<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'The State Has Dragged Down China’s Economic Growth'</h1><div class="date">April 27, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible"><strong>I. THE LAW AND THE PROTESTS</strong></div><div id="article1" class="post-card"><div class="t2-block">1. 'The State Has Dragged Down China’s Economic Growth': Nick Lardy</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2701" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe src="https://www.bloomberg.com/multimedia/api/embed/iframe?id=7d421f29-b6dc-418e-bd93-9cb2e9c01dc6" allowscriptaccess="always" frameborder="0"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://www.bloomberg.com/news/videos/2019-04-25/state-has-dragged-down-china-s-economic-growth-says-peterson-institute-s-lardy-video" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"><strong>More insights from Nick Lardy</strong> of the Peterson Institute for International Economics (PIIE) in a <a href="https://www.bloomberg.com/news/videos/2019-04-25/state-has-dragged-down-china-s-economic-growth-says-peterson-institute-s-lardy-video" target="_blank" style="color: #c80000;border-bottom: 1px solid #c80000;text-decoration: none;">3m 48s interview on Bloomberg.</a></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><h3>⚡<em>Is Xi Jinping’s emphasis on control dragging down the Chinese economy?</em></h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘President Xi</strong> thinks strong state sector is an element of control.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘And he seems</strong> to be willing to pay a price in terms of slower growth in order to maintain that control.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The State has been dragging down</strong> China's economic growth over the last few years.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The share of credit</strong> going to state companies has gone from around 1/3 to over 80%.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But the state companies</strong> are so inefficient in terms of the way they use capital.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Even though</strong> they're getting a lot of capital in the form of loans they're not using it very efficiently.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So their contribution to growth</strong> is far less than it could be if those funds had gone to private companies.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But private companies</strong> have gotten squeezed out.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘They has been squeezed out</strong> of credit markets both banks and non-banks and its contribution to growth has declined significantly.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So, that sector</strong> has been a big drag on China's growth over the last two years.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Now, China</strong> is trying to get more money into the private sector through a new facility that wasn’t created until of December last year.’</li></ul><h3>⚡<em>‘Would a developed bond market better allocate capital?</em></h3><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Certainly the bond market,</strong> if it was really operating competitively, could allocate capital much more efficiently.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But what we've seen</strong> in recent years is that state companies have much greater access to that market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Private companies</strong> for the most part have had much less access.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So it still seems</strong> to be like the banking system: preferential access to state-owned companies.’</li></ul><h3>⚡<em>How well has mixed-ownership reform worked to make state companies more efficient?</em></h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘You can find individual examples</strong> that have been a success, but I think, as a general program, it has not worked, and it's not likely to work. A couple of things to look at.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The state companies</strong> that are drastically underperforming – the ones that really need to be reinvigorated - are the ones private firms don't want to invest in.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘And</strong> there are a lot of state firms that are doing very well.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Why should</strong> they want to sell part of their equity to private companies?'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So it’s not quite clear</strong> to me where the fit is, that is, how private capital can really help to invigorate the state sector.’</li></ul></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. U.S.-China trade talks: How Trump’s latest Iran sanctions decision could impact a deal</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2702" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://media-cdn.list.ly/production/705638/3454885/3454885-around-the-halls-how-trump-s-latest-iran-sanctions-decision-could-affect-markets-and-key-countries_600px.jpeg?ver=4905240057" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Brookings</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>On April 22</strong>, the Trump administration announced that all waivers for buyers of Iranian oil will end on May 2.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'We are going to zero,'</strong> said Secretary of State Mike Pompeo, adding that there would be no grace period for compliance.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The US introduced</strong> the sanctions on purchases of Iranian oil after it withdrew last year from the 2015 agreement with Iran to scale back Tehran’s nuclear program.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But, Washington</strong> later granted 'Significant Reduction Exceptions' waivers to China, India, Japan, South Korea, Italy, Greece, Turkey, and Taiwan that allowed them to continue their purchases.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Now those countries</strong> have to stop buying Iranian oil or face sanctions themselves.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China filed a complaint the day after the announcement.</strong> ‘Chinese foreign ministry spokesman Geng Shuang said on Tuesday that Beijing opposed unilateral sanctions and the US’ its “long-arm jurisdiction..’<a href="https://www.scmp.com/news/china/diplomacy/article/3007365/china-protests-over-end-american-waivers-iranian-oil-imports" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> reports</a> the South China Morning Post.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'We urge the US</strong> to conscientiously respect China’s interests and concerns and not to take mistaken actions that would hurt China’s interests,' said Gang.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Meanwhile China</strong> will continue to maintain the legitimate interests of our companies.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Some have interpreted</strong> this to mean that China will defy the U.S. and continue to buy Iranian oil.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘It is unlikely</strong> that China will zero-out imports of Iranian oil,' says Brookings' Ryan Hass in <a href="https://www.brookings.edu/blog/order-from-chaos/2019/04/23/around-the-halls-how-trumps-latest-iran-sanctions-decision-could-affect-markets-and-key-countries/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'How Trump’s latest Iran sanctions decision could affect markets and key countries.'</a></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China</strong> is the largest buyer of Iranian oil.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Iran is a key strategic node</strong> connecting Asia and the Middle East as part of China’s Belt and Road Initiative.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Additionally,</strong> the Chinese are allergic to the appearance of subordinating the conduct of their relations with Iran to the demands of the United States.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘From a U.S.-China standpoint,</strong> the Trump administration’s decision to forego further waivers for China to continue purchasing Iranian oil at diminishing levels will inject stress on the bilateral relationship.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The current waiver for China</strong> to purchase Iranian oil at reduced levels will expire May 2, concurrent with expected end-game trade negotiations between United States Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘If the United States</strong> sanctions Chinese financial institutions facilitating oil transactions with Iran after the waiver expires, there could be spillover effects on trade negotiations.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Any unilateral American sanctions</strong> on Chinese financial institutions could limit Beijing’s self-perceived room for compromise on U.S. trade concerns.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In sum</strong>, by pursuing an all-or-nothing approach with China in lieu of a steady reduction in Chinese imports of Iranian oil, and timing the decision to coincide with high-stakes trade negotiations, Washington could find itself exposed to downside risks with Beijing without offsetting gains,’ concludes Ryan Hass.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'This might be linked to the trade talks,</strong> but that is hard to know,' <a href="https://www.scmp.com/news/china/diplomacy/article/3007228/china-be-exposed-sanctions-us-says-it-will-end-iran-oil-import" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">says Adam M Smith</a>, partner at the law firm of Gibson Dunn &amp; Crutcher, in the South China Morning Post.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The move today</strong> definitely could serve as an irritant between Beijing and Washington because, not least of all, China needs energy.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'To make China’s importation of energy difficult,</strong> for whatever reason, could be challenging, and China does not like to be susceptible to US jurisdictions, with respect to sanctions, or on anything else for that matter.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'I think it’s very unusual timing</strong> in the middle of a supposed 10th round of trade negotiations,' <a href="https://www.scmp.com/news/china/diplomacy/article/3007228/china-be-exposed-sanctions-us-says-it-will-end-iran-oil-import" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">says Dennis Wilder,</a> former top CIA China analyst, former special assistant to the President George W. Bush and his senior director for Asian Affairs, now a professor at Georgetown.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Does the right hand</strong> know what the left hand is doing?'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'I would not want</strong> to be Lighthizer or Mnuchin going to Beijing with this.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Is the priority</strong> Iran sanctions or a trade agreement?'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'A trade agreement</strong> should be the priority.'</li></ul></td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. In US-China Trade Disputes, the WTO Usually Sides with the United States</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2703" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://media-cdn.list.ly/production/705638/3454883/3454883-in-us-china-trade-disputes-the-wto-usually-sides-with-the-united-states_600px.png?ver=6224978926" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">PIIE</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>You can add</strong> another win for the U.S. to the table, above.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://www.cnbc.com/2019/04/19/us-wins-wto-ruling-against-china-grain-import-quotas.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><strong>CNBC reports:</strong></a> 'The United States won a World Trade Organization (WTO) ruling on Thursday against China’s use of tariff-rate quotas for rice, wheat and corn, which it successfully argued limited market access for U.S. grain exports.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>This 'marked</strong> the second U.S. victory in as many months.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It came amid</strong> U.S.-China trade talks and on the heels of Washington clinching a WTO ruling on China’s price support for grains in March.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>[The next post explains</strong> why China won't have to comply - thanks to Trump administration inaction.]</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In fact,</strong> 'the United States generally wins trade disputes, particularly against China, when the case is brought to the World Trade Organization (WTO),' , according to Jeffrey J. Schott and Euijin Jung of the Peterson Institute for International Affairs in <a href="https://piie.com/blogs/trade-investment-policy-watch/us-china-trade-disputes-wto-usually-sides-united-states" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'In US-China Trade Disputes, the WTO Usually Sides with the United States.'</a></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>This conclusion</strong> from the data is at odds with what Trump has asserted in his threats to pull the United States out of the WTO.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In 2018</strong>, he declared that the WTO was set up "to benefit everybody but us" and added: "We lose the lawsuits, almost all of the lawsuits in the WTO.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The table shows</strong> that Trump’s perception was wrong, at least with respect to China: Over the last 16 years, US officials have challenged Chinese practices 23 times in the WTO; the win-loss record is 19-0, with four cases pending. In the most recent decision, the WTO panel found that China’s agricultural subsidies are inconsistent with WTO rules, upholding US claims.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'While 'WTO dispute procedures</strong> work to enforce existing US rights under the world trade rules, some US-China problems fall outside the WTO rulebook.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'So there is a strong need</strong> to update international trade obligations to address current disputes over investment, intellectual property rights, and other issues.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But, as the next post discusses</strong>, for all its WTO trashing, it's tough to get the Trump administration's attention to reform the dispute resolution process.</p></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>II. POTENTIAL BACKLASH FROM THE U.S.<br></strong></div><div id="article4" class="post-card"><div class="t2-block">4. Trump and the WTO: From trashing to crippling</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2704" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://media-cdn.list.ly/production/705638/3458132/3458132-wto-chief-sees-no-end-in-sight-to-u-s-blockage_600px.jpeg?ver=3919024873" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Reuters</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Despite U.S. success</strong> with WTO dispute settlement, ‘Trump officials, in keeping with their general hostility toward international organizations, regularly trash the organization,’ <a href="https://www.theatlantic.com/ideas/archive/2019/04/us-trade-hawks-exaggerate-chinas-threat/587536/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">says NYU’s Peter Beinart in The Atlantic.</a></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘A 2018 report</strong> from the office of Trump’s trade representative, Robert Lighthizer, declared that “the notion that our problems with China can be solved by bringing more cases at the WTO alone is naïve at best.”’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But it’s not Xi</strong> who is crippling the WTO. It’s Trump.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘According to</strong> a November 2018 <a href="https://www.cato.org/publications/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-help" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Cato Institute report,</a> “China does a reasonably good job of complying with WTO complaints brought against it.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The Trump administration,</strong> by contrast, has systematically blocked the reappointment of judges on the WTO’s dispute-settlement body and thus, according to <a href="https://www.reuters.com/article/us-usa-trade-wto/wto-chief-sees-no-end-in-sight-to-us-blockage-idUSKCN1QA2IW" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Reuters</a>, has “plunge[d] the organization into crisis.”’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Nothing illustrates</strong> the self-destructive absurdity of Trump’s behavior better than what happened this March.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The WTO,</strong> responding to a case brought by the Obama administration, ruled that China must reduce its agricultural subsidies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China is appealing</strong> that decision to the WTO’s appellate court.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But because</strong> the Trump administration has blocked the appointment of new WTO judges, that court may not be able to rule, which means China won’t have to comply.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://www.reuters.com/article/us-usa-trade-wto/wto-chief-sees-no-end-in-sight-to-us-blockage-idUSKCN1QA2IW" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><strong>Reuters reports:</strong></a> ‘World Trade Organization members are now clear what the United States’s concerns are over how the group settles disputes, but there is no sign of resolution to a crisis that threatens to paralyze the global trade body, said WTO Director-General Roberto Azevedo.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The United States</strong> has blocked appointments at the WTO appellate body, which hears appeals in trade disputes between countries, threatening the biggest crisis in the 24-year history of the WTO.’<br></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The organization</strong> normally has seven members but currently only has three, and two of those are set to complete their mandates in December.’<br></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Azevedo said</strong> there would be a significant slowdown of cases and “eventually paralysis down the road”.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The European Union</strong> has made proposals for WTO reform, agreeing with China, India and other countries on changes to the WTO’s dispute settlement.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘However,</strong> it has struggled to engage the United States on the topic.’</li></ul></td></tr></tbody></table></p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"></p></div></div><div id="article5" class="post-card"><div class="t2-block">5. 'China Growth Outlook': Credit Suisse</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2705" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://media-cdn.list.ly/production/705638/3457626/3457626-china-growth-outlook-credit-suisse_600px.png?ver=9172170114" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Credit Suisse</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Our friends James Sweeney and Wenzhe Zhao have shared a terrific report, <a href="https://plus.credit-suisse.com/rpc4/ravDocView?docid=V7hGen2AD-WEoDhe" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Global Cycle Notes: Fear tariff fears.'</a></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>It covers</strong> a lot more than China (that section is here), and is <a href="https://plus.credit-suisse.com/rpc4/ravDocView?docid=V7hGen2AD-WEoDhe" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">worth a read.</a></li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><h2>China Growth Outlook</h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Chinese</strong> manufacturing growth is rebounding.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Growth should be supported</strong> in the coming months by the restocking of intermediate inventories, improving domestic credit growth, and stabilizing global goods demand.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Official Chinese production data</strong> has remained typically stable.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But more reliable Chinese</strong> activity measures such as our bottom-up IP indicator, trade data and manufacturing PMIs suggest production growth likely plummeted to a post-2015 low in recent months.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Activity collapsed</strong> as trade disputes severely hit business confidence across Asia and manufacturers sharply reduced inventories of imported intermediates.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Slowing global business capex</strong> [capital expenditure], weaker external demand and deteriorating producer sentiment has also weighed on China's domestic demand.