LDN - Business

As Trump amps up trade war, China plays nice with foreign investors

[July 12, 2018] By Michael Martina

BEIJING (Reuters) - Long accused of protectionist tactics that make it a difficult place for foreign firms to operate, China is trying to reverse that narrative amid an escalating trade war with the United States, green-lighting huge investments and portraying itself as a champion of openness.

But critics argue that despite its attempt to claim the moral high ground as U.S. President Donald Trump threatens to apply more tariffs on Chinese imports, Beijing's recent moves to make it easier for foreign businesses to set up operations also effectively acknowledges that it has had discriminatory market barriers.

This week, China agreed to a $10 billion petrochemicals project by Germany's BASF <BASFn.DE> that will be the first such plant in China that is wholly foreign-owned, not a joint venture.

It also approved a huge new wholly-owned Shanghai factory for U.S. electric car maker Tesla Inc <TSLA.O>, and a $2.3 billion joint venture organic light-emitting diode (OLED) plant to be built by South Korea's LG Display Co Ltd <034220.KS>.

Responding to the Trump administration's latest plan to slap 10 percent tariffs on an extra $200 billion worth of Chinese imports, Assistant Commerce Minister Li Chenggang said on Wednesday that China would not close itself to U.S. business.

"I want to stress that the Chinese government's attitude to support business cooperation between the two countries will not change, its determination to push forward reforms and improve the business environment will not change, and its stance of opposing unilateralism and supporting multilateralism will not change," Li said at a business forum in Beijing on Wednesday.

“They go low, we go high," he said, in an apparent jab at Trump as he borrowed a phrase used by former U.S. First Lady Michelle Obama in the 2016 U.S. election campaign.

The recent investment announcements came as Premier Li Keqiang this week visited Germany. The two countries signed commercial accords worth 20 billion euros ($23.5 billion), including the BASF agreement.

Chinese state media framed such cooperation in the context of the increasingly bitter trade dispute with Washington.

"The trade war should push China and the EU to cherish mutual cooperation, because this increasingly scarce cooperation is becoming more valuable," China's nationalist tabloid, the Global Times, said in an editorial on Wednesday.

'PROMISE FATIGUE'

As the threats in the trade dispute have increased, so too have signals from Beijing that it means to follow through on reforms. Chinese officials insist there is no link, and that it will open up at its own pace. Rising costs are also frustrating to foreign manufacturers in China.

In recent weeks, China has issued a shorter list of areas closed to foreign investment, and committed to easing or eliminating foreign equity caps in sectors that include banking, insurance, securities, the auto industry, as well as in shipbuilding and aerospace.

But the string of announcements come at a time when there has been slowing foreign investment into China and more vociferous complaints about Beijing's market barriers and the difficulty of doing business in the world's second-largest economy.

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German Chancellor Angela Merkel and Chinese Premier Li Keqiang arrive to the German-Chinese Forum for economic cooperation in Berlin, Germany July 9, 2018. REUTERS/Fabrizio Bensch/File Photo

And Beijing is still holding up at least one major takeover involving foreign companies - U.S. chipmaker Qualcomm Inc's <QCOM.O> deal to buy Netherlands-based NXP Semiconductors NV <NXPL.O>. That has been waiting approval from China's antitrust regulator for months, leading to speculation among investors that the deal is being held hostage to the trade dispute with Washington.

Years of lackluster follow-through by China on its reform pledges has left what many in the foreign business community call "promise fatigue".

Business leaders have been warning that if China didn't take real measures to address a lack of reciprocal market openness, it would sow retaliatory sentiment among its largest trading partners. And trade hardliners, particularly in the United States, had argued that Beijing would not make good on its pledges until other countries began imposing costs upon Beijing.

European Union Chamber of Commerce in China President Mats Harborn on Tuesday called Trump's tariffs the "sledgehammer approach", but said the root cause of what China has termed the "largest-scale trade war" in economic history began in China.

"The reason we are where we are is because the Chinese leadership did not proceed as quickly as we wanted as a trade community," Harborn told a news briefing.

Some in the U.S. business community, while rueing the damage caused by Trump's tariffs, privately say Beijing's recent emphasis on accelerating reforms may not be a coincidence.

"Tariffs are biting. The Chinese are less confident internally than externally. They have never been tested this way," a U.S. industry source told Reuters, asking to not be named given the sensitivity of the matter.

Beijing has begun downplaying Made in China 2025, the state-backed industrial policy that has provoked alarm in the West and is core to Washington's complaints about the country's unfair trade practices.

Propaganda authorities have also issued unusually strict rules limiting local media coverage of the trade war because of worries that unrestrained reporting could set off panic and roil its already jittery financial markets, sources within Chinese state media have said.

And European officials have said Beijing is trying to woo the EU with market access in return for standing with China against Trump's trade measures, though the Europeans, who share U.S. criticism of China but disapprove of Trump's tariffs, have largely refrained from taking sides.

"By committing themselves to further openness. I think China hopes it can minimize the departure out of China of multinational firms," said Louis Kuijs, Hong Kong-based head of Asia Economics at Oxford Economics.

(Reporting by Michael Martina; Additional reporting by Elias Glenn and Stella Qiu; Editing by Tony Munroe and Martin Howell)

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