G20 forward -looking: Are China ready for trade negotiations?

Shengliu Gang: In response to the conflict between China and the United States, China has relatively large pace of opening up, and its stable growth has not yet achieved results. The adjustment structure has progressed slowly.Structural reforms will be the focus and difficulty of the G20 Sino -US summit meeting and trade negotiations.

Beijing, winter is approaching, haze is heavy.

Another layer of haze MDASH; MDASH; MDash; Sino -US trade conflict is still lingering.Since the US 301 investigation in March this year ruled that China infringed on the U.S. intellectual property rights, the trade conflict between the two parties has imposed a 25%tariff from the initial import of US $ 50 billion, and upgraded to the US imports of US $ 200 billion in tariffs and a 10%tariffs and US $ 200 billion.China levies 5%-10%tariffs on US $ 60 billion in imports from the United States.

The first round of trade negotiations between China and the United States stopped in mid -June because of the United States continued to implement punitive tariffs and stopped, until the previous heads of the United States in the midterm of the United States were determined to meet and discuss it in the G20 meeting held in Argentina on November 30Sino -US trade issues, trading negotiations were dawn.Trump said that if China and the United States cannot reach an agreement, it will import taxes to the remaining $ 267 billion from China, forcing China to make significant concessions in the field of trade and investment.The question now is, is China ready for the second round of trade negotiations?

In the face of this unprecedented trade war, in addition to countermeasures to increase tariffs on US imports, China's response strategy combination can be summarized as nine words: promoting openness, stable growth, and regulating structure.Promoting opening up shows the basic national policy that China still adheres to the opening of the outside world and oppose trade protectionism, which will not only help alleviate the negative impact brought by the trade war, but also help reach a trade agreement with the United States in the future.Steady growth is the decisive factor to win this trade war.

At present, the US economic growth is very strong, which makes the Trump administration dares to initiate trade conflicts with countries. Only by maintaining the stable growth of internal economy can China have a tough foundation with US trade negotiations.Growing cliff -like declines will be very unfavorable to China.The adjustment structure is a necessary means to actively respond to trade negotiations and resolve trade disputes.

Sino -US trade conflicts are structural factors in many ways, such as trade imbalances, contradictions between state -owned enterprises and subsidy policies and market economies. Therefore, if you want to reach negotiations between China and the United States, structural adjustment is inevitable, and preparations should be prepared early.

The Chinese government's measures to promote openness mainly include reducing tariffs, reducing investment restrictions on foreign capital, and actively promoting negotiations for multilateral trade agreements.First of all, since April, the State Council has significantly reduced import tariffs in four batches.From May 1st, all ordinary drugs including anti -cancer drugs, alkaloid drugs with anti -cancer effects, and the import tariffs on Chinese medicine with actual imports will be reduced to zero, and it will also greatly reduceAnti -cancer drug production and imported value -added tax negative.

From July 1st, reduce import tariffs on vehicles and parts.The tax rate of 135 tax numbers with a vehicle vehicle tax rate of 25%fell to 15%with a tax number of 20%, and the tax rates of automobile parts were 8%, 10%, 15%, 20%, and 25%.The tax rate of 79 tax numbers dropped to 6%.At the same time, the most interest rate of some imported daily consumer goods has been reduced.

Daily consumer goods include eight categories of food, clothing, shoes and hats, household products, daily miscellaneous department stores, cultural and physical entertainment, home electronics, daily chemical supplies, and medicine health. The average tax rate is reduced from 15.7%to 6.9%, a average decrease of 55.9%.Starting from November 1st, tax cuts have been implemented on industrial products such as mechanical and electrical equipment, components and raw materials of 1585 tax items, accounting for about 19%of the total number of tax items in my country, and the average tax rate has dropped from 10.5%to 7.8%.

The last significant decision in China was from 2001 to 2008, which joined the WTO, and the average tax rate dropped from 15%to 8.7%, but within ten years after that, tariffs were basically stable.This year's tariff reduction is the largest since the financial crisis in 2007, which is conducive to reducing the cost of consumers and enterprises.Although there is still a certain distance from the United States required tariffs, the gap between China and the United States has reduced the gap between China and the United States, which is conducive to reducing trade friction.China also held the first International Import Expo in November to promote imports.

On the one hand, it is conducive to sharing China's growing market with countries on the one hand, and on the other hand, it is conducive to finding alternative products from other countries and alleviating the damage to its own import tax on imported from the United States.

In terms of foreign market access, the negative list of foreign investment access was released in 2018, and the foreign market access in 22 fields including finance, transportation, business circulation, professional services, manufacturing, infrastructure, energy, resources, and agriculture.The most important thing is to list the open schedule of the automotive market and the financial field.In 2018, the restrictions on the production ratio of special vehicles and new energy vehicles manufacturing foreign -funded stocks were canceled, the restrictions on foreign -funded stocks in commercial vehicles were canceled in 2020, and the restrictions on foreign -funded shares of passenger cars in 2022 and no more than two limits of joint ventures.