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Due to self-induced credit tightening,</strong> consumer spending growth has slowed, with particular weakness in auto purchases.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Policy easing</strong> had not gained enough traction to offset these growth shocks in Q4.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Since early this year,</strong> trade tension has abated and US-China trade negotiations have resumed.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China's manufacturers</strong> have started to replenish inventories and imports have partially recovered.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Global demand growth</strong> has also shown signs of stabilization in the first quarter, and we expect it to reaccelerate due to robust consumer fundamentals in developed economies.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Chinese exports</strong> are likely to continue improving as a result.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Domestic conditions</strong> are also likely to improve.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Fiscal, monetary and credit easing</strong> should trickle down to the real economy through multiple channels.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Financial conditions</strong> have already eased as institutional deposit (M1) growth - the most sensitive monetary aggregate to policy changes - has accelerated to the highest rate since late 2017.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Overall credit growth</strong> also improved, driven by lending to households and local governments. Improving home sales should prevent housing construction from deteriorating.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The positive effect</strong> of current policy easing is likely to be partially offset by the ongoing moderation in manufacturing capex growth.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>However,</strong> metal prices and bulk shipping indices suggest the demand for raw materials remains steady and further weakness is unlikely.</li></ul></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>III. CONGRESS &amp; THE PRESIDENT REACT<br></strong></div><div id="article6" class="post-card"><div class="t2-block">6. Caixin PMI has become a leading indicator of global momentum</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2706" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://media-cdn.list.ly/production/705638/3457641/3457641-caixin-pmi-a-leading-indicator-of-global-momentum_600px.png?ver=4478040382" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Credit Suisse</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Also from Credit Suisse's</strong><a href="https://plus.credit-suisse.com/rpc4/ravDocView?docid=V7hGen2AD-WEoDhe" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Global Cycle Notes: Fear tariff fears.'</a> a discussion of how the Caixin PMI has become a leading indicator of global industrial production.</p><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><h2>Lead Indicators</h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>We do not over-rely</strong> on PMIs to forecast global industrial production.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>They are just</strong> part of the broad set of information we use and lay out in these notes.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>However,</strong> it is worthwhile to survey the various PMIs on occasion to ask which have actually been successfully leading global growth.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Over time,</strong> it appears that the Chinese PMI has become better at forecasting global growth and the ISM Manufacturing Index has become worse.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The European PMIs</strong> have consistently been a coincident or lagging indicator.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Since 2010,</strong> the Caixin Chinese manufacturing PMI has improved significantly as a lead indicator, showing a higher correlation with global IP momentum one or more months later than manufacturing surveys in other regions.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China’s increasing correlation</strong> should come as no surprise, as its share of global industrial production has tripled from 10% to 30% since its PMI survey was introduced in 2004.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>It is notable</strong> that during the previous two global manufacturing slumps, the Chinese PMI bottomed and started to improve in the months before the trough in global IP momentum.</li></ul></td></tr></tbody></table></p></div></div></div>

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">5G: 'The US. is winning a race that no one else is running'</h1><div class="date">April 24, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible"><strong>I. THE LAW AND THE PROTESTS</strong></div><div id="article1" class="post-card"><div class="t2-block">1. 5G: 'The U.S. is winning a race that no one else is running'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2401" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/c6ZR_n3pxSQ"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><em>[Fareed Zakaria does a great job of illustrating the 5G issues in a <a href="https://youtu.be/c6ZR_n3pxSQ" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">3m 27s video</a>]</em></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">The Trump administration is betting on the wrong technology.</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Which new technology wins</strong> in the marketplace - whether mobile phones or video players or 5G - depends on which standard most of the world adopts.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>So, will the U.S. or China</strong> win the 5G race?</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Only one metric</strong> really counts: choice of 'spectrum' - which 5G standard will become the global standard ?</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The question of spectrum allocation</strong> is at the heart of the 5G competition, for the spectrum band of choice, whether sub-6 or mmWave, impacts nearly every other aspect of 5G development,’ says a recent <a href="https://media.defense.gov/2019/Apr/04/2002109654/-1/-1/0/DIB_5G_STUDY_04.04.19.PDF" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">report</a> from the <a href="https://innovation.defense.gov/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Defense Innovation Board,</a> an advisory committee to the Department of Defense.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China</strong> and most of the world plan to use 'sub-6.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Right now</strong> the U.S. plans to use 'mmWave' (in part because the Department of Defense controls sub-6 and is reluctant to give up any of it).</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The United States</strong> may choose to continue down the path of mmWave, but the rest of the world is focused on building out sub-6 infrastructure, with China in the lead,' says the report.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘U.S. carriers</strong> may continue to pursue mmWave, but it is impossible to lead in the 5G field without followers.’</li></ul><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Leadership</strong> in wireless networks requires the global market to subscribe to and build to the specifications of the leader’s spectrum bands of choice.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The rest of the world</strong> does not face the same sub-6 spectrum limitations as U.S. carriers [that is, sub-6 dominated by the DoD], and is subsequently pursuing 5G development in that range [sub-6].’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China plans to deploy</strong> the first widespread 5G network, with its first set of sub-6 services becoming available in 2020.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘First-mover advantage</strong> will likely drive significant increases in their handset and telecom equipment vendors market along with their domestic semiconductor and system suppliers.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'As a result,</strong> Chinese internet companies will be well-positioned to develop services and applications for their home market that take advantage of 5G speed and low latency.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘As 5G is deployed</strong> across the globe in similar bands of spectrum, China’s handset and internet applications and services are likely to become dominant, even if they are excluded from the US.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'China is on a track</strong> to repeat in 5G what happened with the United States in 4G.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The United States</strong> may choose to continue down the path of mmWave, but the rest of the world is focused on building out sub-6 infrastructure, with China in the lead.'</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Also mmWave</strong> isn't as good as sub-6.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘When President Trump</strong> unveiled his administration’s plan for “winning the race” to 5G earlier this month [<a href="https://youtu.be/trzlirgXbac" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">watch his comments here</a>], he neglected to mention that the United States is building its network using a technology that’s inferior to what the rest of the planet will likely adopt,' <a href="https://www.washingtonpost.com/opinions/global-opinions/on-5g-the-united-states-is-building-betamax-while-china-builds-vhs/2019/04/18/1b9cd096-620c-11e9-bfad-36a7eb36cb60_story.html?utm_term=.206491ac7401" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">says Josh Rogin</a> in the Washington Post.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>For the U.S.,</strong> ‘It’s akin to building a Betamax system in a VHS world.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Only in passing</strong> was it mentioned that Trump’s plan commits the United States to build out 5G infrastructure on a high-band spectrum swath known as “mmWave” (between 24 and 300 gigahertz), which is inferior in range and penetration capability to the “sub-6” (below 6 gigahertz) spectrum being used for 5G by most other countries, especially China.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘“So we are winning</strong> a race that no one else is running to build a 5G ecosystem that no one else will use” is how one administration official put it to me.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘“As sub-6 becomes the global standard,</strong> it is likely that China, the current leader in that space, will lead the charge,” states a <a href="https://media.defense.gov/2019/Apr/04/2002109654/-1/-1/0/DIB_5G_STUDY_04.04.19.PDF" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">report</a> issued this month by the Defense Innovation Board,’ an advisory committee to the Department of Defense.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘That means foreign companies</strong> — especially from China — could dominate 5G business worldwide.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'That would allow others</strong> to set international standards and could turn the United States into an island of relatively bad 5G service surrounded by a sea of better technology.’</li></ul></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. Department of Defense: The obstacle to U.S. winning 5G</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2402" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://media.defense.gov/2019/Apr/04/2002109654/-1/-1/0/DIB_5G_STUDY_04.04.19.PDF&amp;embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://media.defense.gov/2019/Apr/04/2002109654/-1/-1/0/DIB_5G_STUDY_04.04.19.PDF" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window</a></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://innovation.defense.gov/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><strong>The Defense Innovation Board</strong></a> is an advisory committee to the U.S. Department of Defense (DoD).</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Its 33-page report</strong><a href="https://media.defense.gov/2019/Apr/04/2002109654/-1/-1/0/DIB_5G_STUDY_04.04.19.PDF" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> 'The 5G Ecosystem: Risks &amp; Opportunities for DoD,'</a> analyzes why the U.S.'s adoption of the mmWave 5G standard instead of the sub-6 standard adopted by China and most of the world will doom U.S. chances of dominating the 5G market.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The main reason</strong> why the U.S. has not adopted sub-6 is that it is controlled primarily by DoD.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And, DoD</strong> has legitimate reasons and concerns for not opening sub-6 to commercial use.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Those reasons and concerns</strong> notwithstanding the Board recommends a radical reversal of DoD and White House stances.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Below are excerpts</strong> from the relevant Board recommendations.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But, first here</strong> is how the Board lays out the problem.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘An additional challenge</strong> in the United States is that the government owns large portions of the sub-6 spectrum and limits commercial access to them.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It is possible</strong> to relocate Federal users or share these bandwidths to allow commercial sector to develop 5G capabilities on them, but both of these processes are time-intensive.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The average time</strong> it takes to “clear” spectrum (relocate existing users and systems to other parts of the spectrum) and then release it to the civil sector, either through auction, direct assignment, or other methods, is typically upwards of ~10 years.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Sharing spectrum</strong> is a slightly faster process because it doesn’t require a complete upheaval of existing federal users, but even that has historically taken upwards of five years.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><h2>‘Board Recommendations’</h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The Defense Innovation Board</strong> bases its recommendations on the assumption that mmWave fundamentally cannot be deployed on a large scale in the United States because of the propagation and cost limitations, and that sub-6 GHz mid-band spectrum (in the 3 and 4 GHz range) will become the global standard for broad area networks in coming years.’</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Recommendation #1</strong><em>(excerpts)</em><br><em>'DoD needs to make a plan for sharing sub-6 GHz spectrum to shape the future 5G ecosystem, including an assessment of how much and which bandwidths need to be shared, within what timeframe, and how that sharing will impact DoD systems.'</em></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'DoD and the FCC</strong> must flip their prioritization from mmWave to sub-6 GHz spectrum for 5G. DoD and FCC have been prioritizing the 28 and 37 GHz bandwidths as options for 5G development, but this effort is misplaced. This study has covered the broad range of limitations associated with mmWave, and reasons why the rest of the world will adopt a sub-6 GHz 5G ecosystem.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'DoD should particularly focus</strong> on the bands of the sub-6 GHz spectrum that are already being used by China. Chinese 5G systems and infrastructure operate in the 3.2-3.6 GHz range, as well as the 4.8-5.0 GHz range. As a result, the commercial world has developed semiconductors and handsets that are configured for that range.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Without aggressive action</strong> as outlined in this report, we believe there is a high likelihood that the United States will be unable to convince the rest of the world to adopt mmWave technologies as the standard 5G pathway. This may bifurcate the global market and result in the majority of the world adopting 5G sub-6 technologies, which will be dominated by the Chinese equipment and handset manufacturers.'</li></ul></td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. China in the report</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2403" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Here is the China section</strong> of '<a href="https://media.defense.gov/2019/Apr/04/2002109654/-1/-1/0/DIB_5G_STUDY_04.04.19.PDF" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">The 5G Ecosystem: Risks &amp; Opportunities for DoD'</a> by the <a href="https://innovation.defense.gov/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Defense Innovation Board,</a> an advisory committee to the Department of Defense.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China has taken the lead</strong> in 5G development through a series of aggressive investment and<br>spectrum-allocation initiatives.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In addition</strong> to investing $180B in capital expenditure for 5G deployment over five years, China assigned 200 MHz of mid-band spectrum to its three state providers and is considering reallocating 500 MHz of C band spectrum as well.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Domestically, China’s 5G deployment</strong> is being implemented through its major telecommunications companies (China Mobile, China Unicom, and China Telecom).’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘All three are primarily focused</strong> on developing a standalone 5G network in China, with plans to deploy pre commercial application in 2019 and formal commercial application in 2020.’ ‘China now has ~350,000 5G-operable base stations deployed, which is nearly 10 times as many as are deployed in the United States.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Globally, China’s large manufacturers</strong> (Huawei and ZTE) are pushing 5G deployment through commercial sales of 5G-enabling equipment and devices primarily for non-standalone networks, and Huawei has already shipped upwards of 10,000 base stations overseas.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Overseas,</strong> China has been developing partnerships with countries and foreign companies to expand its 5G influence.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In Europe</strong>, Huawei and ZTE are offering their services to build individual countries’ 5G networks, and have signed multiple 5G contracts despite pressure from U.S. officials demanding that allies block Chinese companies.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Additionally,</strong> China has invested significant time and resources into its Belt and Road Initiative, including a push for Chinese-built network infrastructure to provide connectivity across the length of the route.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘This strategy</strong> has already had some success: in Q3 of 2018, Huawei held 28% share of the global telecommunications equipment market, up four percentage points from 2015.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Huawei</strong> is expected to continue growing that share as more 5G networks are rolled out relying on Chinese telecommunications equipment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘These efforts</strong> will allow China to promote its preferred standards and specifications for 5G networks and will shape the global 5G product market going forward.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In aggregate,</strong> these approaches have given competitive advantage to China in 5G technology and capability.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China’s 5G strategy</strong> should be viewed in the context of the Chinese Communist Party’s (CCP) grand strategy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Like artificial intelligence (AI)</strong>, 5G development is a crucial component of Xi Jinping’s “China Dream” vision and “Made in China 2025” roadmap.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Social stability and economic growth</strong> are the CCP’s top priorities because failures in those two areas are seen as direct existential threats to the regime, and 5G has the potential to transition China from a capital- and labor-intensive manufacturing economy to an innovation-led, consumption-driven economy with reduced dependence on foreign investment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In light of China’s slowing growth</strong> and its ongoing trade war with the United States, the CCP likely feels pressured to pursue technological advancement initiatives like 5G more aggressively.’</li></ul></td></tr></tbody></table></p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"></p></div></div></div>

