New Study Suggests Trump’s Got A Good Reason To Go After China On Trade

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Ryan Pickrell China/Asia Pacific Reporter
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The U.S. Chamber of Commerce criticized a Chinese development plan Thursday, calling it an attempt to give Chinese businesses an unfair advantage over foreign companies.

The “Made in China 2025” initiative, a ten-year state plan allegedly designed to boost innovation in ten emerging industrial sectors, was launched two years ago. The Chinese government is investing billions of dollars in Chinese companies raising eyebrows overseas.

China has sought to assure foreign companies that its plans will not discriminate against foreign companies; however, institutions and organizations tracking the initiative conclude that China is doing exactly that.

The U.S. Chamber of Commerce argues that Chinese industries affiliated with the ongoing initiative will likely receive hundreds of billions of dollars “in government support over the coming years that could substantially distort domestic and global markets.” The new report added that “such support may be used not only to invest in local innovation, but also to fund foreign technology acquisitions.”

Around 800 state-guided funds worth over $300 billion have already been set up, according to Chinese media outlets, to support initiative industries.

The business advocacy group, which represents more than three million businesses, asserts that China’s Made in China 2025 initiative “illustrates the state’s intent to leverage China’s legal and regulatory systems to favor domestic Chinese companies over foreign ones in targeted sectors.”

Noting the rise in demand for new energy vehicles at the time of the program’s launch, a number of foreign companies opened battery factories in China. The following year, the Chinese government released a list of companies allowed to supply batteries for domestic consumers; not a single foreign company made the list.

Chinese plans require that Chinese companies maintain self-sufficiency by maintaining control of at least 80 percent of domestic markets in certain sectors of the economy, but China’s ambitions may not be limited to China alone.

The Made in China 2025 initiative “aims to leverage the power of the state to alter competitive dynamics in global markets in industries core to economic competitiveness,” the report claims, adding that China is not cultivating national champions, but using state funding to develop global commercial champions.

Government interference in industries has been proven, in certain circumstances, to cause overcapacity and the artificial reduction of prices in global markets, jobs losses abroad and damage to global industries.

U.S. Chamber of Commerce criticisms come at an important moment for U.S.-China bilateral relations.

Secretary of State Rex Tillerson is on a tour of Asia that will take him to Japan, South Korea and China. In addition to security issues, such as North Korea, trade may also factor into their discussions, which are seen as a precursor to the upcoming meeting between President Donald Trump and Chinese President Xi Jinping in April.

Trump has promised to take a tough stance on China, particularly on trade, where he sees Beijing taking advantage of the U.S. through questionable trade and business practices. His rhetoric has softened since he took office.

While the U.S. Chamber of Commerce is critical of the Made in China 2025 initative, the business advocacy group expressed a desire for positive bilateral ties.

“The U.S. and China share a highly interdependent, yet complex relationship that is critically important to both nations and the world,” Thursday’s report explained. “Our economic and commercial ties have long been a ballast of our relations.”

Programs like the Chinese Made in China 2025 initiative “and their implementation are putting the two economies on a path of separation rather than integration in critical commercial areas … At a time of great uncertainty in bilateral relations, it is important for the United States and China to increase positive-sum economic integration,” the U.S. Chamber of Commerce said in the report on China’s plans.

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