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Will Shanghai Import Expo be the watershed for Sino-US trade war?

Chinese leaders are expected to release good-will gestures of further opening-up measures at the fair in the wake of the upcoming US midterm election. If the Republicans lose the House, it would deal a telling blow to Mr. Trump’s presidency. China’s leaders might as well wait and see the outcome of midterm election and decide what their next step will be taken.

President Xi Jinping delivers a keynote speech at the opening ceremony of the China International Import Expo in Shanghai on Monday. Photo: China Daily

According to the organizers of the China International Import Expo (CIIE), some 2,800 companies from all the G20 member states, as well as 50 countries and territories in the Belt and Road Initiative, would take part in the fair. About 160,000 buyers from more than 80,000 Chinese and foreign companies have also signed up for the event. In addition, 81 countries and three international organizations have confirmed they will take part in their national pavilions.

Though many countries are sending official delegations and staging national pavilions, closer scrutiny, however, suggests that the gathering won’t have the government's endorsement of China’s major trading partners, as senior officials from the United States and other G7 nations, as well as South Korea and Australia, are expected to absent themselves from the event.

Anyway, according to the Standard Chartered Bank, G7 nations have underperformed in their exports potential to the world’s major emerging economies. The G7 nations – the US, UK, Germany, Canada, Japan, Italy and France – can increase exports by 30 per cent or some US$162 billion a year if they fully exploit their potential with the Emerging 7 – China, Bangladesh, India, Indonesia, Nigeria, Pakistan and Vietnam, the bank said.

While no senior U.S. and other G7 officials are in sight at the opening ceremony, 180 or so U.S. and G7 companies including big names such as Alphabet Inc.’s Google, Boeing Co., Sumsung, Caterpillar Inc., Facebook Inc., General Motors Co., Honeywell International Inc., Microsoft Corp., Tesla Inc. and Qualcomm Inc. will show up.

Why is it important?

Originally, the idea of hosting the event was first proposed by President Xi during a forum on Belt and Road Initiative, with an intention to boost cooperation along the routes. The Belt and Road Initiative is not only a program aiming to export Chinese production glut to developing countries as China has long ached for the natural resources and raw material boasted by Belt and Road nations. So, it's not accurate to claim the fair is only designed as an answer to the Sino-US trade war which has only been escalated this year. 

However, with the trade war in full swing, the fair has been given a special tinge of making China's stance clear when it's growth model is under attack. In that sense, the CIIE, as the “first national expo in the world” dedicated to imports, affirms China’s determination to relay the message of its commitment to trade liberalization & economic globalization. Commerce Minister Zhong Shan said that the fair, dubbed as one of the year’s four key diplomatic occasions, was part of China’s answer to uphold globalization and free trade in an era when “the multilateral trading system is challenged, and protectionism is on the rise”.

The fair is a chance for Beijing to better balance its trade with other nations by boosting imports and making domestic consumption a new growth engine of the economy, shifting away from the old model that depends on exports and investments. Domestic consumption’s contribution to gross domestic product growth last year was 64.6 per cent, according to the National Bureau of Statistics.

What the government aspires to achieve depends on the country’s hundreds of millions of consumers. However, driven by high tariffs, a big chunk of Chinese consumption has shifted overseas. In the past decade, Chinese overseas consumption has grown by two digits annually. Every year, Chinese consumers spend as much as US$260 billion on everything from luxury items – bags and shoes – to basic necessities, but offshore. And Beijing hopes the import fair will help to keep this spending at home and make domestic consumption the mainstay of economic growth.

One-off import expo is more of a symbolic move as in the long run, it may fail to help China keep consumers from spending on overseas trips and help domestic consumption to grow, while lower custom barrier and reduced tariffs might do the trick. During the fair, there will be easier measures on customs clearance for products to be exhibited. Authorities can even extend such breakthroughs nationwide if they see such tests are effective after the fair ends.

The Chinese government has implemented substantial tariff reductions in order to cut retail prices and to reduce the price differential of overseas products that are in short supply domestically. Starting from 1st of December 2017, China has reduced tariffs on 187 consumer goods, including cosmetics, apparel, health supplements, food, and pharmaceuticals. The average tax rate drops to 7.7% from 17.3%. Recently, China has slashed import tariffs on more broad-ranging consumer goods. Starting from 1st of July 2018, the average tariff rate on 1,449 imported products has been reduced to 6.9% from 15.7%.

What does it mean for Sino-US trade war?

In the context of the trade war, the status of the fair has been significantly elevated from its original purpose as a regional cooperative event to link Belt and Road nations. The move is to show that China is willing to boost imports and further its reform and opening up endeavor.

But it’s awkwardly conspicuous that the U.S. does not send any government officials to participate. They don’t want to attend it because they don’t want to be seen as backing down from their prerequisites for any substantial negotiations. Trade deficit is not the primary concern for the U.S. If the two sides can end the trade war by increasing import from the US, it shall happen much earlier in the first two rounds of negotiations, in which China promised to add 70 billion or even 100-billion-yuan worth of procurement from the US.

The pain points for the US are murky regulations, costly bureaucracy, privileges and subsidies which it said unfairly granted to state-owned enterprises, limited market access and forced technology transfer, intellectual property protection.   Chinese leaders may announce some piecemeal opening up measures at the fair. But it would be hard to drastically change China’s industrial policy and growth pattern for now especially  in the wake of the US midterm election. If the republicans lose the House, it would deal a telling blow tantamount to Mr. Trump’s presidency. China’s leaders might as well wait and see the outcome of midterm election and decide what their next step will be taken.  

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