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">In China, Party Control Trumps the Economy</h1><div class="date">April 20, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible"><strong>I. THE LAW AND THE PROTESTS</strong></div><div id="article1" class="post-card"><div class="t2-block">1. China's economy back on track - Not so fast</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2001" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/oLUw_LrHZy0"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">FT</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">Don’t get carried away by the green shoots. Ample data show that Beijing’s targets are increasingly unrealistic.</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘On Wednesday</strong>&nbsp;the National Bureau of Statistics estimated that the world’s second-largest economy expanded 6.4 per cent in the first quarter, compared to the same period last year and ahead of the 6.3 per cent expected according to a Reuters poll,’ reports the Financial Times&nbsp;<a href="https://www.ft.com/content/a449c2fa-60a9-11e9-b285-3acd5d43599e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">in an article</a>&nbsp;and&nbsp;<a href="https://youtu.be/oLUw_LrHZy0" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">in a 2m video</a>.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The figure</strong>&nbsp;matched the 6.4 per cent growth posted in the final quarter of 2018, but was significantly below last year’s first-quarter growth figure of 6.8 per cent.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Eswar Prasad,</strong>&nbsp;economist at Cornell University: “There are signs that policy-led stabilisation of growth is beginning to take hold, aided by the abatement of trade tensions with the US.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Also,</strong>&nbsp;‘Mr Trump’s decision not to increase the punitive tariff rate currently assessed on about half of all Chinese exports on March 1, as he had previously threatened, dissipated much of the negative sentiment that had been weighing heavily on China’s stock markets and private sector companies late last year.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But 'dig beneath the headline data,</strong>&nbsp;and we get another story' on China's GDP, says Chris Balding, one of the leading experts on the Chinese economy and financial markets, in&nbsp;<a href="https://www.bloomberg.com/opinion/articles/2019-04-17/china-1q-gdp-rosy-data-can-t-hide-an-economic-downturn" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'China's Growth Story Has Plenty of Holes'&nbsp;</a>on Bloomberg.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Beijing</strong>&nbsp;has been flooding the market with credit, with total social financing up 40 percent so far this year.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Notably,</strong>&nbsp;the source of funds is expanding beyond banks, indicating an uptick in shadow activity.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Yet fixed-asset investment</strong>&nbsp;is up only 6 percent from last year. That means loans aren’t heading into areas that will boost the real economy.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Meanwhile,</strong>&nbsp;companies aren’t getting paid what they’re owed, and account receivables are building up.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The consumer side</strong>&nbsp;doesn’t look any better.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Auto sales fell</strong>&nbsp;11 percent in the first quarter from an already tepid 2018.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Mobile-phone shipments</strong>&nbsp;slid 12 percent over the same period, compounding a 26 percent tumble a year earlier.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Households</strong>&nbsp;are clearly feeling the pinch.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Shoppers</strong>&nbsp;are using their credit cards more, with balances up 23 percent in the fourth quarter from a year earlier.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘And while surveys show</strong>&nbsp;household expenditure rose nearly 15 percent in 2018, there’s little left over in the budget for any extras.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Beijing</strong>&nbsp;has unveiled a standard buffet of fiscal stimulus, credit growth, debt restructuring and consumer-focused tax breaks to boost growth.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘It’s debatable</strong>&nbsp;whether any of that will work.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Public finance</strong>&nbsp;doesn’t play out in a vacuum: A tax-cut recipient has the option of saving that money or spending it.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Given high Chinese household debt levels,</strong>&nbsp;it’s quite likely that windfall will have a much smaller impact on consumption than hoped.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The same thinking</strong>&nbsp;applies to firms and local governments.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The more pressing question</strong>&nbsp;might be how much new credit is flowing into financial markets given the rise in stocks and commodities prices.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘A long history of credit binges</strong>&nbsp;is a reminder that Beijing could end up spending a lot of money to accomplish very little.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'With total inflation</strong>&nbsp;running at around 1 percent, compared with 2.9 percent at the end of 2018, the drop-off in nominal growth is going to push economy-wide leverage significantly higher in 2019.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'While Beijing</strong>&nbsp;has abandoned specific growth targets, it still aims for a range – and even that may not be feasible.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Trying to maintain</strong>&nbsp;six percent-plus real growth in an economy already saddled with debt and excess capacity, one that can no longer depend on current account surpluses of 2 percent to 3 percent, is simply unrealistic.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'More than anything,</strong>&nbsp;Beijing may need to reset its own expectations.'</li></ul></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. In China, political control trumps the economy</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr2002" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.upp-prod-eu.s3.amazonaws.com%2F1aeb4ee4-3e6b-11e9-9499-290979c9807a?source=next&amp;fit=scale-down&amp;width=700" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">FT</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Reading</strong>&nbsp;<a href="https://www.ft.com/content/809bc45a-57a5-11e9-a3db-1fe89bedc16e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'A trade deal might help China’s needed reforms: The non-state sector, not state enterprises, should drive growth,'&nbsp;</a>by the Editorial Board of the&nbsp;<em>Financial Times</em>&nbsp;you might wonder if Xi Jinping has been sitting in Zhongnanhai lamenting his inability to put through those obvious economic reforms but is now rejoicing that Donald Trump may give that needed push.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Or, perhaps Xi</strong>&nbsp;has another agenda, as suggested by Jonathan Fenby, Chairman of China Research at TSLombard, in his response to the Editorial,&nbsp;<a href="https://www.ft.com/content/86c3a65a-6037-11e9-a27a-fdd51850994c" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'In China, political control will always come first.'</a></p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Here's</strong>&nbsp;the Point/Counterpoint.</p><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h2>POINT: The FT Editorial Board</h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">From the editorial&nbsp;<a href="https://www.ft.com/content/809bc45a-57a5-11e9-a3db-1fe89bedc16e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'A trade deal might help China’s needed reforms: The non-state sector, not state enterprises, should drive growth,'</a></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Might Donald Trump’s</strong>&nbsp;ill-thought-out trade war with China benefit its victim? The answer is “yes”.’</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The Chinese authorities</strong>&nbsp;could respond to external pressure by shifting towards competitive neutrality between state, non-state and foreign business.’</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The result</strong>&nbsp;might then be an economic resurgence.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In this context,</strong>&nbsp;a trade deal might turn out to be very helpful.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘More equal competitive conditions</strong>&nbsp;would surely promote economic growth.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So, increasingly,</strong>&nbsp;would better protection of intellectual property.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘While US insistence</strong>&nbsp;on reducing the bilateral deficit is ridiculous and the proposed one-sided monitoring of Chinese behaviour unacceptable, the argument for revisiting the terms of — and behaviour under — "China’s accession to the World Trade Organization in 2001 makes sense."’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China could find giving up</strong>&nbsp;its claim to be a developing country helpful to itself, just as WTO accession proved to be back then, even though many officials resisted the idea at that time.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In its own interests,</strong>&nbsp;China needs to embrace a new round of pro-market reforms.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Foreign pressure</strong>&nbsp;may be pushing China in that direction.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But China</strong>&nbsp;will end up the main beneficiary.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h2>COUNTERPOINT: Jonathan Fenby</h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The letter&nbsp;<a href="https://www.ft.com/content/86c3a65a-6037-11e9-a27a-fdd51850994c" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'In China, political control will always come first.'</a></p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China certainly</strong>&nbsp;would stand to benefit from economic reforms that could flow from the current trade negotiations with the US (<a href="https://www.ft.com/content/809bc45a-57a5-11e9-a3db-1fe89bedc16e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">“A trade deal might help China’s needed reforms”,</a>&nbsp;editorial, April 15).’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But does that apply</strong>&nbsp;equally to the ruling Communist party?'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Ever since</strong>&nbsp;he became the country’s leader at the end of 2012, Xi Jinping has put the accent on “party strengthening”.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The process</strong>&nbsp;continues with the steady expansion of the party into sectors previously left to the government, including economic management, the recurrent references to political weaknesses that led to the collapse of the Soviet Union, and the leader’s insistence that “government, military, society and schools — north, south, east and west, the party is leader of all”.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The politburo</strong>&nbsp;does appear to recognise the need for further reform to the economy.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But the bottom-line focu</strong>s on political control is likely to restrain readiness to risk change that could chip away at the party state, which this year celebrates its 90th anniversary in power.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And, Trump's trade war</strong>&nbsp;isn't going to change that agenda.</p></td></tr></tbody></table></td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. JUST OUT | 2019 OECD Economic Survey of China</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://assets.website-files.com/5c864c33af62620dca1373ac/5cba6f5837d84e56b0548707_ES%20China%20brochure.pdf&amp;embedded=true" style="width:100%; height:540px;border:none;"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://assets.website-files.com/5c864c33af62620dca1373ac/5cba6f5837d84e56b0548707_ES%20China%20brochure.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window</a></p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The OECD</strong>&nbsp;has just come out with its excellent Economic Survey of China</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Read</strong>&nbsp;the&nbsp;<a href="http://www.oecd.org/eco/surveys/ES%20China%20brochure.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Executive Summary</a></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Read</strong>&nbsp;the full&nbsp;<a href="http://www.oecd.org/economy/surveys/China-2019-OECD-economic-survey-overview.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">77-page report</a></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Review</strong>&nbsp;the&nbsp;<a href="http://www.oecd.org/economy/surveys/china-economic-snapshot/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">46-slide presentation</a></li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here are&nbsp;<a href="https://oecdecoscope.blog/2019/04/16/where-is-china-headed-five-key-insights-from-the-2019-oecd-economic-survey-of-china/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Five Key Insights'</a>&nbsp;from the report.</p><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">1. A short-term &nbsp;slowdown?</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Although China’s economic growth</strong>&nbsp;has slowed, it is still very robust by international standards and contributes to worldwide economic expansion.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Consumption is supported</strong>&nbsp;by steady employment growth and rising incomes.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Households are spending</strong>&nbsp;increasingly on items such as e-commerce and shared services. Labour shortages keep wage growth relatively high.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>However, continuing trade frictions</strong>&nbsp;are undermining exports and creating uncertainties. Small and medium-size enterprises are disproportionately affected. A further escalation of import tariffs faced by Chinese exporters would have an even more severe impact on activity, jobs, and corporate earnings – with a negative impact on the global economy.</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">2. Less manufacturing, &nbsp;more services?</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China’s past development</strong>&nbsp;was mainly based on manufacturing production and capital accumulation.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>However,</strong>&nbsp;this model has run its course and led to misallocation of capital and excess capacity.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Services</strong>&nbsp;are now increasingly driving growth, and not only the financial sector, but also e-commerce or digital services.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Services</strong>&nbsp;related to international trade and global value chains, such as transport, logistics and computer services, are growing, but would benefit from further liberalisation.</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">3. Is local government&nbsp;debt a threat?</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Infrastructure investment</strong>&nbsp;is mainly the responsibility of sub-national governments.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>To finance these investments,</strong>&nbsp;local governments have issued large amounts of debt, which have accumulated rapidly and now exceed a third of local output in eight provinces and in two provinces exceed half of it.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Moreover,</strong>&nbsp;to circumvent borrowing limits, innovative ways to borrow have emerged and the illegal practice of guarantees is continuing.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>This has prompted</strong>&nbsp;the central government to curb such practices.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>However,</strong>&nbsp;the county level is mandated to deliver crucial public services such as education, environmental protection, health and social protection – with many of these mandates remaining unfunded.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Recentralising</strong>&nbsp;some of these responsibilities to the central government, which is better funded, would ensure that wages of teachers, doctors and nurses are paid in every locality.</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;"><strong>4. Is corporate debt</strong>&nbsp;a threat?</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China’s non-financial corporate debt</strong>&nbsp;reaches roughly 155% of GDP, much higher than in other major economies.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The state-owned enterprises (SOEs)</strong>&nbsp;have been the major group behind the soaring corporate debt: as of end-2017, non-financial SOE debt reached CNY 118.5 trillion.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>This is an increase</strong>&nbsp;of nearly four folds compared to end-2007. In particular, local SOEs have led the debt accumulation, with their debt reaching above 70% of GDP in 2016.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In contrast to perception,</strong>&nbsp;it is not SOEs in industries plagued by overcapacity that shouldered most debt, but services firms in construction, real estate and transportation industries.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Many of these SOEs</strong>&nbsp;are in fact local government investment vehicles, implementing urban construction projects.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In late 2018,</strong>&nbsp;the authorities made it clear in a new document that they will let ailing SOEs and local government investment vehicles exit the market.</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;"><strong>5. Why break down</strong>&nbsp;internal barriers to trade?</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Local protectionism</strong>&nbsp;has long prevented the integration of product markets across China.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Local governments</strong>&nbsp;have protected their market to keep the tax base within their jurisdiction and to stimulate local production of goods and services.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Most measures</strong>&nbsp;are in residential construction, service procurement, tendering, insurance and medical goods and services.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>They relate</strong>&nbsp;to choosing specified service providers and excluding outside firms from participation in local tenders.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>This has prompted</strong>&nbsp;the central government to order all local governments to undertake self-investigation of measures hindering competition and to eliminate them within a year.</li></ul></td></tr></p></div></div><div class="section_title w-condition-invisible"><strong>II. POTENTIAL BACKLASH FROM THE U.S.<br></strong></div><div id="article4" class="post-card"><div class="t2-block">4. Why the calculations that led to the trade war are wrong</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://i0.wp.com/www.brookings.edu/wp-content/uploads/2019/04/manufacturing_vietnam001.jpg?resize=1920%2C640px&amp;ssl=1" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Brookings</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">More than two-thirds of world trade today takes place within value chains that cross at least one border during production, and often many borders.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Traditional trade statistics</strong>&nbsp;measure the gross value of trade'’ says David Dollar of Brookings in&nbsp;<a href="https://www.brookings.edu/blog/order-from-chaos/2019/04/15/how-global-value-chains-open-opportunities-for-developing-countries/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'How global value chains open opportunities for developing countries.'</a></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘When a smart phone</strong>&nbsp;goes from China to the United States, what is recorded as an export is the full value of the phone.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘It would be more accurate</strong>&nbsp;to say that the United States is importing different types of value added from different partners: labor-intensive assembly from China, more sophisticated manufacturing inputs from South Korea, and services from the United States, since even foreign-brand phones have a lot of U.S. technology.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Miscalculating the 'real effective exchange rate.'</strong>&nbsp;'The real effective exchange rate (REER) may sound arcane to non-economists, but it is one of the most important international financial indices,' say Nikel Patel of the Bank for International Settlements and Shang-Jin Wei, former Chief Economist of the Asian Development Bank, now professor at Columbia University in&nbsp;<a href="https://www.project-syndicate.org/commentary/real-effective-exchange-rate-global-value-chains-by-nikhil-patel-2-and-shang-jin-wei-2019-04" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Getting Exchange Rates Right.'