[Beijing has already had to shift course once, edging away from threats to match American tariffs dollar for dollar. Confronting the possibility that the tariffs may remain for months or years and that Chinese access to the American market could tighten further, Mr. Xi does not appear to have settled on a strategy for limiting the damage or for persuading Mr. Trump to negotiate a deal.]
By Keith Bradsher and Steven
Lee Myers
 |
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President Xi Jinping of
China in Hong Kong last year. China’s leaders have argued
that they can outlast
President Trump in a trade stand off. Credit Dale
De La Rey/Agence
France-Presse — Getty Images
|
BEIJING
— China’s leaders have
sought to project confidence in the face of President Trump’s tariffs and trade
threats. But as it becomes clear that a protracted trade war with the United
States may be unavoidable, there are growing signs of unease inside the
Communist political establishment.
In recent days, officials from the Commerce
Ministry, the police and other agencies have summoned exporters to ask about
plans to lay off workers or shift supply chains to other countries.
With stocks slumping into bear territory and
the currency dropping 9 percent against the dollar since mid-April, censors
have been deleting a torrent of criticism online, some of it directed at
President Xi Jinping’s leadership.
State news outlets, by contrast, have sought
to promote the official line, with the authorities restricting the use of the
phrase “trade war.”
Still, policy disputes over how to bolster
the economy have at times spilled into the open, with the state media sometimes
coming under attack for boasting about China’s economic strengths.
If the trade war escalates — and Mr. Trump
has shown no sign of backing down — some worry that the public’s faith in the
economy could be shaken, exposing the nation to much more serious problems than
a drop in exports. New economic data on Tuesday showed slower growth in
investment and consumer spending, and there are fears that the financial crisis
in Turkey could spread.
China’s leaders have argued that they can
outlast Mr. Trump in a trade standoff. Their authoritarian system can stifle
dissent and quickly redirect resources, and they expect Washington to be
gridlocked and come under pressure from voters feeling the pain of trade
disruptions.
But the Communist Party is vulnerable in its
own way. It needs growth to justify its monopoly on power and is obsessed with
preventing social instability. Mr. Xi’s strongman grip may be hindering
effective policymaking, as officials fail to pass on bad news, defer decisions
to him and rigidly carry out his orders, for better or worse.
Beijing has already had to shift course once,
edging away from threats to match American tariffs dollar for dollar.
Confronting the possibility that the tariffs may remain for months or years and
that Chinese access to the American market could tighten further, Mr. Xi does
not appear to have settled on a strategy for limiting the damage or for
persuading Mr. Trump to negotiate a deal.
Some inside the government have argued China
should be more aggressive and put Mr. Trump on the defensive, while others have
proposed concessions to address American complaints, said Chen Dingding, a
professor of international relations at Jinan University in the southern city
of Guangzhou.
He said the debate was “a healthy
development” because it would “inform the public and make policymakers better.”
Others said it reflects indecision or
political weakness on the part of Mr. Xi, who seemed unassailable in March when
the Communist leadership abolished the presidential term limit.
“All of this coming together suggests Xi’s
grip on authority has been loosened,” said Willy Wo-lap Lam, a longtime
observer of Chinese politics at the Chinese University of Hong Kong. “He’s
unable to fill his function as the final arbiter who settles differences among
his closest advisers.”
It is unlikely Mr. Xi’s position is in any
jeopardy. But the trade dispute, along with a scandal over tainted vaccines and
protests over failed investments, have already emboldened some critics of his
sweeping centralization of power.
“The recent Sino-American trade war has, in
particular, revealed underlying weaknesses and the soft underbelly of the
system,” wrote Xu Zhangrun, a law professor at Tsinghua University in Beijing,
in a denunciation of Mr. Xi’s hard-line policies that was shared widely despite
censorship. “All of this has only served to exacerbate a widespread sense of
insecurity in society at large.”
In public, the leadership has argued that
China can weather the trade war with ease. A widely circulated study by
economists at Tsinghua University estimated that the tariffs imposed so far and
those threatened would trim only 0.3 percentage points from China’s growth
rate, which has been running at a robust 6.7 percent.
Even so, the government last month requested
that dozens of research institutes and universities each submit analyses on how
different regions and industrial sectors would be affected if the trade war
worsened and what the impact would be on unemployment and the financial
markets.
China sold roughly $500 billion worth of
goods to the United States last year, accounting for nearly a quarter of its
total exports and about 4 percent of national economic production.
