S
Source: ANBOUND
Monday, September 24, 2018

On September 24, the Chinese State Council Information Office published a white paper on U.S.-China trade frictions and China's position. On the one hand, it shows the reality U.S.-China trade and economics, on the other hand, it systematically shows China's position and attitude; perhaps some of the Chinese government's policy information is hidden within this white paper.

First of all, China and the United States are important trade partners. According to statistics from relevant Chinese departments, the bilateral trade in goods between China and the United States reached US$583.7 billion in 2017. At present, the United States is China's largest cargo export market and the sixth largest source of imports. In 2017, China's exports to the United States and imports from the United States accounted for 19% and 8% of China's exports and imports respectively. China is the fastest growing export market in the United States; it is also the largest source of imports; in 2017 U.S. exports to China accounted for 8% of its exports. China is the largest export market for aircraft and soybeans of the United States and the second largest export market for automobiles, integrated circuits, and cotton. In 2017, 57% of soybeans, 25% of Boeing aircraft, 20% of automobiles, 14% of integrated circuits, and 17% of cotton exported from the United States were sold to China. The United States is in the middle and high-end of the global value chain; most of its exports to China are capital and intermediate goods. China is in the middle and low end, and its exports to the United States are mostly consumer goods and final products.

Second, the bilateral trade in services between China and the United States has grown rapidly. According to statistics from the United States, in 2007-2017, the trade volume between China and the United States increased from US$24.94 billion to US$75.05 billion, a two-fold increase. In 2017, according to the statistics of the Chinese Ministry of Commerce, the United States is China's second largest service trading partner; according to the U.S. Department of Commerce, China is the third largest service export market for the United States. The United States is the source of the biggest deficit in China's service trade, and the deficit has expanded rapidly. According to statistics from the United States, in 2007-2017, U.S. exports to China increased from US$13.14 billion to US$57.63 billion, an increase of 3.4 times. In the same period, U.S. exports to other countries and regions in the world increased by 1.8 times. The annual trade surplus of China's service trade expanded 30 times to US$40.2 billion. At present, the United States is the largest source of China's service trade deficit, accounting for about 20% of China's total trade deficit.

Third, China and the United States are important investment partners. According to statistics from the Chinese Ministry of Commerce, as of 2017, the United States has established a total of 68,000 foreign-invested enterprises in China, with actual investment exceeding US$83 billion. Chinese companies have experienced rapid growth in direct investment in the United States, and the United States has become an important investment destination for China. With the development of China's foreign investment, Chinese companies' direct investment in the United States increased from US$65 million in 2003 to US$16.98 billion in 2016. According to the statistics of the Chinese Ministry of Commerce, as of 2017, China's direct investment in the United States is about US$67 billion. At the same time, China has also invested heavily in the United States. According to the U.S. Treasury Department, as of the end of May 2018, China held U.S. Treasury bonds of US$1.18 trillion.

Fourth, both China and the United States have clearly benefited from economic and trade cooperation. In 2017, the total import and export volume of China's goods trade was US$4.1 trillion US dollars, ranking first in the world; the total import and export of service trade was US$695.68 billion, ranking second in the world; attracting foreign investment of 136.3 billion US dollars, ranking second in the world. American companies in China have played a role in demonstrating Chinese enterprises in terms of technological innovation, market management, and institutional innovation, promoting market competition, improving industry efficiency, and driving Chinese companies to improve their technology and management.

Based on the facts identified by the Chinese government mentioned above, the white paper demonstrates China's basic position on U.S.-China trade frictions:

1. China is not willing to participate in the trade war, yet it is not afraid of it and will fight in the war if necessary. Regarding the problems and disputes arising in the rapid development of U.S.-China economic and trade relations, the two sides should resolve their differences in a mutually acceptable manner through bilateral consultations or resorting to the World Trade Organization dispute settlement mechanism. China believes that mature politicians in the United States will eventually be able to return to rationality and handle the U.S.-China economic and trade frictions in the right way.

2. The United States and China are the world's top two economies. China is willing to cooperate with the United States in controlling economic and trade differences, and actively build a balanced, inclusive and mutually winning new China-U.S. economic and trade order. China is willing to restart bilateral investment agreement negotiations with the United States on the premise of equality and mutual benefit, and initiate bilateral free trade agreement negotiations in due course.

3. China firmly adheres to and upholds the rules of the World Trade Organization, supports an open, transparent, inclusive and non-discriminatory multilateral trading system, and supports reforms such as the global trade statistics system based on global value chains and trade value added. It also supports the necessary reforms in the World Trade Organization.

4. China will continue to improve laws and regulations related to intellectual property protection, the quality of intellectual property review and review efficiency, and actively introduce a punitive system for intentional infringement, as to significantly increase the cost of illegal activities. China strictly protects the legitimate intellectual property rights of foreign companies in accordance with the law.

5. China will focus on building an open and transparent foreign-related legal system to provide better services for enterprises from all over the world to invest and operate in China. China respects international business practices and abides by the rules of the World Trade Organization. It treats companies registered in China equally. China is committed to creating an equal, competitive market environment. It also pays attention to foreign investors and is willing to respond and work hard to solve specific problems as reflected by the enterprises.

6. China has firmly insisted on deepening reform and opening-up, and comprehensively promoted the rule of law. China has consistently played a decisive role in the allocation of resources in the market, as well as better exerting the role of the government. China will implement a high-level trade and investment liberalization and facilitation policy, fully implement the pre-entry national treatment and negative list management system, substantially relax market access, expand the service industry to open to the outside world, and further reduce tariffs.

7. China firmly promotes mutually beneficial and mutually winning cooperation with other developed countries and developing countries. China will work with the European Union to accelerate the negotiation of the China-EU Investment Agreement, and on this basis, placing the issue of the China-EU Free Trade Area on the agenda. China will accelerate the negotiation process of the China-Japan-Korea Free Trade Area and promote the early conclusion of the Regional Comprehensive Economic Partnership Agreement (RCEP).

8. China persists in resolving disputes through dialogue and differences through consultation, using civilized exchanges to overcome barriers in civilizations, mutual learning to overcome civilizational conflicts and civilizational coexistence to overcome superiority.

The contents of the white paper reveal that the Chinese government hopes to realize the common ground while reserving differences with the U.S. government through emphasizing on facts and reasoning to solve the issue of economic and trade frictions through negotiations. Although the white paper is critical of the U.S. approaches, the tone is still rational. However, the problem between China and the United States is not just economic and trade frictions. As Anbound has previously analyzed, the essence of economic and trade frictions is the competition between China and the United States for market space, and such competition is the economic expression of the strategic suppression of the United States against China. Whether the Trump administration will accept the reasons and logic of the Chinese white paper is highly uncertain because the starting points and concerns of the two countries are very different.

Final Analysis Conclusion:

The Chinese white paper shows that China has acknowledged the reality of U.S.-China trade frictions and the basic position that China hopes to resolve the issue through negotiations. However, there is still a lot of uncertainty as to whether the Trump administration will reach a common view with China. From the current trend, China might need to prepare for a higher level of the U.S.-China trade friction risk.

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