</a>.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The REER</strong>&nbsp;is a summary index that tracks the difference in the prices of goods produced by a country and its trading partners.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Far from being a theoretical concept</strong>&nbsp;confined to economics textbooks, the REER has significant real-world relevance,' as in the current trade discussions between the United States and China.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Calculating</strong>&nbsp;it more accurately could reduce the risk of misguided economic policies.'</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'And it may lead policymakers</strong>&nbsp;to reach some very different conclusions about which measures to pursue.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Central banks</strong>&nbsp;and international financial institutions devote considerable resources to calculating and analyzing it.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But their methods</strong>&nbsp;have become outdated as global value chains (GVCs) become increasingly widespread.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Standard calculations of the REER</strong>&nbsp;by most central banks and statistical agencies assume that countries export only final goods.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But GVCs spread</strong>&nbsp;the different stages of production among different countries'.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Ignoring this reality</strong>&nbsp;can lead to substantial mismeasurement of the REER, resulting in questionable policy inferences.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘To see how the standard approach could be wrong,</strong>&nbsp;consider a hypothetical value chain for the production of smartphones.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Suppose</strong>&nbsp;Japan manufactures the components and ships them to China, where the phones are assembled and exported globally as finished products.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Traditional REER models</strong>&nbsp;would assume that Japan exports final goods to China, and that the two countries are competitors.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘A depreciation of the Japanese yen</strong>, therefore, would help Japan’s competitiveness and hurt that of China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In this case,</strong>&nbsp;however, a weaker yen would lower the price of Japanese components, which may lead to lower prices and increased demand for Chinese phones – leading to an improvement in China’s competitiveness.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘This example</strong>&nbsp;shows that the standard REER calculation is getting not only the magnitude wrong, but also the direction of change.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Taking GVCs into account</strong>&nbsp;also alters our understanding of China’s bilateral real exchange rate against the US dollar.'&nbsp;</p></td></tr></p></div></div></div>

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'Only Trump can save China'</h1><div class="date">April 17, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible"><strong>I. THE LAW AND THE PROTESTS</strong></div><div id="article1" class="post-card"><div class="t2-block">1. Five things to watch for in China’s new GDP data</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1701" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.ft.com/content/2d445550-5f62-11e9-b285-3acd5d43599e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.upp-prod-eu.s3.amazonaws.com%2F8e2a5ab2-5f86-11e9-b285-3acd5d43599e?source=next&amp;fit=scale-down&amp;quality=highest&amp;width=700" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://www.ft.com/content/2d445550-5f62-11e9-b285-3acd5d43599e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">FT</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"><strong>China's March data</strong>comes out today and the Financial Times suggests<a href="https://www.ft.com/content/2d445550-5f62-11e9-b285-3acd5d43599e" target="_blank" style="color: #c80000;border-bottom: 1px solid #c80000;text-decoration: none;">'Five things to watch for in China’s new GDP data.'</a></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><h2>1. A reprieve from Donald Trump?</h2><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The CSI 300 index</strong>— which tracks the share prices of China’s biggest listed companies — ended 2018 almost 24 per cent lower than it was when the trade war began in earnest last May.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But the index</strong>began a sustained rebound when Mr Trump postponed plans to increase tariffs on Chinese imports on January 1, and later indicated that a final trade settlement was now only a matter of when, not if.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘It is up</strong>by more than 30 per cent since the start of the year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Wednesday’s data</strong>should provide evidence of whether this revival of animal spirits on the Shanghai and Shenzhen stock exchanges has been warranted.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><h2>2. Private sector revival?</h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In recent years</strong>private sector companies have found it increasingly difficult to secure credit from state banks as the government cracked down on alternative funding sources in the shadow banking sector.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘When share prices dropped</strong>last year, private companies that had pledged shares as collateral often saw those shares fall into state hands.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Private sector morale</strong>was so low last year that in October and November vice-premier Liu He and President Xi Jinping held a series of high-profile meetings, intended to bolster entrepreneurs’ morale.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In January,</strong>Mr Liu and Premier Li Keqiang publicly lectured the country’s largest state banks on the need to give greater financial support to private sector firms.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘New data on fixed asset investment</strong>by the private sector should indicate if China’s entrepreneurs are reacting positively to these gestures of support from senior government leaders.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><h2>3. Are central government stimulus measures working?</h2><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Mr Li has repeatedly pledged</strong>that the government, in its efforts to keep economic growth from slowing too sharply, would not resort to “flood-like stimulus” as it did in the wake of the global financial crisis of 2008-09.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Instead the State Council</strong>recently unveiled a series of tax cuts worth an estimated Rmb2tn to stimulate economic activity.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘First-quarter consumption data</strong>should indicate whether consumers are responding to these measures.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China’s central bank</strong>has similarly refrained from cutting benchmark interest rates and instead reduced the amount of reserves commercial lenders are required to put aside — provided that the freed-up capital is directed towards rural development, small and medium-sized enterprises and other sectors favoured by the government.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><h2>4. Is Beijing also reverting to its traditional tricks to produce growth?</h2><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Despite Mr Li’s pledge,</strong>a recent surge in local government bond sales and state investment in infrastructure projects suggest the Chinese government is also reverting to more traditional means of boosting growth.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Chinese bank lending</strong>set a quarterly record of Rmb5.8tn in the first three months of the year, driven by a credit surge in March.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘New data due out on Wednesday</strong>may show a corresponding increase in fixed asset investment by state companies.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><h2>5. Are homes for speculating on again?</h2><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘As concerns about economic growth</strong>mounted over recent months, Chinese officials referred less frequently to their earlier slogan that “homes are for living in, not speculating on”.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Instead</strong>they are now easing restrictions on the property sector, which along with related industries accounts for a quarter of all economic activity according to some estimates.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The temptation</strong>to fire up this important economic engine is all the greater as auto sales, which traditionally boost demand in a range of ancillary industries, have fallen sharply over the past year.’</li></ul></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. 'Only Trump can save China' </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1702" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.nytimes.com/2019/04/16/business/trump-china.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://static01.nyt.com/images/2019/04/16/business/16newworld/00newworld-jumbo.jpg?quality=90&amp;auto=webp" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://www.nytimes.com/2019/04/16/business/trump-china.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">New York Times</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">Some Chinese Say Yes: Business leaders and intellectuals say one of Beijing’s toughest critics could force the country to change. Still needed: voices of support from the inside</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Some people in China</strong>have their own label for the polarizing American president:<strong>savior,</strong>’<a href="https://www.nytimes.com/2019/04/16/business/trump-china.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes Li Yuan</a>in The New York Times.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘At dinner tables</strong>, in social media chats and in discreet conversations, some of the country’s intellectual and business elite are half-jokingly, half-seriously cheering on the leader who has built a large part of his political career on China-bashing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘“Only Trump can save China,”</strong>goes one quip. Others call him the “chief pressure officer” of China’s reform and opening.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Their semi-serious praise</strong>reflects the deepening despair among those in China who fear their country is on the wrong track.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'An aggressive outsider like President Trump,</strong>according to this thinking, can help China find its way again.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The Communist Party</strong>has become more involved in business, the economy, public discourse and other elements of everyday life.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Many of these elite</strong>fear that after 40 years of reform and opening up, China is retreating.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'To make matters worse,</strong>nobody at home appears willing or able to fight the trend.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'President Xi Jinping</strong>has become the country’s most powerful leader since Mao Zedong, hurting the chances that internal opposition can push back.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Then came Mr. Trump</strong>and his trade war.’</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘“More market-oriented</strong>actions are being reconsidered or put back on the table,” said Zhu Ning, an economist at Tsinghua University in Beijing. “In this sense, the trade war is helping China’s reform.”’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But there’s little evidence</strong>that the leadership is easing its grip in a lasting way.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The few</strong>business-friendly gestures are reactive rather than proactive.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In other words,</strong>there hasn’t been any fundamental change in the leadership’s thinking.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The party</strong>must control, as Mr. Xi has said, “all tasks.”’'</li></ul><strong>Still, ‘“The trade war is a good thing,”</strong>said Mr. Zhu, the Tsinghua economist. “It gives us hope when we’re hopeless.”’</td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘China’s land prices deserve as much attention as European industrial production or U.S. retail sales’ </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1703" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.wsj.com/articles/how-the-world-economy-became-a-china-property-play-11554978251" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://media-cdn.list.ly/production/699226/3419321/3419321-china-s-land-prices-deserve-as-much-attention-as-european-industrial-production-or-u-s-retail-sales_600px.png?ver=4401000638" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://www.wsj.com/articles/how-the-world-economy-became-a-china-property-play-11554978251" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">WSJ</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">China’s land prices and transaction data deserve as much attention as European industrial production or U.S. retail sales</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Couldn’t agree more</strong>. Some years ago a hedge fund asked me, if you could look at just one indicator of the China economy, would it be? Answer: the property market.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>At the time</strong>I was thinking of the outsized impact – impacts, really - on the Chinese economy.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>As for impacts</strong>on the global economy, I was only considering commodities.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But as</strong><a href="https://www.wsj.com/articles/how-the-world-economy-became-a-china-property-play-11554978251" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘How the World Economy Became a China Property Play’</a>in the Wall Street Journal argues, China property has become an indicator for the global economy, as well as individual economies - the article’s subtitle: ‘The Chinese housing market is picking up, likely boosting growth in Japan and Germany.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘A 10% decline</strong>in demand for real estate and home construction would lead to a 2.2% reduction in Chinese output growth, according to the Kansas City Fed [<a href="https://www.kansascityfed.org/en/publications/research/mb/articles/2018/chinas-gdp-slowdown-housing-activity" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'How Much Would China’s GDP Respond to a Slowdown in Housing Activity?'</a>].’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘That is twice</strong>the impact it would have had just a decade ago, when real estate played a more modest role in Chinese savings and investment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘At the same time</strong>as housing became more important to the Chinese economy, the Chinese economy became more important globally.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘A two percentage-point drop</strong>in Chinese growth this year and next would shave 0.5% off global growth by 2020, according to Oxford Economics.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The effects should work</strong>in the opposite direction if housing market activity and growth break higher, as now seems to be happening.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'China’s impact</strong>on commodity-exporting emerging markets such as Brazil and global inflation are well known, but its influence won’t end there.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Japan and Germany</strong>are in a prime position to benefit from any rebound.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'They have outsize exports</strong>to China relative to the size of their economies: Germany’s $110.69 billion of exports to China last year was four times France’s figure, while shipments from Japan, worth $144.45 billion dollars, outstripped those from the U.S.'</li></ul></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>II. POTENTIAL BACKLASH FROM THE U.S.<br></strong></div><div id="article4" class="post-card"><div class="t2-block"> 4 'Trump’s Foreign Policies Are Better Than They Seem' </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1704" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://cfrd8-files.cfr.org/sites/default/files/report_pdf/CSR%2084_Blackwill_Trump.pdf&amp;embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://cfrd8-files.cfr.org/sites/default/files/report_pdf/CSR%2084_Blackwill_Trump.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open the pdf</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">‘Overall the president deserves a high grade for his policies on China.’</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Trump’s Foreign Policies Are Better Than They Seem is a 112-page Special Report just published by the Council on Foreign Relations (CFR) - thorough and long on opinion - and grades.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The opinion and grades</strong>are by<a href="https://en.wikipedia.org/wiki/Robert_Blackwill" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Robert D. Blackwill,</a>an experienced diplomat and academic and now the Henry A. Kissinger Senior Fellow for U.S. Foreign Policy at the CFR.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>He is also a Republican</strong>who clearly dislikes Mr. Trump the person but finds some very good things in the President's erratic foreign policy.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Here's some</strong>of his take on Mr. Trump's policies and actions toward China.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Overall</strong>the president deserves a high grade for his policies on China.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘His administration</strong>has taken the lead in awakening the United States to the growing threat that China poses to U.S. vital national interests and democratic values.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Without the Trump</strong>administration’s persistent political push regarding the increasing dangers of Chinese power, America could well have continued sleepwalking while Beijing decisively drew large parts of Asia into its orbit and away from the United States.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘While these presidents</strong>[Clinton, G.W. Bush and Obama] were making such optimistic statements over a nearly twenty-year period, China’:</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘implemented</strong>a grand strategy designed to undermine U.S.-Asian alliances, which has accelerated under Xi Jinping; used geoeconomic tools to coerce its neighbors and others, including most recently through the Belt and Road Initiative (BRI);’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘violated</strong>international commercial practices, including by committing massive theft of U.S. intellectual property;’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘<strong>manipulated</strong>its currency for trade benefits;’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘threatened</strong>Taiwan;’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘built up its military forces</strong>to push the United States beyond Japan and the Philippines;’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘constructed and militarized</strong>artificial islands in the South China Sea, in violation of international law;’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘systemically and brutally</strong>violated the human rights of its own people; and’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘patiently and incrementally</strong>built its power and influence with the strategic goal of replacing the United States as the primary power in Asia.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘These American misunderstandings</strong>of China’s objectives over nearly two decades rank as one of the three most damaging U.S. foreign policy errors since the end of World War II, along with the 1965 military escalation in Vietnam and the 2003 invasion of Iraq.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Indeed, this prolonged failure</strong>in China policy could turn out to be the biggest U.S. policy deficiency in the past seven decades, given the accumulating dangerous strategic consequences of the rise of Chinese power for world order as well as for the United States and its allies and friends.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But the Chinese leadership</strong>, faced with successively acquiescent U.S. administrations that miscalculated China’s strategic intentions, went on pushing until it finally provoked a Thermidorean reaction from the United States.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘To its credit</strong>, however, the Trump administration has since adopted a much more clear-eyed approach regarding China that breaks with many of the errors of the past.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Trump Grade</strong>on China Policy: B+'</p><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Besides China.</strong>'The grades for President Trump’s foreign policies just past the halfway point in his term are':</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China</strong>(B+)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>North Korea</strong>(B)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Syria</strong>(B+)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Saudi Arabia</strong>(B+)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Israel</strong>(B)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Iran</strong>(C)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Afghanistan</strong>(B+)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>India</strong>(B+)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Venezuela</strong>(B+)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>trade</strong>(C)</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Against</strong>his grades for':</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>climate</strong>(F)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>European security</strong>(D)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Russia</strong>(F)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>policy process</strong>(F)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>character</strong>(F)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>American values</strong>(F)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>U.S. alliances and deterrence</strong>(F)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>policy implementation</strong>(D).</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Overall</strong>foreign policy grade of D+'</p></td></tr></tbody></table></p></div></div></div>

