China: Behind the White Paper

Published on June 3, 2019

Over the weekend, Beijing published a 16-page “White Paper” on the official Xinhua news website summarizing China’s position and its interpretation of the escalating trade dispute with the United States. That paper was, lest anyone miss it, translated into eight languages.

*** In the White Paper, Beijing states China’s bottom line and narrates its numerous grievances against the US negotiating side, while leaving the door open for further talks. But even while ending on a conciliatory note, senior sources in Beijing say the current, and tense, impasse on trade negotiations between the US and China can now only be broken at the heads of state level, specifically with a sign of “sincerity” that comes directly from President Donald Trump himself. ***

*** That means while the two sides will meet at the G20 Finance Ministers and Central Bank Governors meeting next weekend in Fukuoka, Japan, which typically serves as a prelude to the G20 heads of state meeting, the Chinese delegation is not authorized, as hoped by markets, to engage in any negotiation with their US counterparts on trade. Their marching orders will be to strictly repeat Beijing’s position as outlined in the White Paper and reviewed personally by China’s President Xi Jinping. ***

*** China’s Politburo (PSC) furthermore approved in a meeting on May 30 the recommendations of the National Development and Reform Commission (NDRC) and Ministry of Commerce for the establishment of a “Non-reliable Entities” list of firms and individuals to be targeted for punishment. It appears this list will include around thirty US persons or entities, but will, at least for now, spare some of the largest US tech giants’ operations in China. ***

A Personal Sign-off by Xi

Entitled “China’s Position on the China-US Economic and Trade Consultations,” China’s White Paper accuses President Donald Trump and his administration of reneging on their commitments and of negotiating in poor faith, in a mirror image of the accusations made by the White House on May 4. It also, however, repeats Beijing’s willingness to re-open negotiations — on the basis that China’s core positions are respected.

This White Paper, the second one since the onset of the trade wars with the US, was personally reviewed before publication by China’s President Xi Jinping, and formally approved on May 30 at a meeting of the Politburo Standing Committee (PSC) of the Communist Party of China (CPC) Central Committee, a gathering of China’s top leadership cadre that included three Vice-Premiers in attendance.

While leaving the door open to further talks, senior officials in Beijing emphasize a key takeaway from the report is that China’s “position, principles, and bottom line” on any potential trade deal with the US is now locked, and that these will not be changed in the future.

Furthermore, from here on China-US negotiations will no longer be conducted by the two negotiating teams but can only be opened through the direct intervention of the top leaders of the two sides. 

Seeking a Backdown from Trump

More explicitly, as we have written in numerous recent reports (see, for instance, SGH 5/13/19, “China: Digging in for Prolonged Fight”), Beijing’s position is that whether China and the US can ultimately reach a trade deal now depends entirely on the US and on President Trump, who will need to show he has “changed his position” and that the US side will show “sincerity” in its intentions for any further round to proceed.

Indeed, from what we understand, there has been no outreach or direct communication between China’s Vice-Premier Liu He and the US lead negotiators, Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer, since the breakdown of the eleventh round of talks. 

As things stand, Beijing will not take the initiative to re-open talks with the US.

Furthermore, while China’s Finance Minister Liu Kun and PBoC Governor Yi Gang will attend the G20 Finance Ministers and Central Bank Governors meeting next weekend in Fukoaka, Japan, they will not, as markets hope, be authorized to talk with Treasury Secretary Mnuchin, who will also be present, on US-China trade issues, beyond simply repeating China’s position in the White Paper.

As things stand, sources relay that China will not welcome the US negotiating team to Beijing for a next round of negotiations unless the US “changes its position,” and China does not see any need to deliberately engage in a new round of talks before Xi and Trump meet at the G20 summit in Osaka on June 28-29 “if the Trump side still lacks sincerity.”

An Aggressive, but not Fatal Punch

The May 30 Politburo meeting also endorsed the recommendations of the five departments led by the National Development and Reform Commission (NDRC) and Ministry of Commerce to establish the by now infamous list of “Non-reliable Entities” that are to be targeted “based on relevant laws and regulations.”

The list will include foreign legal persons or organizations who have “taken discriminatory measures against Chinese entities, caused actual damages to Chinese firms and related industries, or have posed actual or potential threats to China’s national security.”

According to preliminary proposals, around thirty US companies, entities, and individuals will be on the Non-reliable Entity list. 

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