China is sending a top economic adviser and rising politician to lead its largest entourage to date to attend the World Economic Forum in Davos this week. More than 130 members will join Liu He to attend the global economic gathering, where he is expected to speak and outline China’s vision for its economy in 2018, analysts said. He is also expected to warn Washington against the dangers of a possible trade war.
When President Xi Jinping attended the meeting last year, he talked about the importance of globalization at a time when President Donald Trump was becoming the United States' new leader.
At the time, Xi also warned that “a trade war will only lead to suffering on both sides.”
Some of the messaging is expected to be the same this year. But this time, the threat of a trade war appears to be more a reality than a worry.
“I think what Liu He will do is [try] to persuade the U.S. from imposing more trade actions against China. I think that is the most urgent thing to do,” said Tao Ran, an economist and nonresident senior fellow at the Brookings Institution.
Tougher US stance
President Trump has long promised to get tough on China and other exporters he argues compete unfairly with U.S. manufacturers, but that talk is now turning to action.
On Monday, the U.S. government imposed stiff tariffs on solar panels and washing machines. Last week, Trump told Reuters in an interview that the United States is considering issuing China a big fine over alleged intellectual property theft.
More tough measures from the Trump administration are expected in the weeks and months ahead in 2018.
Over the past year, the United States and China have made strides in trying to work together on North Korea and to solve their differences over trade but now — as some analysts note — the Trump administration’s policy is growing teeth and there is a shift away from engagement.
Beijing has made repeated pledges to reform and open up its economy and when Xi Jinping won a second term during 19th Party Congress late last year, he talked about giving the market more sway in the economy.
But he also talked about bolstering state-owned enterprises, a persistent concern from the United States, one that was mentioned late last week in an annual report on China’s World Trade Organization compliance, and lack thereof.
"China is determined to maintain the state's leading role in the economy and to continue to pursue industrial policies that promote, guide and support domestic industries while simultaneously and actively seeking to impede, disadvantage and harm their foreign counterparts,” the report said.
Heading for a trade war?
Some analysts argue that if China wants to avoid a trade war, it is Beijing that needs to loosen controls over sectors that have long been off-limits to foreign investments. A move they argue will not only boost foreign investment but ultimately help the Chinese economy as well.
Victor Gao, director of the China National Association of International Studies, said that instead of focusing on punitive measures, the United States should think about ways to grow exports to China even more such as increasing its export of oil and gas to the world’s second largest economy and opening up high-tech exports.
“The United States needs to do whatever it can to sell more to China,” Gao said. “And make the bilateral trade in a dynamic way more balanced, rather than getting at each other’s throats and tearing each other to pieces."
What happens this week at Davos could be key in determining where all of this is heading. Unlike last year, President Donald Trump will attend the meetings in Davos.
Financial analysts will be watching closely to see what Liu He has to say at the gatherings.
In addition to currently holding key economic advisory positions, Liu is a member of the Communist Party’s Politburo and a man widely expected to soon become China’s next vice premier for finance and the economy. There is also speculation that he could take over for Zhou Xiaochuan as governor of the People’s Bank of China.
“All evidence seems to indicate that he is very much trusted by the Chinese president and he also travels now — ever since the 19th Party Congress — very often with the Chinese head of state,” said Gao. “This gives him good access to the real insight of the Chinese [government’s] decision making.”
Ultimately, nothing regarding Liu He’s future posts will be certain until China’s National People’s Congress meets in March and approves a slate of new government appointments. Some have even suggested that he could fill both the vice premier and central bank post much like Zhu Rongji did in the early 1990s.
“These two [positions] are not mutually exclusive of each other,” Gao said.