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">Europe's 'new realism' at the 'EU-China Summit'</h1><div class="date">April 13, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">In the U.S., we focus - rightfully - on the U.S. trade negotiations with China.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">But, at the same time, the EU is grappling with what its strategy should be in dealing with China. </p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The recent EU-China Summit provides a platform to understand the conflicting forces underlying a divided EU's effort to develop a comprehensive response.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">So. in this special edition, we look at the issues and conflicts suggested by the EU-China Summit as a heads up for you to include the EU at the forefront of your analyses of China global ambitions.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Look forward to your thoughts.</p></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>I. THE LAW AND THE PROTESTS</strong></div><div id="article1" class="post-card"><div class="t2-block">1. 'EU-China Summit': China faces a tougher Europe</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1301" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.nytimes.com/2019/04/09/world/europe/eu-china-summit.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://media-cdn.list.ly/production/695975/3422154/3422154-europe-holds-summit-with-china-more-skeptically-this-time_600px.jpeg?ver=3025494920" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://www.nytimes.com/2019/04/09/world/europe/eu-china-summit.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">New York Times</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">An annual European Union meeting with China is beset by new worries about Beijing’s ambitions and practices, market barriers and industrial espionage.</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'On Tuesday, April 9,</strong>the European Union and China met in Brussels for their 21st annual summit,'<a href="https://www.nytimes.com/2019/04/09/world/europe/eu-china-summit.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reports the New York Times</a>.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The challenge for Europe</strong>is to forge a united front in the face of a China that<a href="https://ec.europa.eu/commission/sites/beta-political/files/communication-eu-china-a-strategic-outlook.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">only last month it labeled</a>an “economic competitor” in critical industrial fields and a “systemic rival” politically.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The mood is certainly tougher now,</strong>especially after Italy last month became the first Group of 7 country to join China’s vast Belt and Road project.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Last month,</strong>President Emmanuel Macron of France said that the European Union had finally woken up to China. “China plays on our divisions,” he said. “The period of European naïveté is over.”'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'If China is now a “systemic rival,”</strong>the<a href="https://www.consilium.europa.eu//media/39020/euchina-joint-statement-9april2019.pdf?utm_source=dsms-auto&amp;utm_medium=email&amp;utm_campaign=Joint+statement+of+the+21st+EU-China+summit" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">joint statement</a>did not reflect that new view, but tried to preserve a sense of partnership,' said Theresa Fallon, director of the Centre for Russia Europe Asia Studies in Brussels.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'"The<a href="https://www.consilium.europa.eu//media/39020/euchina-joint-statement-9april2019.pdf?utm_source=dsms-auto&amp;utm_medium=email&amp;utm_campaign=Joint+statement+of+the+21st+EU-China+summit" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">joint statement,</a>"</strong>she said, “also highlights the E.U.’s preferred approach of dialogue and cooperation with China and is a contrast to President Trump’s more assertive approach.”'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In difficult negotiations,</strong>the Europeans had a hard time finding agreement on a joint statement with the Chinese that is serious about substance.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'They succeeded up to a point</strong>, but the commitments made by China are more about further talks than specific actions.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But a senior European official</strong>also pointed to a statement finally reached after the last summit, in Beijing in July, which was full of promises not delivered, especially on issues like investment ground rules and market reciprocity, which are sources of tension now.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'“China will attempt</strong>to use every opportunity, including the E.U.-China Summit, and the '16+plus 1' meeting in Croatia, to pit Europeans against each other and against the United States,’’ said Jamie Fly, the director of the Asia and Future of Geopolitics Programs for the German Marshall Fund in Washington. ‘‘It would be foolish and shortsighted to take the bait,” he added.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Avoiding that may not be easy.</strong>President Trump sees the European Union as an economic “foe.”'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'On Tuesday,</strong>Mr. Trump threatened an additional $11 billion in tariffs in response to European subsidies to Airbus.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'“The EU has taken advantage</strong>of the U.S. on trade for many years. It will soon stop!’’ Mr. Trump tweeted.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'China, on the other hand</strong>, works hard, despite recent conflicts, to be attractive to European businesses, both for investment and trade. “China uses honey while the U.S. is using vinegar,” said French analyst François Heisbourg.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>“The U.S. is pushing Europe</strong>in China’s direction.”</li></ul></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. Europe's 'new realism' at the 'EU-China Summit'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1302" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.merics.org/en/blog/china-meets-tougher-eu-annual-summit" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://media-cdn.list.ly/production/695975/3422430/3422430-europe-s-new-realism-at-the-eu-china-summit_600px.png?ver=5716321529" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://www.merics.org/en/blog/china-meets-tougher-eu-annual-summit" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Mercator Institute for China Studies (MERICS)</a></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The atmosphere around</strong>this year’s EU-China Summit is dramatically different from previous years: in a balancing act, the EU has developed a new realism and a much keener awareness of both the opportunities and challenges presented by China,' says Rebecca Arcesati of the Mercator Institute for Chinese Studies (MERICS) in Berlin.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In a remarkably blunt</strong><a href="https://ec.europa.eu/commission/sites/beta-political/files/communication-eu-china-a-strategic-outlook.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">strategy paper</a>published in March, it labelled China “an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘This represents a sea change</strong>in the EU’s assessment of China’s – and its own – capabilities.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>At the Summit,</strong>'frustrated with China’s market-distorting practices and predatory technological acquisitions, Brussels wants to push Beijing to curb industrial subsidies, open up its market and commit to signing an ambitious bilateral agreement on investments by 2020.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But it remains</strong>to be seen whether the EU will be able to present a united front.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'China maintains</strong>an ambivalent position toward Europe.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'While it wants European integration</strong>to access the single market, balance against the US and demonstrate its own commitment to multilateralism, the reality is that Beijing also benefits from EU divisions.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'For example</strong>, Xi’s visit to Italy was a big success for his leadership, as a G7 country endorsed his chief geopolitical initiative, undermining Brussels’ efforts to devise a common European approach to the Belt and Road Initiative (BRI) and made abundantly clear that Beijing still profits from the profound divisions that exist between member states..'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The EU should expect Beijing</strong>to continue cultivating ties with individual member states and accession countries while simultaneously offering assurances and concessions at the EU level.'</li></ul></td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. China's strategy for the EU</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1303" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="http://thecorner.eu/news-europe/some-takeaways-from-xi-jinpings-visit-to-france-and-italy-and-ideas-for-the-eu-china-summit/79152/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="http://thecorner.eu/wp-content/uploads/2019/03/xi-jinping-macron_ok-777x400.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="http://thecorner.eu/news-europe/some-takeaways-from-xi-jinpings-visit-to-france-and-italy-and-ideas-for-the-eu-china-summit/79152/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">The Corner</a></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Only a few days</strong>before Li Keqiang’s official visit to Brussels for the EU-China summit on April 2019, Xi Jinping has conducted his second trip to Southern Europe in only five months' says Alicia Garcia Herrero of Breugel, the Brussels-based think tank.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Here are some takeaways</strong>on the visit’:</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘First, it has become crystal clear</strong>that Europe (including the European Union) is increasingly important for China’s external policy.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The EU-China Summit.</strong>like its precedents in the past, will not target key strategic issues.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The EU intends to demand</strong>from China the same treatment as the US in the ongoing negotiations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘China, knowing the difficulties</strong>in negotiating with the EU as a whole, prefers to deal with EU member states separately, at least for the issues where national competences dominate.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Second, China’s strategy</strong>towards EU member states tailors each country’s key needs. This is why it is so effective.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In the case of Italy,</strong>Chinese funding for infrastructure projects is the best enticement to the Italian government to support its flagging economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘This was also the case</strong>for Portugal and Greece in the past, but the prize that China handed over to Italy is larger.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘As one of the EU’s founding members</strong>and one of the selected groups of the seven largest industrialized countries in the world (G7), Italy has received the largest prize.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘On the other hand,</strong>Chinese strategy to get France closer to China is very different as it focuses on increasing imports of French goods (especially for the aircraft and aerospace industry) as well as access to Chinese market for French financial institutions (banks and insurance in particular).’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Third, China’s gifts to European countries</strong>are obviously not free lunches.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'China’s massive investment in Italy</strong>comes in exchange for the latter’s endorsement to China’s major soft power machine, namely the Belt and Road Initiative.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Against the backdrop</strong>of the China-US trade war, China is more interested than ever in expanding influence to the detriment of the US, which is what China’s is doing with Italy.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘For a country as important as France</strong>on the military/NATO front, China’s objective is driven more by economic factors.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In fact,</strong>China’s key interest on France is rather to keep an open market for its acquisition of valuable companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In other words,</strong>countries like France are more attractive for China to move up the technology ladder than expand its soft power umbrella.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘All in all,</strong>China’s strategy to the EU looks well targeted, offering each country what it really needs while focusing less on EU institutions.</p></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>II. POTENTIAL BACKLASH FROM THE U.S.<br></strong></div><div id="article4" class="post-card"><div class="t2-block">4. The EU's (possible) strategies toward China</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1304" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=http://bruegel.org/wp-content/uploads/2019/04/US_China_strategic_competition_EU_080419.pdf&amp;embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="http://bruegel.org/wp-content/uploads/2019/04/US_China_strategic_competition_EU_080419.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window to read</a></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The trade conflict</strong>between the United States and China has brought China-US strategic competition into the open, and the he global influence of the US-China cold war will be persistent' says Alicia Garcia Herrero of Breugel, the Brussels-based think tank.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'At this juncture</strong>, the EU is the world’s only economy that can balance the power between the US and China.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The European Union</strong>faces an urgent question: how to position itself in the competition.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Several options</strong>are under discussion.'</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘1. Safeguard multilateralism?’</h5><strong>‘The EU has long called</strong>for economic multilateralism and is pushing for reform of the World Trade Organisation to adapt to China’s sheer size.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘That said,</strong>the EU will also find cooperation with the US difficult in the reform of the WTO.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Since his election,</strong>President Trump has pushed "America first" policies and has certainly not supported multilateralism.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘On the other hand,</strong>China’s expectations of WTO reform do not seem to be in line with the EU’s.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In fact,</strong>China expects to enjoy a special status as an emerging economy, which should allow China to continue to keep its economic model while continuing to enjoy the benefits of open trade.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘While ideal in terms of the benefits</strong>of the status quo for an open, export-led economic bloc like the EU, the reality is that the EU risks remaining isolated in its pursuit of multilateralism, at least in the form we understand it today.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Being the last one</strong>to abandon the boat of WTO reform is probably courageous but also naïve and potentially costly for the EU.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘2. Enhance Europe’s reliance on the Transatlantic Alliance?’</h5><strong>Europe could</strong>'reinforce its alliance with the US to the point of following the US in its actions to contain China’s economic/technological rise.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But, ‘the current US administration</strong>has made it very clear that multilateralism and open trade is something of the past.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And, ‘the US</strong>has taken aim not only at China but at many other economies including the EU.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘There is a practical reason</strong>that would make it very costly for the EU to lean on the US completely.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The EU is not a single country,</strong>but a group of countries that have different views about the US and also about China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘While Western Europe</strong>might be easier to unite against China, Eastern Europe, together with the Western Balkans, have gone in the other direction with the 16+1 group, which implies close cooperation with China in a number of economic policies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘As if this were not enough,</strong>some Western/Southern EU member states are taking the same route, starting with Greece, followed by Portugal and Italy, a founding member of the EU.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The EU’s efforts to establish</strong>an EU-level system of screening foreign direct investment, which was finally adopted on 5 March 20196, but was clearly weakened compared to the original proposal, points to the difficulties of moving unitedly to a closer Transatlantic Alliance to the detriment of EU member states relations with China.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">'3. Strengthen cooperation with China?'</h5><strong>‘Strengthening cooperation</strong>with China is also a practical – albeit unlikely – choice for the EU insofar as its current strategic ally, the US, is clearly watching Europe and making it increasingly costly for Europe to move away from its historical anchor, namely the US.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'However,</strong>even the cost of a more neutral position (equidistant between the US and China) are increasing - the Chinese market is simply too large to be avoided.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'This means</strong>that the opportunities in the medium term should be greater in China than in than the US, under a very important assumption, though, namely that China truly opens up to foreign competition.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In other words,</strong>if China were to grant true market access to foreign companies (European companies), the benefits for Europe of remaining neutral between the US and China may skyrocket.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In that context,</strong>the EU has taken some steps to improve economic cooperation with China since 2013 but the current stand-off with the US constitutes one more important hindrance (beyond China’s apparent lack of interest to change its state-led model) for such negotiations to bear fruit.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'While it might seem unrealistic today,</strong>this last option might need to be explored if the US continues to move away from multilateralism and, to some degree, from the Transatlantic Alliance.'</p></td></tr></tbody></table></p></div></div><div id="article5" class="post-card"><div class="t2-block">5. VIDEO | The Heat: China-EU summit</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1305" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/oHCnrlovoDU"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><strong>The Heat:</strong><a href="https://youtu.be/oHCnrlovoDU" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">China-EU summit Pt 2</a>| video 24m</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Great discussion</strong>with experts:</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Chen Chenchen,</strong>deputy director of the Macro Research Department at Chongyang Institute for Financial Studies at Renmin University</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Tim Summers,</strong>senior consulting fellow with the Asia-Pacific Programme at Chatham House and author of “China’s Regions in an era of Globalization.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Sourabh Gupta,</strong>resident senior fellow with the Institute for China-America Studies.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Philippe Le Corre,</strong>senior fellow with the Harvard Kennedy School and author of “China’s Offensive in Europe”</li></ul></td></tr></tbody></table></p></div></div></div>

