[Beijing has long helped its homegrown industries in strategically important areas like jetliners and parts for nuclear reactors. It also supports efforts to build up China’s high-tech industries like microchips and self-driving cars to make sure the economy will stay competitive.]
By
Keith Bradsher and Ana Swanson
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Beijing’s subsidies to China’s
homegrown industries have become a sticking
point in trade negotiations with the
United States. Credit Reuters
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BEIJING
— One year ago, when he
began a multibillion-dollar trade war with China that shook the global economy,
President Trump demanded that Beijing end lavish government spending aimed at
making the country a world power in computer chips, robotics, commercial
aircraft and other industries of the future.
Today, as the two sides struggle to reach a
truce, the Trump administration is finding just how difficult that will be.
Trade talks between the United States and China
nearly ground to a halt this past week, and a seemingly intractable dispute
over subsidies is a big part of it. Robert E. Lighthizer, the United States
trade representative, accused China last Monday of reneging on what he
described as “good, firm commitments on eliminating market-distorting
subsidies.” Vice Premier Liu He, the leader of China’s negotiating team, said
that it was normal for negotiations to have ups and downs, but has also nodded
to the subsidies issue in vowing repeatedly over the last several days not to
bend on China’s principles.
President Trump on Friday raised tariffs on
$200 billion a year worth of Chinese goods, hitting goods leaving China’s
shores as of that day. He has directed Mr. Lighthizer to start on Monday the
long process for raising tariffs on all Chinese goods.
In talks and in an exchange of documents,
Chinese negotiators surprised their American counterparts by calling at the
start of this month for numerous changes, people familiar with the negotiations
said. While the requests covered everything from intellectual property to
currency manipulation, the hardened Chinese stance against limiting government
subsidies poses a particular challenge.
The United States wants China to enshrine
limits on subsidies in its national laws. China says it will not let a foreign
country tell it how to change its laws. A schedule of planned legislation
released by Chinese officials on Saturday did not include any of the
subsidy-related measures that Washington has sought.
Beijing has long helped its homegrown
industries in strategically important areas like jetliners and parts for
nuclear reactors. It also supports efforts to build up China’s high-tech
industries like microchips and self-driving cars to make sure the economy will
stay competitive.
Stopping, or even tracking, China’s subsidies
is a difficult task. Many subsidies take the form of cheap loans from
government-controlled banks or through other opaque arrangements. Foreign
companies also complain that they are often shut out of local government
contracts through written and unwritten rules, giving Chinese competitors a
strong base at home while they pursue global expansion plans.
China has agreed to disclose more information
about its subsidies and stop those that violate rules under the World Trade
Organization, the global trade referee. But the two sides are also at
loggerheads over how to interpret those W.T.O. rules, said people familiar with
the talks, who asked for anonymity because they were not authorized to speak
publicly.
In his news briefing last Monday, Mr.
Lighthizer said China’s trade negotiators had made significant, enforceable
commitments to the United States, but added that “some people” in China had
objected to them, without saying who. China’s trade negotiators are heavily drawn
from the ranks of the country’s market-oriented economic reformers and have
long been at odds with officials who want greater reliance on heavily
subsidized state-owned enterprises.
The Trump administration insists on leaving
in place tariffs on imports from heavily subsidized Chinese industries, at
least for this year. That would protect the American market in industries that
trade hawks within the administration see as strategically crucial.
Chinese officials oppose those tariffs. Mr.
Liu told Chinese state-controlled media on Saturday that the Chinese government
“believes that tariffs are the starting point for trade disputes between the
two sides — if an agreement is to be reached, the tariffs must all be
canceled.”
Chad Bown, a senior fellow at the Peterson
Institute for International Economics, said that tariffs imposed bilaterally
were a poor tool to address a global problem like overcapacity. Even if the
United States successfully kept part of the tariffs in place, they would
protect only American business at home. Subsidized Chinese business could still
compete at home, in Europe and almost everywhere else around the globe, hurting
prospects for American exporters.
In the United States, Democrats have been
increasingly critical of the Trump administration for not obtaining more trade
policy concessions. Yet even some Democrats said they saw limited prospects
that China will agree to reduce subsidies.
“To expect the end of essentially a planned
or a centralized economy would be awfully ambitious,” Senator Chris Coons,
Democrat of Delaware, said in a recent interview in Beijing.
“To be fair the Obama administration got
nowhere, the Bush administration got nowhere,” Derek Scissors, a resident
scholar at the American Enterprise Institute, said about convincing China to
roll back its subsidies. “This is a crucial way the Chinese run their economy.”
If a trade deal does not fully cover
subsidies, the United States could resort to unconventional responses. For
example, the United States has pushed for an extensive revision of its laws
surrounding foreign investments and exports of high-tech products, primarily
aimed at China, to try to preserve its commercial and military edge.
The Trump administration has made some progress
in the emerging trade deal on other ways the Chinese government props up its
industries. Beijing has promised to tell its state-controlled banks to show
less favoritism in lending to state-owned enterprises instead of private sector
businesses. Beijing has also pledged to open up the bidding for government
contracts to foreign companies, instead of reserving them almost completely for
Chinese companies.
If China opens up the bidding, “that would
actually, genuinely move the market needle on opportunities for foreign
companies in China,” said Scott Kennedy, a China economic policy specialist at
the Center for Strategic and International Studies.
On the issue of subsidies, China has grown
more quiet. Its “Made in China 2025” plan two years ago called for $300 billion
in special financing and other assistance for 10 advanced manufacturing
industries. China shelved the catchy name for the program in recent months,
while expressing determination to continue investing in “high-quality
manufacturing.”
China is willing to publicly list and
disclose subsidies from its central government, people familiar with the trade
talks said. But instead of disclosing these subsidies to the United States,
which might be seen by the Chinese public as humiliating, the Chinese
government wants to disclose them through the W.T.O., which would then pass on
the list to its members.
W.T.O. rules ban governments from helping
exporting companies with cash, free land and other easily measured gifts. The
rules are somewhat looser on measures like cheap loans from state-controlled
banks or efforts to replace imports by fostering domestic production of the
same goods.
Beijing has told American negotiators that it
will end subsidies if they are breaking W.T.O. rules. But the Chinese national
government’s assistance to industries tends to fall into the categories that
are hardest to prove as violating W.T.O. rules.
In China, the subsidies more likely to break
W.T.O. rules tend to be given to exporters by provincial and local government
agencies in China. In the trade talks with the United States, Beijing has
agreed to look for provincial and local subsidies that may violate W.T.O.
rules, but has been resistant to passing legislation that would abolish them,
people familiar with the talks said.
At least a few market-oriented Chinese
government officials have worried that broad subsidies might be squandered by
companies more interested in taking the government’s money than in creating
competitive products. But these critics appear to be a shrinking minority.
Lou Jiwei, a prominent advocate of economic
reform and the chairman of China’s social security fund, told The South China
Morning Post in early March that the Made in China 2025 plan “wasted taxpayers’
money.”
Mentions of Mr. Lou immediately disappeared
from state-controlled media. There followed a cursory statement by the official
Xinhua news agency on April 4 that he had been removed from his post at the
social security fund. No reason was given.
Follow Keith Bradsher on Twitter:
@KeithBradsher. Follow Ana Swanson: @AnaSwanson.
Keith Bradsher reported from Beijing, and Ana
Swanson from Washington. Chris Buckley contributed reporting from Beijing, and
Luz Ding contributed research.
