What’s App in Europe – March 2018

Keats, the Tao and Chinese Trade Policy

Keats ends his Ode on a Grecian Urn with a refrain which seems to go to the heart of Western culture in saying: ‘Beauty is truth, truth beauty, – that is all ye need to know on earth, and all ye need to know.’ The Tao, at the heart of Eastern culture also reflects on beauty and truth but takes a different approach, telling us that ‘the truth is not always beautiful, nor beautiful words the truth.’

When Xi Jingping, the Secretary General of the Chinese Communist Party spoke at the 2017 Davos World Economic Forum many Western listeners heard a Keatsian idea of truth and beauty in his repeated references to the embracing of economic globalisation and innovation and growth. Nowhere can this be more clearly seen than in the top quotes from the speech which Davos has placed on its website. The quotes simply do not reflect the scope and the ambition of the speech as a whole.

We Western listeners need to need to be more global in our ability to hear and understand: a Western mind set can close us to the wisdoms of other cultures, like China’s, which have equal claim to validity but have different approaches to the understandings of words. Beautiful words are not always the truth that we want to hear. We must not be blinded by some words and not hear the full range of what was said.

Xi said: ‘China has in the past years succeeded in embarking on a development path that suits itself by drawing on both the wisdom of its civilisation and the practices of other countries in both East and West’. He goes on to say that ‘No country should view its own development path as the only viable one, still less should it impose its own development path on others.’

I think this is the key to understanding China’s trade policy. China has embraced the trade wisdom of other countries, the market economy wisdoms of other countries, the technical innovations and industrial intellectual property of other counties. But these wisdoms are not merely copied. They are transformed by thousands of years of China’s cultural and intellectual history and, more recently, by the history and objectives of the Chinese Communist Party. China will forge its own way.

There is no doubt that China has benefitted from trade. It is trade that has fuelled GDP growth. China wants to see the opening up of markets and is now prepared to pay for this through the Belt and Road Initiative and in the Going Out Strategy. It has joined the WTO to ensure its trade rights are respected and is moving from being a regular defendant in WTO litigation to being a claimant.

China wants the EU and the United States to recognise it as a market economy and is currently challenging, in the WTO, previous EU law that had classified it as a non-market economy. It has lodged a similar case against the US but has not pursued it in the same way as the EU case.

At home, though, the situation is different. China refers to itself not as a market economy but as a Socialist Market Economy. It manages that economy in five-year planning periods which set out objectives to be achieved at the national, provincial and sector levels. In the last planning period there were 72 plans in all. Each plan must be implemented and progress within the Communist Party is gained though achievement of a plan’s objectives. Key sectors of the economy are operated by state owned enterprises. The articles of association of these enterprises provide that achieving the Party’s aims is the aim of the enterprise. Financing for the steps to be taken within the plans is available from the state-owned banks. It’s the same for the availability of raw materials and energy, land and labour.

Most important of all for the China way is that there is very little room for outsiders. Outsiders are effectively excluded from key sectors of the economy such as finance and energy and raw materials. Where outsiders are present it is clear that one set of rules applies to the locals and another to the incomers. Simply put, China seeks openness abroad but it ensures that it is closed at home.

In Davos President Xi spoke of fostering an environment of opening-up for common development. But he speaks of an ‘external’ environment. China wants free trade deals with specific countries allowing it, like for nearly all free trade deals anywhere in the world, to exercise its economic weight. And while talking about avoiding exclusive groups of trading countries does nothing to promote the change so needed to the WTO which would insure a more level playing field for all countries.

In the next months the United States will take initiatives on Steel and Aluminium and on Intellectual Property. The declared aim of these actions is to address what the US sees as the unfair China way. However, each of these initiatives is likely to result in harms to an open trading environment. China will then react. The EU is preparing to react too, to the extent it is caught in the cross fire.

Xi warned against protectionism in Davos. But it is clear today, that however beautiful his words sounded back in January 2017, the truth is different. China is for open trade into third markets but not into China. Trade yes, but China first.




The content of this article is only for information and does not constitute professional advice.
For further information contact Bernard O’Connor.

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