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">Trade war: 'U.S. policy has changed because China has changed'</h1><div class="date">April 10, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible"><strong>I. THE LAW AND THE PROTESTS</strong></div><div id="article1" class="post-card"><div class="t2-block">1. Trump &amp; Kim Hangin' in Hanoi</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1001" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/uFKiEgi4ZSo"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Ian Bremmer's GZERO</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">'It's so nice to just hang out. You know just chill.' Donald Trump</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>This from the 'Puppet Regime'</strong> of Ian Bremmer's <a href="https://www.gzeromedia.com/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">GZERO</a>. More on that below.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>KIM:</strong> 'Oh, hey, check out what I look like with a<br>puppy face on Snapchat.'</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>TRUMP</strong>: 'I think the cat one suits you better.'</p></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. Trade war: 'U.S. policy has changed because China has changed'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1002" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/xxobEouW2TE"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Council on Foreign Relations</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">U.S. policy has changed because China has changed</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China's 'Third Revolution'.</strong> Xi Jinping has shed Deng Xiaoping's revolution, just as Deng shed Mao's.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Argues Elizabeth Economy</strong> of the Council on Foreign Relations and one of the most astute observers of China in her excellent <em><a href="https://www.cfr.org/blog/book-review-roundtable-third-revolution" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">The Third Revolution: Xi Jinping and the New Chinese State</a></em> and in many interviews, <a href="https://www.youtube.com/watch?v=xxobEouW2TE" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">like this one</a>, and short papers.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Liz applies</strong> her analytical framework to the U.S.-China trade war in her essay, <a href="https://democracyjournal.org/magazine/52/trade-parade-of-broken-promises/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Trade: Parade of Broken Promises.'</a></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Here are some</strong> of her comments (<a href="https://democracyjournal.org/magazine/52/trade-parade-of-broken-promises/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">read the full essay</a> - great stuff).</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The traditional dynamics</strong> of the U.S.-China trade relationship changed dramatically with the selection of Xi Jinping as General Secretary of the Communist Party in October 2012 (and then president in March 2013), and the election of U.S. President Donald Trump in November 2016. Each has played a critical role':</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Trump initiated</strong> the tariff war.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Xi created</strong> the business environment in China that provided support in the United States for Trump’s change in approach'.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Yet the current period</strong> is marked by two significant differences from any previous time in the bilateral relationship between the U.S. and China.'</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'First,</strong> Chinese intentions and capabilities have changed. Xi’s desire to rejuvenate the great Chinese nation is not simply about the continued transformation of China into an economic powerhouse. It includes four ambitious goals':</p><ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'realizing sovereignty</strong> claims in the South China Sea, Hong Kong, and eventually Taiwan';</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'replacing the United States</strong> as the dominant power in the Asia Pacific';</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'shaping the system of global governance</strong> on issues such as human rights and Internet sovereignty in ways that conflict with U.S. values and priorities'; and</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'serving as an alternative model</strong> to market democracies for still developing countries.'</li></ol><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Second</strong>, in response to Xi’s initiatives, the United States now considers China a strategic competitor.'</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'As one of China’s own leading scholars</strong> of U.S.-China relations, Wang Jisi, commented in an October 2018 interview:'</p><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>“[F]or over 200 years,</strong> the United States has never changed its strategic goals for its relationship with China: free flow of goods and capital, and free flow of information and values. Chinese have always had reservations or imposed boycotts to oppose these two goals. We should criticize and have reason to criticize the United States, but we should realize that China’s own actions have changed Sino-US relations and US perceptions of China.”</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>“If we are looking for the cause</strong>, it was the change in Chinese policy that led to adjustments in US policy towards China.”</p></td></tr></tbody></table><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'U.S. policy</strong> has changed because China changed,' concludes Liz Economy.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The Chinese might respond</strong> that of course China has changed. After thousands of years of feudalism and more than a century of humiliation by foreign powers, China has indeed stood up.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China is regaining</strong> its previous status as (at times past) the world's largest economy and hegemon, at least, of Asia.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In China's way:</strong> the United States.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And, whether or not</strong> U.S. policy changed because China changed begs the question: What would U.S. policy toward China look like if Hillary Clinton - not Donald Trump -had become president?</p></td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. China’s leaders should study James Bond films</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1003" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.economist.com/china/2019/03/23/chinas-leaders-should-study-james-bond-films" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://www.economist.com/sites/default/files/imagecache/640-width/images/print-edition/20190323_CND000_0.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">The Economist</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">Revealing one’s master plan too early can be dangerous</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In China,</strong> I'm known as 'Da Bao' 大宝 - big baby, big treasure.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But, those Chinese</strong> who know my CIA background call me 'Ling Ling Qi' 零零七 - 007.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>BTW,</strong> I am often asked if the Public Security Bureau knows about my time as a CIA case officer in the China Operations Branch.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The answer</strong> is they have always known: I used to work with <a href="https://en.wikipedia.org/wiki/Larry_Wu-tai_Chin" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Larry Wu-tai Chin</a>, China's mole in the CIA.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>So after I read</strong><a href="https://www.economist.com/china/2019/03/23/chinas-leaders-should-study-james-bond-films" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'China’s leaders should study James Bond films,'</a> I especially wanted to pass it on.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'By the time Chinese censors</strong> finally allowed a James Bond film to be shown in a mainland cinema, in 2007, the franchise was more than four decades old.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Only thanks</strong> to rampant piracy were Chinese familiar with the British spy, commonly referred to by his codename, <em>Ling ling qi</em>.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Chinese leaders</strong> would do well to study a plot device beloved in the early films: the moment when a ruthless genius explains his plans for world domination to a captive Bond, believing him moments from death'.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'With the reliability</strong> of a well-tuned Aston Martin, the bragging turns out to be ill-timed.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Within moments</strong> Bond is free, the villain’s lair ablaze and his schemes thwarted.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Today in the real world,</strong> China faces unusual resistance to its bid for a front seat as a global power.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Surprisingly often,</strong> China’s woes stem from what film critics might term Bond-villain blunders, involving premature admissions of ambition.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Certainly China</strong> has broken with the dictum of the early 1990s, coined by the then-supreme leader, Deng Xiaoping, that China should “hide its capacities and bide its time”.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In truth China</strong> is now too big to hide.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It has always mixed bursts</strong> of assertiveness with promises to open markets and protect foreign firms.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'What is new</strong> is that this China is impatient.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><em>read the rest <a href="https://www.economist.com/china/2019/03/23/chinas-leaders-should-study-james-bond-films" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here</a>.</em></p></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>II. POTENTIAL BACKLASH FROM THE U.S.<br></strong></div><div id="article4" class="post-card"><div class="t2-block">4. The best explanation of Xi's view on China's private sector – beat it into submission</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1004" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.ft.com/content/cc4394be-5575-11e9-a3db-1fe89bedc16e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://media-cdn.list.ly/production/694443/3409068/3409068-china-s-non-state-sector-serves-just-one-purpose_600px.jpeg?ver=9527603581" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">FT</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">For Mr Xi, the non-state sector serves one purpose: to deliver on his core task of making one-party rule sustainable.</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>What is Xi Jinping's</strong> real attitude about China's private sector?</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The attitude of Mr Xi</strong> to the private sector remains rather unclear, to put it mildly,' <a href="https://www.ft.com/content/37ac5f08-5529-11e9-91f9-b6515a54c5b1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes Martin Wolf in the Financial Times</a>.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'I think it is clear enough,'</strong> responds Kerry Brown, the Director of the Lau China Institute, King’s College London, <a href="https://www.ft.com/content/cc4394be-5575-11e9-a3db-1fe89bedc16e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">in a letter to the FT</a>.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Here</strong> is their point/counterpoint.</p><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h3><a href="https://www.ft.com/content/37ac5f08-5529-11e9-91f9-b6515a54c5b1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">POINT: Martin Wolf</a></h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>From his comments</strong> on the private sector.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Of even greater importance,</strong> insisted some of those I met [in China], is renewed official enthusiasm for the private sector.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In a speech</strong> given in December 2018, President Xi Jinping not only paid tribute to Deng Xiaoping, author of China’s policy of “reform and opening up”, but promised to support the private sector.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘<strong>In his report,</strong> Mr Li referred to the private activities 20 times.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘He stressed</strong> the need to “ease funding shortages faced by private enterprises”, “encourage private actors to engage in innovation” and “attract more private capital into projects in key areas”.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Yet we do also</strong> need to challenge this optimistic perspective on the present and future prospects of the Chinese economy.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>[about the private sector]</strong> ‘Third, the attitude of Mr Xi to the private sector remains rather unclear, to put it mildly.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘He is surrounded</strong> by people who do believe in the essential role of the private sector.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But</strong> does he?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Most of the time</strong>, he seems to put rather greater faith in state-owned enterprises.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So long</strong> as that is the case, it may be difficult to reignite, let alone sustain, confidence within the private sector.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h3><a href="https://www.ft.com/content/cc4394be-5575-11e9-a3db-1fe89bedc16e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">COUNTERPOINT: Kerry Brown</a></h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Martin Wolf</strong>, in <a href="https://www.ft.com/content/37ac5f08-5529-11e9-91f9-b6515a54c5b1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">“The Chinese economy is stabilising”</a> (April 3), says the attitude of current Chinese president Xi Jinping towards the private sector is unclear.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'I think</strong> it is clear enough.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'For him</strong>, as for any Communist party leader of his generation in socialist market China, the private sector as it is configured in the west does not and cannot exist.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'A non-state sector,</strong> however, can — and has done since the early days of opening up and reform after 1978.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'<strong>Seen purely economically,</strong> on the surface Mr Xi does seem to have an ambiguous attitude towards non-state companies.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The party’s 2013 plenum statement</strong> typified this, saying on page one that the market was utterly necessary for reform, and then saying on the next page that the state still played a commanding role.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But all this shows</strong> is the way in which leaders in China separate the political from the economic, and will always defend the dominance of the former.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In the economic domain,</strong> for sure, the market and non-state companies as a source of growth are a good thing for a ruling party that needs this growth to maintain its monopoly on power.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In the political domain,</strong> however, non-state business actors take the same rank in the pecking order as everyone else — firmly under party edict and party rules. In this space, the free market that reigns elsewhere vanishes without trace.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'This is because</strong> they are in the end two wholly different spaces.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'For Mr Xi,</strong> the non-state sector serves one purpose: to deliver on his core task of making one-party rule sustainable.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Like other sections in society,</strong> it was disciplined through the anti-corruption struggle from the start of Mr Xi’s reign, and it's more problematic actors who may have had inappropriate political ambitions were removed.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Now, reformed and more trustworthy,</strong> it can continue contributing to the party’s grand tasks — on the party’s terms.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In this agile balancing</strong> between politics and economics, the Communist party in Beijing shows how you really can have your cake and eat it — as long as you make sure you do the having in the economic space, and the eating in the political!'</p></td></tr></tbody></table></td></tr></tbody></table></p></div></div><div id="article5" class="post-card"><div class="t2-block">5. Heads Up | Watch GZERO World with Ian Bremmer – terrific!</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1005" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/2pmlauyptJ4"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">GZERO World with Ian Bremmer</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">See global leaders in a different light on GZERO World with Ian Bremmer</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>I like</strong> short videos. I like Ian Bremmer. I'm pretty fond of puppets. Hence, I like <a href="https://www.gzeromedia.com/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">GZERO</a>.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Ian Bremmer</strong> is sort of the <a href="https://en.wikipedia.org/wiki/Zelig" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Zelig</a> of international affairs experts.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>If there</strong> is a meeting of world leaders and intellectuals, Ian is there.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>If news shows</strong> need serious commentary - rather than talking heads' blather - about a world event, Ian is there.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>He is</strong> President &amp; Founder of the Eurasia Group, 'the world's leading political risk analysis firm,' and a Stanford PhD.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Ian is also</strong> founder of <a href="https://www.gzeromedia.com/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">GZERO Media</a>, where he 'explains international events' and 'sits down for in-depth conversations with newsmakers and thought leaders.