China tempers hopes about U.S. tariff truce
The two sides have yet to put last week's agreement on paper after President Donald Trump suspended a planned tariff hike
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BEIJING – A truce in a U.S.-Chinese tariff war and Beijing’s promises to open more of its state-dominated economy are raising investor hopes. But Beijing is trying to temper expectations, while companies express frustration over the halting pace of market-opening.
The China Daily, an English-language newspaper aimed at foreign readers, warned Tuesday the two sides have yet to put last week’s agreement on paper after President Donald Trump suspended a planned tariff hike. In exchange, Trump said Beijing would buy up to US$50 billion of American farm goods, a pledge China has yet to confirm.
“There is always the possibility that Washington may decide to cancel the deal if it thinks that doing so will better serve its interests,” said the newspaper. It called on the Trump administration to “avoid backpedaling.”
Business groups welcomed the truce as a possible step toward ending the costly, 15-month-old fight but said it was a small one. Talks broke down earlier after Trump accused Beijing of backsliding on promises Washington believed were locked in.
On Tuesday, a foreign ministry spokesman said Chinese importers have bought 20 million tons of soybeans and 700,000 tons of pork this year from the United States. He gave no details on when that happened.
China’s imports of U.S. soybeans fell by about half last year to 16.6 million tons from 2017’s 33 million tons.
“China will further speed up procurement of U.S. agricultural products,” said the spokesman, Geng Shuang.
Friday’s agreement coincided with China’s announcement of a timetable to carry out a 2017 promise to abolish limits on foreign ownership of some finance businesses, starting with futures trading firms on Jan. 1. Securities firms and mutual fund managers follow later in the year.
Investors saw that as a commitment to freer trade. Chinese officials say it has nothing to do with the trade talks and isn’t a concession to Washington.
Over the past 18 months, President Xi Jinping’s government also has promised to allow full foreign ownership in banking, insurance and auto manufacturing in hopes of making its slowing economy more competitive and productive.
None addresses U.S. complaints that plans for government-led creation of Chinese competitors in robotics and other industries violate Beijing’s market-opening commitments and are based on stealing or pressuring companies to hand over technology.
Chinese market-opening initiatives follow a standard script. Authorities announce dramatic but vague promises that raise hopes abroad. Six months to a year passes while companies wait to see regulations. Many are dismayed when they impose costly licensing requirements or curbs on the size of a business.
Foreign companies are frustrated Beijing is moving so gradually 17 years after joining the free-trading World Trade Organization. China, the biggest global exporter, is widely seen as having benefited most from freer trade but faces complaints it violates the rules and spirit of the WTO by blocking access to its own markets and subsidizing Chinese competitors.
“China’s opening-up process needs to move beyond piecemeal changes and instead embrace an absolute approach in which China goes from ‘increasingly open’ to ‘open’,” said Joerg Wuttke, the president of the European Union Chamber of Commerce in China.
Chinese leaders want foreign capital, skills and competition for an economy where huge but inefficient state companies still control industries including oil and gas, telecoms, banking, insurance and power generation.
Beijing wants more foreign involvement to help improve China’s finance industry, said Lester Ross, a lawyer in Beijing for the firm WilmerHale.
“There is a lot of attractiveness” for foreign banks, insurers and other competitors in China’s fledgling market, he said.
Opening its own markets also gives Beijing leverage to ask the United States and other governments to let wholly Chinese-owned banks, insurance and other companies into their markets, Ross said.
Beijing allowed full foreign ownership of electric car producers starting last year. Restrictions on commercial vehicle manufacturing end next year and for passenger vehicles in 2022.
That reflects confidence Chinese electric car brands including BYD Auto and BAIC, which are among the global industry’s biggest producers by vehicles sold, can compete with foreign rivals.
Global automakers that until now were required to work through state-owned partners are so deeply enmeshed in those ventures that most plan to stick with them. Buying out partners could cost billions of dollars and the foreigners would lose their political connections.
“China is accelerating the pace of opening, but we still need to see those implementing regulations in place and how fast those are carried out,” said Ross.
Foreign banks are applying to set up shop in China following an August 2018 pledge to allow full foreign ownership. But they need an eye-wateringly high minimum capital of 40 billion yuan ($5.7 billion) to operate in China or 8 billion yuan ($1.1 billion) to conduct cross-border services.
That is beyond the reach of all but the richest foreign institutions.
A handful of American, European and Japanese banks have been given approval to set up Chinese ventures. It is unclear whether they met the capital requirement or whether regulators eased that as a concession to Washington and other trading partners.
In insurance, foreign investors face a time-consuming licensing process that requires them to apply in one of China’s 36 provinces and major cities at a time and wait up to a year for approvals. Obtaining approval for the biggest provinces could take up to a decade.
“China’s efforts to boost investor confidence face significant headwinds,” said Andrew Coflan and Allison Sherlock of Eurasia Group in a report.
Another hurdle: government controls on the movement of money into and out of China. That adds to the cost and difficulty of bringing in capital and taking home profits.
Such obstacles “make entrance by foreign financial firms a challenge, even with no ownership caps,” said Coflan and Sherlock.
Also Tuesday, the Chinese post office said fees it pays the United States and other countries to deliver packages will nearly triple through 2025 under an agreement following complaints by Washington.
Payments will rise 27% next year and by 164% in total through 2025 under the Sept. 25 agreement by members of the Universal Postal Union, the State Postal Bureau said in a statement.
The Trump administration complained the U.S. Post Office was subsidizing Chinese exporters, which it said pay too little to deliver the vast flow of packages generated by online commerce.