Europeans. But of course, it could very well be [possible] if there are two tech worlds [with regard to] the internet. There are Google and Facebook from the US, as opposed to Alibaba, Tencent and Baidu from China. And there would be a clash between the two. I think ultimately, we have to overcome this. 

GT: What are the outlooks for other major economies such as the EU and India in the global economic landscape, and which is now shining a spotlight on China and the US?

Assuming that there is either China or the US, and there's nobody else in the world is not quite [right]. The economy of Europe as a whole is still larger than the US and China. But the growth rate in Europe is significantly lower than the US and China, meaning eventually China and the US will overtake the entirety of Europe in economic terms.

India is a complex country. I think there's potential there. But just because the population would be the largest in the world and overtake China at some stage doesn't necessarily mean the economy will become larger. It would take quite a long time, and the India model can't just be modeled after the China model, because China was really becoming the factory of the world. India is not in that stage because the manufacturing sector in India is not that strong. 

Actually, it has quite a lot of challenges, labor laws, and other things. Infrastructure has yet to be improved, but India may use the services model. It's very strong in IT services, in order to keep on going at a good rate, but it will take quite a while before India becomes as strong an economy as China. 

GT: Which areas need more work to open up China's market to global investors?

Chinese leadership emphasized at the import and export fair in Shanghai that openness is benefiting everybody. The negative list will become shorter, there will be more opportunities for foreign investment, there will be more access for foreign companies, and I think it's a natural process. In many countries there are limitations. It's not just in China. The Chinese government recognizes that they have taken quite a lot of steps in the past and more needs to be done. I think this is the right path.

GT: Digital currencies are now all the rage in the global financial sphere. Will Facebook's Libra dominate global finance? Will the China-US trade war be extended to the cryptocurrency field?

Bürkner: We have quite a number of cryptocurrencies, but there is a lot of speculation and even fraud. Central banks and governments will have to find ways of regulating them. 

One of the key issues is that bitcoin is used a lot on the dark net, and I think we need to be very thoughtful about how to deal with cryptocurrencies. They will not go away. They are there. I would say it's something that we have to deal with very carefully. 

I'm sure there will be a lot of tension in many areas. So, it's not just trade and technology, it will be cryptocurrency. I'm sure these things happen. Some countries and regions push it and it is being used in some parts of the world. But normal investors should be very careful about cryptocurrency-related investing.

GT: What changes have you learned of throughout the years, from the conversations you have had with Chinese entrepreneurs and government officials? 

First, their focus was on building China. Over the last five to 10 years, as growth in China's market has slowed, Chinese companies have been more active in going aboard and they have also made acquisitions abroad. Some of the overseas deals proved thoughtful. As you internationalize, you have to learn. For example, when European companies went to the US, initially they had a lot of challenges and problems, and now some of them are quite successful. The same is true for Chinese companies. As they go to Europe, North America, Latin America, Africa and other parts of Asia, some are successful, and some might first have problems. Business is different in many parts of the world. 

The Chinese are working very hard. They are willing to take risks. They work under very different conditions, but I think you also need to build a local management team. To learn what works and what doesn't, you have to [work with] local people who understand the mentality. It's a learning process that everybody has to go through.

GT: In what ways has China changed the global economy? 

Whether it's infrastructure, technology or consumer goods, I think Chinese businesses are not following in the footsteps of others. They are doing a good job. Take the Belt and Road Initiative. It's a good thing connecting China with the rest of Asia, Africa and Europe. Two-thirds of the world's countries are part of the Belt and Road Initiative. It will ultimately benefit countries and should not be seen as a way for China to dominate.

I'm a big believer in China. I think it's fantastic what the Chinese have built over the last 40 years. They have really helped the world, not just China. The more we work together, the more everybody benefits. 


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