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>From his</strong> 'In 60 Seconds' to 3-minute interviews to 25 minute full episodes.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And, then there</strong> is The Puppet Regime': Donald Trump, Angela Merkel, Kim Jong Un, Nancy Pelosi, and others - the source of <a href="https://www.youtube.com/watch?v=uFKiEgi4ZSo" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Trump &amp; Kim Hangin' in Hanoi.'</a></li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here are the links:<br><a href="https://www.gzeromedia.com/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">GZERO Media</a><br><a href="https://www.youtube.com/channel/UC-8_qAhNVG8G1wxONMnYr3Q" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">GZERO YouTube Channel</a></p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Let me know what you think.</p></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>III. CONGRESS &amp; THE PRESIDENT REACT<br></strong></div><div id="article6" class="post-card"><div class="t2-block">6. April 2019 Trade Bulletin</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr1006" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://assets.website-files.com/5c864c33af62620dca1373ac/5cba67b637d84efe45547aa3_April%202019%20Trade%20Bulletin.pdf&amp;embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;"><a href="https://docs.google.com/viewerng/viewer?url=https://www.uscc.gov/sites/default/files/trade_bulletins/April+2019+Trade+Bulletin.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">Congress' 'U.S.-China Economic and Security Review Commission'</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Each month</strong> Congress' U.S.-China Economic and Security Review Commission publishes the 'Economics and Trade Bulletin.'</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>You can read</strong> the April edition <a href="https://www.uscc.gov/sites/default/files/trade_bulletins/April%202019%20Trade%20Bulletin.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here</a>.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And here</strong> are the April edition's highlights:</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Bilateral trade:</strong> In January 2019, U.S. exports of goods to China fell 27.5 percent year-on-year to $7.1 billion—a record-setting decline; the monthly U.S. trade deficit in goods with China totaled $34.5 billion.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Bilateral policy issues:</strong> On March 6, Huawei sued the U.S. government, alleging it had been unlawfully and incorrectly banned from U.S. government procurement.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Policy trends in China’s economy:</strong> The Chinese government set an annual GDP growth target of between 6 and 6.5 percent in 2019 amid slowing global economic growth projections and ongoing trade tensions with the United States; China’s new Foreign Investment Law aims to address U.S. concerns about intellectual property theft and forced technology transfers; observers expressed concern the law will serve as window dressing and not result in meaningful change.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In focus</strong> – China-EU relations: Intra-EU divisions on display amid President Xi’s trip to Europe; the European Commission labeled China a “systemic rival” and France tried to apply greater pressure on Chinese trade and technology policies, while Italy endorsed China’s Belt and Road Initiative.</li></ul></td></tr></tbody></table></p></div></div></div>

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'Why China market reforms haven't worked'</h1><div class="date">April 6, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article1" class="post-card"><div class="t2-block">1. 'We're going from an unregulated trade war with China to a regulated one.’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr0601" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.bloomberg.com/multimedia/api/embed/iframe?id=7153dd1f-ab21-4b96-b9c7-8f25d8e18264" allowscriptaccess="always" frameborder="0"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Bloomberg</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">'We're going from an unregulated trade war with China<br>to a regulated one.’</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘There's an expression in Chinese,</strong> 上有政策,下有对策: “above we have policies; below we have counter policies,’ says Kevin Rudd, president of the Asia Society Policy Institute and former Prime Minister of Australia in a <a href="https://www.bloomberg.com/news/videos/2019-04-03/china-u-s-trade-pact-will-happen-and-be-good-for-exporters-kevin-rudd-says-video" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Bloomberg interview.</a></p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘In other words,</strong> you guys can agree to what you like, and we'll do some swift work down below to make sure it doesn't quite have the full effect.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘American trade negotiators</strong> are familiar with the ancient Chinese stagecraft and statecraft – they know that China has done this in the past – promised and not delivered.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘USTR Lighthizer</strong> and the rest of the crew they're trying to make this deal as watertight as possible.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>That’s why</strong> ‘the American negotiating position is: just to keep you Chinese guys honest. we want to keep a range of our tariffs in place once the agreement is signed.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Secondly,</strong> if you're subsequently very bad, very naughty, then we're going to impose bigger tariffs.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But we want you to agree</strong> in advance that if we do that, you won't impose retaliatory tariffs on us.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Well,</strong> we have an expression in Australia: "pigs might fly."’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The Chinese</strong> will see that latter provision in particular as almost a revisiting of China's “unequal treaties” imposed by the more powerful the West in the 19th and 20th centuries.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Those treaties held</strong> that ‘there was one rule for foreigners and a different rule for the Chinese.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But they</strong> will have to agree to an enforcement mechanism.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Now they're talking</strong> about weekly exchanges with officials, monthly exchanges of official data, transparency.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'There’s going to be</strong> a lot of pushing and shoving: disagreement on data and then disagreement on measures.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But it's better</strong> there's a joint mechanism for doing that rather than a whole of system explosion in the bilateral relationship if it goes off the rails at a point in the future.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘We tend to think</strong> we'll get a deal done, then we can put that to one side and move on to something else.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘But this is going</strong> to be an ongoing process.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Lighthizer’s</strong> will be still be working on this.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘And, after him</strong>, we’ll have another Lighthizer to carry on the work - a week, a month, a year, ten years from now.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘We should be</strong> preparing ourselves for an ongoing set of negotiations with the Chinese.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Someone had a good phrase:</strong> we're going from an unregulated trade war with China to a regulated one.’</p></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. Why China's market reform isn't working</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr0602" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://media-cdn.list.ly/production/693492/3402636/3402636-why-china-has-a-seesaw-economy_600px.jpeg?ver=0451306909" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">The Diplomat</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">China has a policy-induced - not a market-based - business cycle.</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Market reform</strong> has been China’s flagship economic initiative for over 40 years,’ write Zhizhen Lu and Meiying Xu in <a href="https://thediplomat.com/2019/04/why-chinas-economic-reforms-often-backslide/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">The Diplomat</a>.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Yet each new round</strong> of reform often ends up with more heavy-handed state control.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘At the macro level</strong> 'growth has been created by massive state-led investments, leaving an indebted, risk-filled economy, but contractionary side effects from deleveraging motivate a return to economic expansion.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>So, ‘Keynesian-style government investment</strong> became the most effective “painkiller” for economic slowdown since 2008, and this time is no different.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>A ‘Seesaw Economy.’</strong> ‘The policy shift in mid-2018 from market reform to growth stabilization belies a recurrent pattern of a policy-induced business cycle.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The leading liberal economist</strong> Wu Jinglian described this as the “seesaw economy.”’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Dual track.</strong> ‘As China took a gradualist approach in the transition from planned to market economy, it set up a new track for marketization in parallel with the planned track, hoping that the two will eventually merge together.’ Only it hasn't.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>That's because</strong> 'in promoting market reform, the state often faces a dilemma — should it choose stability or reform?' Here's the seesaw in action.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘After a market is established and operational,</strong> the state pulls out of the market only to find a surge of malpractices that destabilize market orders.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘When the state</strong> weighs back in, market actors lose their vitality and start speculating on policy loopholes or acquiring subsidies.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>In other words</strong>, ‘State control and protection distort resource allocation and prevent the market from establishing independent operational rules; efforts to redress these problems destabilize existing economic order, and government intervention is restored to smooth out the turbulence.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'With the state playing</strong> a central role in coordinating economic activities, the Chinese government builds and sustains the market, but falls short on empowering it.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>While building functional markets</strong> requires state facilitation, China’s state-led market reform hinders the establishment of healthy market selection and adjustment mechanisms.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The result:</strong> 'Business performance** is dependent more on “riding the policy wave” than prudent management or innovative business models.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And a policy induced</strong> - not a market-based - business cycle.</li></ul></td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. All is well in China's intelligence service</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr0603" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><twitter-widget class="twitter-tweet twitter-tweet-rendered" id="twitter-widget-0" style="position: static;visibility: visible;display: block;transform: rotate(0deg);max-width: 766px;width: 500px;min-width: 220px;margin-top: 10px;margin-bottom: 10px;margin: 0 auto;" data-tweet-id="1113629486153474050"></twitter-widget><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script></td></tr></tbody></table></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>II. POTENTIAL BACKLASH FROM THE U.S.<br></strong></div><div id="article4" class="post-card"><div class="t2-block">4. 'China's GDP could start to grow again in 5-10 years': Prof Xu Bin, CEIBS</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr0604" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="http://www.ceibs.edu/new-papers-columns/what%E2%80%99s-behind-china%E2%80%99s-slowdown" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://media-cdn.list.ly/production/693492/3402945/3402945-china-could-start-to-grow-again-in-5-10-years-prof-xu-bin-ceibs_600px.png?ver=7574482889" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">CEIBS</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">'Although China’s GDP growth is going down now,<br>in five to ten years it may be going up again.'</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Significant slowdown</strong> of the Chinese economy began in 2012,' <a href="http://www.ceibs.edu/new-papers-columns/what%E2%80%99s-behind-china%E2%80%99s-slowdown" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">says Xu Bin</a>, a professor at CEIBS in Shanghai. (In the <a href="http://rankings.ft.com/businessschoolrankings/global-mba-ranking-2019" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">2019 Financial Times rankings</a>. CEIBS's MBA program ranked #5 in the world and #1 Asia.)</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It is true</strong> that because it has been seven years this does not look like a normal cyclical slowdown.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But</strong> I think it is.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘I have two views</strong> about the slowdown of the Chinese economy.'</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘One is that there is clearly</strong> a fundamental decline in the supply side, the driving force of the economy.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Government advisors</strong> seemed to have thought that the slowdown wasn’t a demand side issue, but a problem on the supply side.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So China engaged</strong> in supply side policies to deal with the short-term fluctuation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Their goal</strong> was to reduce some capacity to balance the supply and demand.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The measures</strong> implemented actually strangled both supply and demand.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘That made</strong> the recession even more serious.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘So sometimes</strong> downturns are policy-induced.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'I don't put much weight</strong> on the so-called aging population theories, I do not think that this is a major factor in the slowdown'.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'My view</strong> is that China is becoming more and more advanced, so the room for imitation and catching-up is getting smaller and smaller, so potential GDP growth rate is going down.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Another factor</strong> is that you require a different quality of labour. In the past, unskilled labour was enough, now you need skilled labour.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘My second view</strong> is that although China’s GDP growth is going down, five to ten years later it may be going up.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘The reasoning</strong> behind this that I do not believe that, as a country becomes more and more high-income, its potential GDP will be destined to grow less and less.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Potential GDP</strong> depends on the production function.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘If entrepreneurs</strong> are given more freedom to create, if more Chinese talents return from overseas, imagine how much potential GDP China can achieve.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Also,</strong> ‘the current slowdown has something to do with the overuse of a tightening policy, especially in terms of the allocation of credit.’</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘If you're tightening</strong> it in the name of deleveraging, you are hurting private companies the most.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘If your policies</strong> are in favour of China's private sector, China will develop.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘It's driven by potential GDP</strong>, which depends on efficiency and the quality of inputs.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘And I think</strong> that both in terms of efficiency and quality of inputs, down the road, China will have a beautiful run.’</li></ul></td></tr></tbody></table></p></div></div><div id="article5" class="post-card"><div class="t2-block">5. Starbucks opens a new store in China every 15 hours</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><p class="embed-responsive embed-responsive-16by9" padding-bottom:="" 56.25%;"=""><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/be_w0zq_Exs"></iframe></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato', sans-serif;">Bloomberg</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">'Starbucks opens a new store in China every 15 hours.'</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Starbucks opens</strong> a new store in China every 15 hours.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘We build</strong> a net new six hundred stores a year in China,’ says, Starbucks CEO Kevin Johnson in a <a href="https://www.youtube.com/watch?v=be_w0zq_Exs&amp;list=UUm4cMxlAOBQklhtgkYN2V7Q" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Bloomberg interview</a>.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘That’s off</strong> of a base thirty five hundred plus stores today.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Over this next three years</strong> we're going to build Starbucks in 100 new cities in China that we are not currently in.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘And every one</strong> of those cities is larger than the population of Los Angeles.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>How long</strong> can Starbucks keep doing this?</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Beyond my lifetime’</strong>, says Kevin Johnson.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘And, we could go on</strong> at that at that rate after that.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘We will be building</strong> new stores in China for decades to come.’</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Did I mention</strong> that Starbucks opens a new store in China every 15 hours?</p></td></tr></p></div></div><div class="section_title w-condition-invisible"><strong>III. CONGRESS &amp; THE PRESIDENT REACT<br></strong></div><div id="article6" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article7" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article8" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible"><strong>IV. EXTRADITION LAW:PRO &amp; CON<br></strong></div><div id="article9" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article10" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article11" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article12" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article13" class="post-card w-condition-invisible" style=""><div class="t2-block w-dyn-bind-empty"></div><div class="table-block w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div></div>