In the financial field, in 2018, the foreign -funded single holding of Chinese banks was not more than 20%, and the total shareholding ratio of not more than 25%of the shareholding shall be restricted;The holding ratio of the holding of foreign capital was not more than 51%, and the restrictions on the cancellation of foreign -funded stocks in 2021; in 2018, the life insurance company's foreign -funded share ratio was relaxed from 50%to 51%, and the restrictions on foreign -funded stock ratio was canceled in 2021.

Automobile and finance are two industries with comparative advantages in the United States, so it is quite attractive to American companies.However, China did not let go of the access of the IT and the Internet information service industry, nor did it give an open timetable. The US Internet high -tech company was still blocked outside the Chinese gate. Therefore, China’s negative list of foreign investment in China in 2018Can't win their support.

Because the US Internet high -tech companies have a significant impact in business, politics, capital markets, and public opinion, China should take greater open pace in this field to win more support.

In addition, China is accelerating trade and investment negotiations with other countries, including the China -Japan -South Korea Free Trade Agreement, China -Europe Investment Agreement, and Regional Comprehensive Economic Partnership Agreement (RCEP).Recently, China and Singapore have also reached an upgraded version of the Free Trade Agreement.However, the final negotiations, agreement and implementation of cross -regional free trade agreements are needed.

Steady growth is not the focus of policies in 2018 set up at the Central Economic Work Conference at the end of 2017.At that time, the main task was still supply -side reforms to prevent and resolve major financial risks by deleveraging.However, in July, due to the upgrading of the Sino -US trade conflict, the tariff war entered a state of implementation.The financial market was under pressure. The offshore RMB exchange rate fell from near 6.3 in March to 6.9 in early August, and the Shanghai Index fell from more than 3300 points to 2800 points during the same period.

Deviny superimposed Sino -US trade conflict has made the economy start to decline. In the first three quarters, the year -on -year growth rate of the GDP in the first three quarters fell from 6.8%and 6.7%to 6.5%.Therefore, at the end of July, the Central Political Bureau meeting shifted policy goals from deleveraging to steady growth, and monetary policy and fiscal policy shifted to dual looseness.

After the two -year reduction in the first half of the year, the central bank reduced the reserve ratio twice in July and October, respectively, and at the same time, it appropriately increased the medium and long -term liquidity and guided interest rates to decline.The 7 -day repurchase interest rate of the Bond of China Bonds fluctuated around 2.8 in June and has fallen to 2.6.At the IMF/World Bank Annual Meeting in October, the central bank governor Yi Gang also said that China's deleveraging has been gradedSexual results, the macro leverage rate has stabilized, suggesting that reducing debt leverage is no longer the main task of the central bank, but the central bank also stated that it will not adopt the form of large water irrigation to stimulate the economy.

At the same time, the Ministry of Finance also reduces corporate costs through tax cuts.Minister of Finance Liu Kun said that the total tax reduction rate this year is expected to exceed 1.3 trillion, which is higher than the 1.1 trillion yuan tax reduction target set at the beginning of this year.It mainly includes a percentage point of lower -value value -added tax, and the amount of tax reserved at the end of the value -added tax period in some industries will be refunded; income tax deductions to increase corporate R & D expenses; the tax starting point is adjusted to 5,000 yuan, andHousing loan interest, housing rents, and six special additional comprehensive quota deductions for the elderly.

In order to resolve the impact of the United States' punitive tariffs on China, the Ministry of Finance raised the value -added tax export tax refund rate twice on September 15 and November 1 on September 15 and November 1.The market generally believes that the current tax cuts are not enough, and 1.3 trillion tax cuts are less than 1.7%of China's GDP in 2017.In this regard, the Ministry of Finance stated that a larger scale will be launched in the future.In addition, the decline in infrastructure investment has dragged down the overall fixed asset investment. It is expected that the Ministry of Finance, the Development and Reform Commission and local governments will increase infrastructure investment and drive the economy.

Many policies of steady growth are on the ground, but at present, it is not enough to boost market confidence, and it is not enough to change the trend of economic downturn.In particular, the fiscal stimulus policy is mostly within the beginning of the year, and the additional tax reduction and fees are not obvious.This has made China disadvantaged in trade negotiations with the United States.Trump has stated more than once that the financial and economic pressure caused by the trade war to China is greater than that of the United States, so the United States has stronger negotiation capabilities.