If the United States imposes tariffs on all
Chinese goods, even pessimistic Chinese economists contend the country might
suffer only a 1 percent drop of output from lost exports. China so dominates
some industries, such as smartphone manufacturing, that tariffs may not do much
damage. In other industries, China might lose business to rivals like South
Korea but find opportunities to export its goods to other markets.
While factories that make price-sensitive
electronics and other electrical products are already beginning to lose orders,
China is so competitive across so many sectors that exports to the United
States are actually still rising despite the relatively limited tariffs that
have taken effect.
The worst case for China, however, is that
the trade war undermines economic confidence. The nation’s housing market
teeters on a mountain of debt, and low-interest loans from state banks have built
overcapacity in many industries. The worry is that prolonged trade tensions
could cause money to rush out of China despite currency controls and prompt
much bigger financial and economic troubles.
Censors have quashed discussion of such
scenarios. There also has been almost no news coverage of the substance of
American complaints about China’s trade practices. Instead, the state news
media have been ordered to stop mentioning Made in China 2025, the industrial
plan to transform the country into a high-tech superpower that Washington has
criticized as unfair and predatory.
To the extent there has been finger-pointing
in the establishment, the focus appears to be less on China’s trade practices
than on its propaganda message. Some analysts have argued that the trade war
could have been avoided if Beijing had refrained from triumphalist rhetoric
about China’s rise as a global power. That rhetoric is closely associated with
Mr. Xi himself.
“There’s a lot of second-guessing about
whether the great leader played his cards right,” said Jerome Cohen, faculty
director of the United States-Asia Law Institute at New York University.
A group of alumni from Tsinghua, one of
China’s most prestigious universities, recently circulated a petition calling
for the dismissal of a well-known economist on the faculty who is an ardent
defender of Mr. Xi’s policies. They accused the scholar, Hu Angang, of
misleading the leadership by arguing last year that China had already surpassed
the United States as an economic and technological power.
The petition appeared weeks after a series of
articles in the official People’s Daily newspaper mocked scholars and pundits
making similar boasts about China’s strength.
“A slowing economy and friction with the
United States provides an opportunity for people to push back,” said Trey
McArver, a partner with Trivium China, a research consultancy in Beijing and
London.
As the trade dispute festers, Chinese
business leaders have been circumspect, saying almost nothing about it publicly
for fear of angering Beijing. It is clear, though, that they and government
officials were caught off guard.
“Outside of government negotiators, few
people took this possibility very seriously until July 6,” said Yu Yongding, a
prominent economist at the Chinese Academy of Social Sciences, referring to the
date when tariffs on $34 billion of Chinese goods took effect.
Scott Kennedy, a scholar at the Center for
Strategic and International Studies in Washington, said the assumption that
Beijing could avoid a trade war “suffused every conversation” he had with
officials earlier this year.
“They were wrong, and they are smarting over
that, trying to find north and recalibrate,” he said.
Tensions inside the government flared into
the open last month when Xu Zhong, the research director of China’s central
bank, published an essay rebuffing calls to bolster the economy by issuing more
money. He castigated the Finance Ministry instead for a “dearth of effective
fiscal policies,” referring to extra government spending and tax cuts.
Soon afterward, the cabinet ordered more
infrastructure spending to shore up growth. In the past week, the central bank
has also pumped tens of billions of dollars into the economy and driven
short-term interest rates down sharply.
Presented with a choice of fiscal or monetary
stimulus, the leadership in effect avoided making a decision by choosing both,
despite the risk of exacerbating the nation’s budget deficit and chronic debt
problems.
Mr. Xi is presumably at the center of such
decision-making. He has surrounded himself with officials who built their
careers in part on their ability to deal with the United States and who might
be damaged politically if the trade war goes badly for China.
They include Wang Huning, the party’s chief
ideologue, who helped craft the propaganda message trumpeting China’s rise that
is now being criticized in China for alarming the West; Vice President Wang
Qishan, Mr. Xi’s most powerful lieutenant, who appears to have distanced
himself from trade policy in recent months; and Liu He, the Harvard-trained
vice premier handling the stalled negotiations with the United States.
The leadership can still divert criticism by
blaming the United States. So far, it has not ratcheted up anti-American propaganda
beyond the usual volume nor encouraged protests or boycotts of the sort
directed at Japan in the past.
Asked on a recent afternoon about the trade
tensions, a worker making digital control panels at a factory in the southern
city of Zhongshan paused before she replied. “If we are going to fight a trade
war,” she said, “even if my job may be affected, I will still support our
country.”
