How Xi Jinping is playing the 'Trump' card in China

Wheather US President Donald Trump is winning or North Korea's Supreme Leader, Kim Jong-un, is a matter of debate because the final deal has yet to be clinched. But one thing is sure, Donald’s way of doing things has got him much more of a payoff than his predecessors have managed.

So, the obvious follow-up question is: Are the Trump tactics working successfully on China as well? Has his strategy of hitting China with a massive dose of tariffs succeeded in bringing Beijing to heel?

Beijing now faces tariffs on $150 billion worth of products, though it has announced counter-duties, there are limits to what it can do for the simple reason that it imports far less from the US than it exports. US exports to China are just $130 billion while the US imports $506 billion worth of goods.

China needs US?

The answer there is more complicated. Many wonder whether China is playing the Americans, as it has done for the past four decades. But there are compelling reasons for China to meet the American demands of opening up its economy and these are actually overwhelmingly domestic.

China’s financial sector is in a bad shape. Earlier this year in January, the head of the China Banking Regulatory Commission Guo Shuqing pointed out that banking assets comprised 80 per cent of China’s total financial assets and so there was need to lower their risk.

In the past year, the regulators had focused on interbank business, wealth management products and off-balance sheet activity. To stave off the risks, the government has been taking stringent measures to regulate banking, securities and insurance industries, levying heavy fines on those charged with wrong-doing.

Guo, who is now the head of a combined Banking and Insurance Regulatory Commission, as well as the Secretary of the Communist Party within the People’s Bank of China, warned of the dangers, both obvious and hidden, in the coming period.

One of the big priorities of President Xi Jinping's government is the need to clean up the financial sector and ensure that it will not implode, taking the Chinese economy along with it.

But financial risks are just one aspect of the situation, China’s economy is also slowing down over the years, resulting in rising fiscal deficits and lower employment in the manufacturing industries. In 2017, China’s fiscal deficit — the difference between government revenue and expenditure — reached some $478 billion.

Jobs on a decline

Further, there has been a withdrawal of foreign investments, fed up with the manner in which the playing field is tilted against them in the country. Employment has been generally declining in the manufacturing sector, but the decline has been most marked in foreign investment industries.

In the recent period, China’s exports have been declining and it is actually becoming more dependent on exporting to the US. The bulk of its foreign trade surplus comes from the US and in the past decade, the US accounted for over 50 per cent of its exports.

Xi promised action

So, speaking at the Boao Forum earlier this month, Xi declared that China will not only ensure that its door will not close “but will only open wider.” He has promised action this year itself to open the financial sector, something that was hinted at last October around the time of Trump’s visit to China.

He has promised reform in the automotive sector which is the cause of considerable heartburn among foreign auto-makers. China will also boost its imports all around this year itself.

Following the Boao Forum, China announced that the entire island of Hainan, roughly the size of Kerala, would become a free trade zone and welcomed foreign multinationals to establish their regional and global headquarters there.

Aware of that some of these economic challenges could emerge as dangerous risks, Xi has been pushing for economic reforms. In 2013, the 3rd Plenum of the Communist Party had called for markets playing the decisive role in the country’s economy. Plans were made to set up free trade zones and provide greater market access to trade partners.

However, Xi faced headwinds that prevented the reforms from being followed through, corrupt officials and vested interests blocked change.

This was a major reason that he pushed through measures that provided him the option of having a third term as the president of the country last year. Four years down the line, it's clear now that Xi has consolidated his authority and China is now set to move on his reform agenda.

Ironically, in this, the American pressure actually comes to his aid as he can now rally the country to take measures to deal with the so-called American threats.

(Courtesy of Mail Today)

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