Compared with the measures to promote openness and stable growth, structural reforms are not ahead.Although the government has long determined that the direction of economic reform is the decisive force of the market for the distribution of resources, the power of the government's tangible hand has continued to increase.There are profound structural factors behind the Sino -US trade conflict, but in addition to reducing tariffs and restrictions on the foreign market access, in addition to the above -mentioned restrictions on the foreign market access, other aspects are very limited.In March, China was in a hurry and was caught off guard by the United States, but in the past six months, China ’s measures and preparations for the trade war have still been insufficient.

For example, one of the main demands of the United States is the Sino -US trade deficit. Although bilateral trade imbalances are mainly caused by economic factors, especially the global industrial chain, not the result of China's active pursuit, but the US politics is based on the consideration of votes.It is more sensitive. This is why the United States launched a trade war in Japan in the 1970s and 1990s, so China had to pay attention to this demand of the United States.On the one hand, China should continue to significantly reduce tariffs, and at the same time reduce the domestic consumption and value -added tax of imported products.

Taking imported cars as an example, if only import tariffs are reduced, it is very limited to expanding imports. It is necessary to reduce consumption tax and value -added tax at the same time to significantly reduce the domestic price of imported cars and help expand automobile imports.On the other hand, we should also consider encouraging enterprises to transfer the final assembly stage of the global industrial chain to other countries, such as Vietnam, Indonesia, Thailand and other Southeast Asian countries.The narrowing of the US -Japan trade deficit is largely because Japan transferred production and assembly to China, and China may wish to learn Japanese experience.

The second demand of the United States is to reduce the distortion of state -owned enterprises and industrial subsidies to the market.In September this year, the United States, Japan and Europe issued a troupe -party joint statement on trade, requiring the formulation of effective rules to solve the distorted market behavior of state -owned enterprises in non -market -oriented economies and the government's industrial subsidy policy, and create a fair market environment.This statement is mainly aimed at China, but the Chinese government seems to have no preparations for concessions at this point. The guidelines for state -owned enterprises are still bigger and stronger. Therefore, the two parties have sharp contradictions on the issue of state -owned enterprises.protocol.

The central bank's president Yi Gang proposed the concept of competitive neutrality, emphasizing that policies are allocated to all enterprises.However, the United States will definitely not be satisfied with China just to put forward one concept, and more importantly, how to implement this concept.At present, the continuous voice of China's high -level executives for the private economy also reflects the concerns of private entrepreneurs' concerns about the retreat of the country and the people, and it may be very necessary to promote the market -oriented reform of state -owned enterprises.

The problem of state -owned enterprises will not be resolved, and the trade conflict between China and the United States, Japan and Europe will also exist for a long time.China is no longer the small country economy 20 years ago. As the Chinese economy grows, domestic policies will also affect the international market. Therefore, when the Chinese government formulates policies, we cannot just consider the country's economy, but also need to consider feedback from the international community.

At present, China ’s open -promoting measures are mainly to implement the plan announced on the Boao Forum in April this year at the Boao Forum in April this year. These measures do not seem to alleviate the pressure of the United States' trade war on China.However, there are still many room for China to continue to open, including continuing to reduce tariffs and open foreign capital into more fields such as telecommunications, energy and Internet fields.Expanding opening up is also conducive to the growth of China's economy. Therefore, it is expected that China will make more concessions during the G20 summit, and China and the United States are more likely to reach an agreement in this regard.

As the economic downward pressure still exists, the specific policy of dual loose currency financial fiscal loosening will be introduced one after another. Although it cannot quickly reverse the trend of economic decline, the possibility of economic crisis and cliff -like declines is relatively low.At the same time, the growth rate of the US economy in 2019 is expected to be lower than 2018. The stimulus effect brought by tax cuts is also weakened. In addition, the Fed will still increase interest rates. Therefore, the negative impact of the trade war on the US economy will also becomeSignificantly.

In contrast, China and the United States have a huge difference in structural reform. Structural reforms are the main demands of the United States, but it seems that it is not the main point of China's current policy. It may imply that China is unwilling to concessions in these fields.Therefore, structural reforms will be the focus and difficulty of negotiations.

The world is about to meet at the G20 summit at the G20 summit held in Buenos Aires. This meeting will be related to the trend of trade conflict between the world's two major economies, and the economy and global economy of the two countries will be related toThey all have a vital impact.China and the United States have decided to change the location of the negotiations from Washington to the G20 summit, which means that trade negotiations will be led by the highest summit between the two countries.

In the case of optimism, although the differences between the two parties cannot be resolved in a meeting, the two Congress has reached some principled terms, and there will be substantial measures to alleviate the tension between the two sides.

However, if the two sides cannot reach an agreement in the end, the possibility of a comprehensive trade war in China and the United States will greatly increase.Note: This article only represents the author's view, and the author is also the director of the trade and development research plan of the Hong Kong Institute of Asia -Pacific.

Editor of this article Xu Jin [email protected]