Liu He, the top economic advisor to Chinese President Xi Jinping, at the World Economic Forum in Davos, Switzerland. Jan. 24, 2018. (Gian Ehrenzeller/European Pressphoto Agency)
Gordon G. Chang is the author of “The Coming Collapse of China.”
China’s trade delegation is in Washington this week, and for the last few days, Beijing has been telegraphing its negotiating position. In advance of these crucial talks, according to Chinese trade observers, China’s vice premier and top economic aide, Liu He, will offer market-opening moves and agree to step up purchases of American goods.
The leader of China’s negotiating team apparently has two bottom lines, however. First, Liu reportedly will not make a deal unless Washington agrees to lift its seven-year ban on the transfers of products and technology to ZTE Corp., the embattled Chinese telecom giant.
Second, and perhaps more important, Liu reportedly will not make any concessions on his country’s industrial policies, especially the “Made in China 2025” initiative. CM2025, as it is known in China, seeks to make China nearly self-sufficient in just a decade across 10 crucial industries, including aircraft, robotics, electric cars and computer chips.
Why is CM2025 non-negotiable? Because it is at the heart of Chinese President Xi Jinping’s industrial policy. And his industrial policy is at the heart of his plan to make China the world’s technological leader and to establish China as the world’s dominant economy. The willful Chinese ruler is letting nothing, including trade obligations, get in his way.
The breathtaking initiative looks like history’s biggest assault on the World Trade Organization. To achieve its ambitions, Beijing has rolled out large, low-interest loans from state investment funds and development banks, aid for the purchase of foreign tech companies, and research subsidies galore, some of which appear to be clear violations of WTO policies.
Worse, Beijing has also set out specific goals for market shares by industry, and the plan aims for near self-sufficiency in components by 2020 and in materials by 2025. These goals, on their face, have made China a WTO outlaw.
Beijing’s requirement that foreign companies hand over technology for market access contradicts WTO obligations. There are also government-procurement rules that look like breaches, as they favor the acquisition of Chinese-made tech, as well as market barriers subject to other challenges. Moreover, Beijing has, even before the formal beginning of CM2025, employed theft, much of it by cyber means.