Consensus can still be found in China-US talks

By Xu Qiyuan Source:Global Times Published: 2018/5/14 21:23:40

Illustration: Luo Xuan/GT

China and the US are about to kick off the next round of dialogue and consultation. However, the two sides are currently very divided.

China's position is based on the perspective of global value chains and foreign-backed companies' investment interests in China. The US authorities, meanwhile, have to deal with voters who only focus on the importance of imports and exports.

To reach a consensus between China and the US, it will be necessary to see things from the point of view of the US, and to try to find ways to reduce the bilateral trade imbalance. At the same time, methods should be adopted that will minimize the negative impact on China. There are three possible ways to achieve this.

First, in the medium or the short term, tariffs could be significantly reduced and overseas travel purchasing could be more fully taken into account. And some of China's services trade deficit could be transferred to trade, thus offsetting the trade surplus.

Given the extent of the overseas travel shopping and purchasing by Chinese tourists, China's trade surplus may have been overestimated. Due to statistical difficulties, a considerable proportion of this overseas shopping is not included in the data for trade in services.

By drastically reducing tariffs and coordinating reductions in consumption taxes, this overseas purchasing can be transferred back to China, which would also boost employment in the domestic retail and logistics sectors.

Based on this measure, China's trade surplus with the US could be reduced. Meanwhile, the current account balance will be relatively stable, and the amount of errors and omissions will also be reduced.

Second, trade surpluses can be transferred. From China's point of view, a large proportion of the trade surplus is a result of international division of labor and is consistent with China's comparative advantages in the past.

However, in the medium and long term, China needs to take the "Made in China 2025" strategy as the basis for promoting the upgrading of the domestic industrial structure.

In the process, China should pay more attention to the opening-up of developing countries and emerging economies, and should accelerate the upgrading of domestic industries. While promoting the "Made in China 2025" plan, China can transfer some of its capacity to countries in Southeast Asia. At the same time, it can gradually shift China's trade surplus with the US to these countries.

However, it is also necessary to coordinate the two major engines of emerging industries and traditional industries, taking into consideration the speed of the transformation and upgrading of domestic industries. A transfer away from traditional production capacity before advanced production capacity has been developed should be avoided.

In the past 40 years, China has been more open to advanced economies. In the future, we must pay more attention to developing countries. China's domestic economic reforms and its opening-up strategy in the new era will simultaneously reshape the patterns of international capital and commodity circulation, both on the demand side and on the supply side.

Third, the policy of overall opening-up is a fundamental policy rather than expediency. Even facing heavy external pressure, we must make overall arrangements and have a proper strategy. In terms of the opening-up of the financial sector in particular, two different issues must be distinguished: direct investment in the financial sector and short-term international capital flows. Specifically, in the Sino-US consultation process, one of the principles is that opening-up of the financial sector should differentiate between the opening-up of long-term direct investment and the opening-up of short-term capital financial accounts in the financial industry.

The former, such as market access for securities, insurance and credit rating companies as well as banks and accounting firms, can be liberalized with greater intensity.

However, short-term international capital flow management is different. Based on international experience, especially what happened to Japan in the 1980s, there is a risk of a large impact on domestic macroeconomic and financial market order, and this should be avoided.

The author is a senior fellow with the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.


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