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'China is the world’s best consumer story'</h1><div class="date">April 3, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div id="article1" class="post-card"><div class="t2-block">1. 'China stimulus tracker: A one-year report card' | Development Bank of Singapore (DBS)</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr0301" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://assets.website-files.com/5c864c33af62620dca1373ac/5ca3cb9aa06ad546385de253_190327%20China%20stimulus%20tracker%20A%20one-year%20report%20card.pdf&amp;embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato',sans-serif;"><a href="https://assets.website-files.com/5c864c33af62620dca1373ac/5ca3cb9aa06ad546385de253_190327%20China%20stimulus%20tracker%20A%20one-year%20report%20card.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window</a></p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The Development Bank of Singapore (DBS)</strong>&nbsp;has put together a nifty 6-page summary of China's fiscal and monetary stimulus efforts - along with their impact. And, great charts illustrating the findings.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Have a look</strong>&nbsp;<a href="https://assets.website-files.com/5c864c33af62620dca1373ac/5ca3cb9aa06ad546385de253_190327%20China%20stimulus%20tracker%20A%20one-year%20report%20card.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here at the 'China stimulus tracker: A one-year report card.'</a></p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Here is</strong>&nbsp;the Bank's summary:</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Worries over</strong>&nbsp;China’s economy have intensified since 2H18 due to faltering momentum of external trade and domestic demand.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>A moderate stimulus package</strong>&nbsp;and insistence on deleveraging indicate Beijing’s increased tolerance for slower growth.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Policy supports</strong>&nbsp;from reserve requirement ratio cuts to infrastructure binge are yielding positive results.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Demand-side indicators</strong>&nbsp;– retail sales and investment – are showing signs of stabilization.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>But supply-side gauges</strong>&nbsp;such as production and employment remain subdued.</li></ul></td></tr></tbody></table></p></div></div><div id="article2" class="post-card"><div class="t2-block">2. 'China is the world’s best consumer story' | McKinsey</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.mckinsey.com/featured-insights/china/the-state-of-the-chinese-economy" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/China/The%20state%20of%20the%20Chinese%20economy/The-state-of-Chinese-economy_1536x1536_200.ashx?mw=677&amp;car=8:5" alt="chinadebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato',sans-serif;">McKinsey</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">'The vast majority of China’s economic growth is driven domestically, and driven by growth in consumption of services, driven by growth in expenditures by consumers.'</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Growth in China’s services industry</strong> quickened in March, an official survey showed on Sunday, offering some respite for a slowing economy,' reports <a href="https://www.reuters.com/article/us-china-economy-pmi-services-official/chinas-services-activity-quickens-in-march-official-pmi-idUSKCN1RC01J" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Reuters</a>.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The official non-manufacturing</strong> Purchasing Managers’ Index (PMI) rose to 54.8 in March from 54.3 in February, well above the 50-point mark that separates growth from contraction.' reports <a href="https://www.reuters.com/article/us-china-economy-pmi-services-official/chinas-services-activity-quickens-in-march-official-pmi-idUSKCN1RC01J" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Reuters</a>.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'<strong>The fast-growing services sector</strong> accounts for more than half of China’s economy and has helped buffer the impact of slowing manufacturing.'</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But it softened</strong> late last year amid a cooling property market and faltering consumer demand for products from cars to mobile phones.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Let's go</strong> deeper.</p><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h2>'China Brief'</h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>McKinsey</strong> has put out its first <a href="https://www.mckinsey.com/featured-insights/china/china-brief-the-state-of-the-economy?cid=other-eml-alt-mip-mck&amp;hlkid=46630af8a76d4a78ae1c48749779c377&amp;hctky=2264274&amp;hdpid=e5a346b5-0141-467c-b082-cde1a5eb928e" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'China Brief,'</a> covering 'The State of the Chinese Economy,' plus a podcast on the same topic with three of top McKinsey China experts (you can listen to the podcast below).</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Of special interest</strong> was the 'China Brief''s '2. The consumer story is still strong, but also changing.' Here are some key points:</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'According to consensus forecasts</strong>, Chinese consumption is expected to grow by about $6 trillion from today through 2030.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'This enormous sum</strong> is equivalent to the combined consumption growth expected in the US and Western Europe over the same period, double that of India, and ASEAN economies together'.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'China’s economic rebalancing</strong> toward consumption and services continued, contributing about 76 percent and 60 percent of GDP growth, respectively.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Growth in retail sales</strong> edged lower to 9.0 percent in 2018 from 10.2 percent in 2017, reflecting weaker auto sales.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Real per capita disposable income</strong> was 6.5 percent in 2018, in line with GDP growth.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>''And China created</strong> 13.6 million new urban jobs in 2018, exceeding the 11 million target.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Beneath the slowdown</strong> lie changes in the patterns of consumption.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Sharper drops in sales</strong> of individual companies, or even of sales in categories like autos or cosmetics, do not tell the whole story.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Online sales</strong>, for instance, grew at a strong 24 percent.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'For the first time in China,'</strong> we also see a new segment of customers trading down.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The success of Pinduoduo,</strong> a lower segment discounter appealing to customers explicitly trading down—and which has disrupted China’s e-commerce duopoly (an attacker of the attackers)—indicates a maturing and changing market.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'First-tier city consumption</strong> remains very robust, while lower-tier cities soften.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Could this simply</strong> reflect the larger “wealth buffer”, higher real-estate values, and affluence bolstering the confidence of wealthy consumers yet to feel the slowdown already apparent lower down the income scale?'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The next</strong> few months will tell.'.</li></ul></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><h2><a href="https://www.mckinsey.com/featured-insights/china/the-state-of-the-chinese-economy" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'McKinsey in China' podcast</a></h2><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The podcast</strong> featured three top China experts:</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Gordon Orr,</strong> director emeritus of and a senior adviser to McKinsey</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Jonathan Woetzel,</strong> senior partner, McKinsey Shanghai</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Nick Leung,</strong> senior partner, McKinsey Hong Kong</li></ul><iframe src="https://www.listennotes.com/embedded/e/9a3904ba6f4b4cb19d39c36a01539419/" height="100px" width="100%" style="width: 1px; min-width: 100%;" frameborder="0" scrolling="no"></iframe><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><em>Here are some of their comments on Chinese consumption:</em></p><h3>⚡Gordon Orr</h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The vast majority</strong> of China’s economic growth is driven domestically, and driven by growth in consumption of services, driven by growth in expenditures by consumers.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Slowdown in the economy</strong>, still, by the way, adding absolute economic growth of something like the size of the Australian economy every year.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But the slowdown</strong> to the current levels is being driven by slower growth in consumer expenditures.'</li></ul><h3>⚡Nick Leung</h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'So the trade dependency</strong> of China on US actual trade, what we have now in the tariff regime, is less than 1 percent of GDP.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'So it can’t be</strong> that the threat of 1 percent of GDP is driving consumer sentiment in third-tier cities and forcing people not to buy cars.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It may be a small influencing factor</strong>, but there’s clearly a bigger thing going on here in China.'</li></ul><h3>⚡Gordon Orr</h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It can be</strong> an influencing factor, as you say.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It’s an input</strong> to consumer confidence.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'It’s potentially</strong> an input to private-sector investment if companies are holding off on making investment decisions on more manufacturing capacity.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'You have to focus</strong> on the aggregate, not the specific.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Yes, there are specific companies</strong> that made an enormous deal about how their sales in China were declining, whether it’s Apple or Jaguar Land Rover, or a host of other companies that have said specifically, “We didn’t hit our global numbers because of China.”'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Then there’s the counterpoints</strong> of other companies that have absolutely said, “We’ve exceeded our goals in China, and we’ve been going strong.”'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'There’s a tendency to amplify</strong> the bad news on specific companies that actually may have made the wrong product choices and made the wrong channel choices and saw the implications of that in China.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Whereas, in aggregate</strong>, consumer spending, while it didn’t rise in double digits last year, still had 8 percent, 9 percent growth in consumption.'</li></ul><h3>⚡Jonathan Woetzel</h3><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'I think</strong> that Gordon is absolutely right.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'And I agree with him</strong> here that in the aggregate, China is still the world’s best consumer story.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'What’s changing</strong> a little bit is the nature of that story.''</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In the early days</strong> this was a very luxury market.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The early sort of growth</strong> in the premium market was truly astounding.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Now it’s becoming</strong> much more of a middle mass market.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'As we cross that line</strong> into hundreds of millions of people in the urban middle class moving into their own, it’s a very cost-competitive market now.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'They still want the premium,</strong> especially for a global product or a global brand, and there’s so much more competition right now.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'I think that’s where</strong> some of the foreign companies might’ve been caught out a little bit, because of the pace, speed, and the catch-up of local competitors, coupled with that increase of mass-market flavor to it'.</li></ul></td></tr></tbody></table></p></div></div><div id="article3" class="post-card"><div class="t2-block">3. When will China GDP &gt; U.S GDP?: '2030 is not a bad estimate - but so is never.'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr0303" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=http://www.aei.org/wp-content/uploads/2019/03/US-China-Who-Is-Bigger-and-When.pdf&amp;embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato',sans-serif;"><a href="http://www.aei.org/wp-content/uploads/2019/03/US-China-Who-Is-Bigger-and-When.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">open in a new window</a></p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">When will China pass the US in economic size?<br>'The year 2030' is not a bad estimate, but so is “never.”</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>We often hear</strong> predictions about when China's GDP will surpass the U.S.'s. But one I've hadn't heard was <strong>never</strong>.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Derek Scissors</strong> of the American Enterprise Institute (AEI) presents this possibility in his well-reasoned <a href="http://www.aei.org/wp-content/uploads/2019/03/US-China-Who-Is-Bigger-and-When.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">8-page report here</a>.</p><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'When will China</strong> pass the US in economic size?,' asks Derek Scissors.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'“The year 2030”</strong> is not a bad estimate, but so is <strong>“never.”'</strong></li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Claims that China’s economy</strong> is already the world’s largest may be exaggerated by up to 30 percent.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'They are also dubious</strong> because purchasing power parity often does not hold.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'National wealth</strong> is not well measured, either, but shows the American lead expanding.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The more popular belief</strong> that China is smaller than the US but will catch up soon is similarly unconvincing.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Chinese government statistics</strong> are unreliable, since Beijing publishes sanitized data and many transactions may be close to worthless.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'More important</strong>, projections of Chinese growth are sensitive to unjustified optimistic assumptions.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Debt and aging</strong> indicate true Chinese growth is lower than reported, and low growth now <strong>could put off Chinese catch-up indefinitely.'</strong></li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Perhaps, "never"</strong> shouldn't be so surprising.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘There’s a lot of</strong> wild guesses about the Chinese growth rate, the size of the Chinese GDP,' Michael Pillsbury of the Heritage Foundation told an audience at a recent Council on Foreign Relations event, 'An Inside Look at China' (you can <a href="https://www.cfr.org/event/inside-look-china-0" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">watch the event and read the transcript here</a>).</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘Michael Pettis and Gordon Chang</strong> - very different views ideologically - have estimated the Chinese GDP is half of what the World Bank says: six trillion dollars, not twelve trillion dollars.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘You’ve got people</strong> claiming that China’s growth rate for the last few years is only 1 or 2 percent.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>‘You’ve even</strong> got people claiming it’s even above what China claims.’</li></ul></td></tr></tbody></table></p></div></div><div class="section_title w-condition-invisible"><strong>II. POTENTIAL BACKLASH FROM THE U.S.<br></strong></div><div id="article4" class="post-card"><div class="t2-block">4. Xi and Trump Miss Their Chance</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><table class="nl_card" id="19apr0304" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://media-cdn.list.ly/production/690728/3393460/3393460-xi-and-trump-miss-their-chance-by-jeffrey-frankel_600px.png?ver=2923608018" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table><p class="caption" style="font-size: .8125em;line-height: 1.75em;margin: .625em 0;display: block;color: #848484;margin-top: .5em;margin-bottom: 1.2500em;font-family: 'Lato',sans-serif;">Capitol Hill in 1987</p><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">A successful US-Japan agreement on structural reforms three decades ago could potentially serve as a useful model for the current China-US trade negotiations.</p></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>Japan-bashing.</strong> I remember when, in the 1980-1990s, Japan was the target of successive U.S. presidents' ire: unfair trade practices, unfair industrial policies, unfair, unfair, unfair.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And, even a target</strong> for selling technology to the enemy, the reason why Republican brought out the sledgehammers to finish off a Toshiba boombox.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>I also remember reading</strong>, in 1979, Harvard professor Ezra Vogel's best-seller <em>Japan as Number One</em>, which portended Japan's surpassing the U.S. to become, well, number one.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>And, later in 1982</strong>, there was Michael Crichton's mystery <em>Rising Sun</em> premised on the idea that America was selling its future by permitting the Japanese to invest in Silicon Valley. I could go on.</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>China has replaced</strong> Japan as the economic threat to the U.S.</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>The similarities</strong> between the two situations are there, but I don't buy the the comparison - the underlying factors are just too different.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>As for trade issues</strong>, though, we can learn some lessons from the long battle with Japan about how to deal with China.</p></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>That's why</strong><a href="https://www.project-syndicate.org/commentary/us-china-trade-talks-missed-opportunity-by-jeffrey-frankel-2019-03" target="_blank" rel="nofollow noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Xi and Trump Miss Their Chance'</a> by Jeffrey Frankel of the Harvard Kennedy School of Government is worth a read. He writes:</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The structural-reform component</strong> of the current US-China negotiations recalls similar talks with Japan three decades ago, which were prompted by congressional anger at the large US trade deficit with that country. '</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In June 1990,</strong> under the Structural Impediments Initiative (SII), the Japanese government agreed to a detailed set of policy reforms requested by President George H.W. Bush’s administration.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The SII aimed</strong> to correct the bilateral trade deficit with more fundamental and effective measures than tariffs.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Japan, for example,</strong> agreed to tighten enforcement of its competition laws, loosen ties among its keiretsu (industrial groupings), make it easier for large retail chains to open stores, and reduce the bias toward using land for rice farming.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'The US, meanwhile,</strong> agreed to domestic reforms intended to increase its household saving rate, reduce the tax bias toward debt-financed home ownership, and strengthen investment in education and training.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'These reforms</strong> were designed to reduce the countries’ trade imbalances, especially by narrowing the gap in their national saving rates.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'But a noteworthy feature</strong> of SII was that both the US and Japan requested measures that would make the other’s economy more efficient.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'As it happened</strong>, the “Japan threat” began to melt away soon after the SII, but not because of US or Japanese trade policy.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Instead,</strong> Japan’s three-year financial bubble burst in 1990, and its economy has never quite recovered since.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Still, SII was a success</strong>, because it led to some modest steps toward mutually beneficial reforms and avoided destructive tariffs and quotas.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'In theory,</strong> it could serve as a useful model for the current China-US negotiations, if they were in similarly competent hands.'</li></ul><p style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Unfortunately,</strong> the two countries’ leaders may not have such a firm grasp on economic principles.'</p><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><strong>'Xi appears</strong> to care only about maintaining political control, while Trump seems to care only about himself.' Ouch.</li></ul></td></tr></tbody></table></p></div></div></div>