Wed, Apr 11, 2018 - Page 11 News List

Xi’s leftovers not so unpalatable

Bloomberg

US trade hawks would have been hoping to find some red meat in Chinese President Xi Jinping’s (習近平) speech at the Boao Forum yesterday.

Instead, they mostly got a plate of warmed-up leftovers.

All of Xi’s four major proposals — plans to open up financial services and automotive joint ventures, reduce restrictions on foreign investment, strengthen intellectual property protections and expand imports — were already in train well before US President Donald Trump started imposing trade tariffs.

The general conciliatory tone and some vague specifics suggest a demarche from the current level of tensions — but the devil will be in the detail.

The headline offer is a reduction of tariffs on imported vehicles, a move that appears to respond directly to an overnight Trump tweet: Still, that is unlikely to be a decisive boon for Detroit.

China imports just over 1 million cars into its auto market. Of that amount, most are German-branded luxury SUVs.

Nomura Holdings Inc analysts estimate General Motors Co, Fiat Chrysler Automobiles NV and Ford Motor Co exported about 50,000 to 60,000 cars from the US to China last year worth about US$2 billion, versus the more than 150,000 luxury SUVs that BMW AG and Daimler AG sent from their US factories.

It is simply cheaper to build cars in China than in North America, so the only major beneficiaries of lower import tariffs are likely to be makers of prestige vehicles whose volumes are not large enough to justify a local plant — think Toyota Motor Corp’s Lexus, Honda Motor Co’s Acura and Hyundai Motor Co’s new Genesis marque.

To operate in the world’s largest car market and reap the juicy margins that are not on offer elsewhere, automakers will have to dance to Beijing’s tune.

Already, firms are beginning to follow suit on policies dear to Xi’s heart, such as electric cars.

What of the proposed reduction of ownership caps on automotive manufacturing joint ventures?

Changes to that policy have been under consideration for almost five years and were enshrined in an economic planning document 12 months ago.

The same goes for Xi’s statement about opening up the financial services sector, which is largely in line with a policy announced in November last year.

Likewise for Xi’s pledge to reduce the number of industries where foreign investment is restricted.

These sorts of revisions have been carried out periodically ever since Beijing established its current foreign investment regime in 1995, and tend to be tweaked as soon as domestic companies reach the scale and sophistication to effectively compete with overseas rivals.

The third plank, consisting of proposals to strengthen intellectual property rules, could have been cribbed from a speech Xi gave in July last year to a financial conference, while the fourth (a drive to reduce China’s current-account surplus by increasing imports), is another long-established project.

China’s transformation from an industrial to a consumer economy, with a concomitant increase in purchases of foreign goods, is close to the core of the long-term vision of a “moderately prosperous society” laid out in Xi’s speech at a Chinese Communist Party National Congress last year.

The import expo that — along with tariff reduction on cars and unspecified other goods — formed the center of that plank yesterday was first announced in May last year.

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