Chinese President Xi Jinping has a long road ahead of him if his goal is to reduce his nation’s goods trade surplus by buying more from abroad.
Set to address the China International Import Expo in Shanghai on Nov. 5, Xi is putting his personal stamp on an event geared to demonstrate China’s willingness to open its economy. China is under pressure from Donald Trump and elsewhere to wind back its $423 billion goods trade surplus, and Xi has already pledged that China will import $24 trillion dollars of goods from abroad over the next decade and a half.
Some 3,000 companies from over 100 countries are due to exhibit at the fair, to connect with buyers from the world’s biggest market by population, and 18 heads of state or government are slated to attend. That the event is happening at a time when China is facing higher tariffs on all of its goods sent to the U.S. increases its importance, as the global economy is facing an escalating growth-sapping trade war with little resolution in sight.
Encouraging households and companies to buy more from abroad seems to be an obvious way to address the massive surplus. Under the hood though, Xi’s number represents little shift from what’s already happening, and the deeper patterns of the world’s second-largest economy will be hard to shift in the years ahead, even with a big official target to aim for.
“Trade is mostly market driven and the state’s role is limited -- what China imports is driven largely by the demands of households and firms and not by officials,” said Yukon Huang, a senior associate at the Carnegie Endowment for International Peace’s Asia program in Washington. “Thus when the U.S. demands that China reduces the bilateral trade deficit by some amount, it makes the mistake that Beijing’s bureaucrats can do this with a stroke-of-the-pen decree.”
Compared with 2017’s Belt and Road Initiative summit -- another pet project of Xi -- the import fair has a less glamorous list of attending state leaders. But interest from the business community is keen.
While no senior U.S. officials are due to attend the opening ceremony, 180 U.S. companies including big names such as Alphabet Inc.’s Google, Boeing Co., Caterpillar Inc., Facebook Inc., General Motors Co., Honeywell International Inc., Microsoft Corp., Tesla Inc. and Qualcomm Inc. will show up.
Even though consumption has slowed this year, rising affluence, especially in smaller cities, could stoke consumer demand for medium- to high-end imported goods, and the import fair is an opportunity for Chinese consumers to get in touch with those products, according to Robin Xing, chief China economist at Morgan Stanley in Hong Kong.
But apart from products where foreign companies have obvious comparative advantage, such as Australian beef, Chilean cherries, or integrated circuits, many industries will have to face fierce competition from increasingly sophisticated domestic rivals. Global smartphone makers, for example, are challenged by Chinese companies led by Huawei Technologies Co.
All that might partly explain why, political rhetoric aside, Chinese leaders are rational when giving out numbers. Xi’s big headline number, when spread over 15 years, implies an annual average less than last year’s total.
Imports in the world’s biggest trading nation are still largely geared to its export machine. About half of China’s imports last year came from electronics and machinery. As foreign value-added content in China’s gross exports average about 40 percent, according to BNP Paribas Asset Management, it’s clear that a lot of what gets brought into China goes back out again as part of a finished product.
That means there is a strong correlation between China’s exports and imports. When exports are doing poorly, imports taper in most cases. If the trade war significantly dents China’s exports, the nation’s imports from the rest of the supply chain will very likely suffer collateral damage.
China has a huge deficit in services trade, significantly driven by outbound tourism. But in terms of goods, the Asian nation still sits on an enormous surplus, and the U.S. is one of the biggest contributors.
President Donald Trump made that lopsided trade relationship with China a key bugbear of his early period in office, but his tariff approach hasn’t helped narrow that gap -- instead it is growing to a new record as stimulus in the U.S. drives demand for imports.
The deeper issues at the heart of the U.S. trade conflict -- intellectual property, China’s industrial dominance strategy, and the overall political rivalry between the two, aren’t something that can be addressed in an exhibition center in Shanghai.
“This forum seems to highlight the clashing trends created by China -- on the one hand, it underscores the magnetic allure of China’s massive market, as European, Canadian and Asian countries all vie to showcase their wares,” said Claire Reade, a former USTR representative in China. “But it also offers a glimpse of the darkening political clouds created by China’s industrial policies and the US-China trade conflict.”
Don Kaufman delivers what readers are calling 'HIS BEST YET!' In this exclusive Guide, Don will give you ALL the secrets he's taught millions of other traders to help guide them along in their successful options trading journey...
Now, this is NOT for those who only want to make a HALF attempt...nope...this is ONLY for those serious about becoming a better trained, more profitable, and long term options trader!
If that's YOU...Download Your Copy below: