Recently, the United States have taken a series of measures to escalate trade tensions, which comes as no surprise for the Chinese government, enterprises and its residents. As always, we believe that what the US did won’t solve any of its problems. It will only cause harm to China and the US and hurt the global economy.
(File photo: VCG)
The United States will “pay a huge price” for the ongoing trade conflict
The US can no doubt increase tariffs on China to the extreme, but this will have very limited impact on the Chinese economy. By contrast, the US itself will be hit to almost the same degree.
US exports to China will shrink and some high-tech companies will get lower incomes. Consumers and importers will pay more money for the products. In fact, people on middle and low incomes will lose more profit, especially farmers and blue-collar workers. The volatility and downturn in the international financial market caused by trade disputes will also have a huge impact on the US dollar-based global financial system.
The goal for the US to raise tariffs is to decrease the trade imbalance between China and the US, but because of China's countermeasures, the direct result has become uncertain and the American plan could make little difference or even backfire.
The trade disputes between the United States and late developed countries has had a history of more than 40 years. The root of the disputes lies in America itself. Even if China’s exports to the United States decreased, the US' foreign trade deficit wouldn't change easily.
Actually, the United States has benefited greatly from the trade deficit with China. Nearly 60 percent of its trade deficit with China comes from foreign-invested enterprises, mostly US funded enterprises, which means American importers and multinational companies gain most of the profits and added value of the trade balance.
About one-fourth of retail products in the US market are imported from China. China's high-quality and low-cost products help reduce the living costs of American families, bringing more consumer surpluses to America.
Commodities such as grain, energy, aircrafts and chips that the US exports to China depend on China to place a relatively higher price on them. If it weren't for the large-scale purchase by China, their price wouldn't reach the level they reach today.
The United States has had a higher consumption and lower inflation since the 1990s. An important reason is that China has unprecedentedly increased the supply of consumer goods in the global market.
With the accumulated capital in trade surplus, China purchased US Treasuries and other dollar assets to support the consumption and investment in the United States, enabling the US to obtain cheap capital backflow and creating very favorable conditions for its economic recovery and prosperity.
The US' huge current account deficit with China means that it has occupied the same amount of Chinese savings for a long time, which has greatly compensated for its investment and savings gaps. In the past decade or so, broad money and cash in the United States have grown slowly in stark contrast to the situation in the 1970s and 1980s.
US' accusation about China was "unfounded"
The accusation that “China steals other countries' technology” is a modern form of hegemony. Any late developed country will learn from the knowledge and experience of developed countries, which is why development economics puts forward the concept of “learning and imitating”.
In the evolution of human civilization, many Chinese inventions have made unparalleled contributions to the world. During the industrialization period in Europe and America, the technical imitation between one country and another was very common. Every country has made new contributions to technological progress through its own exploration on the basis of its predecessors. No country achieved modernization by stealing.
China began to introduce foreign capital 40 years ago. Meanwhile, foreign investors have obtained huge benefits from China. The cooperation is based on mutual benefit. The Chinese government didn't force any foreign party to sign project contracts.
Whether it is technology-for-market or market-for-technology, technology trade based on fairness is a basic market economic activity well recognized by all parties. In today's world, China is a staunch defender and active builder of the international rules of intellectual property rights. On the contrary, the United States uses the protection of intellectual property rights as a shield for trade protectionism. Its accusation against China is absolutely groundless.
History has proven and will continue to prove that sanctions and blockades will not prevent a country’s technological and economic development. Instead, they will encourage the country to conduct independent research and development and accelerate its technological progress.
There is no such thing as “state-monopoly capitalism” in China. We adhere to the principle of competitive neutrality and emphasize the equal treatment of all types of market players, encouraging them to compete as well as cooperate to achieve a win-win situation by complementing each other.
China had directive industrial and credit policies and the implementation of various policies adheres to the market and law. In fact, China's economy has been increasingly diversified. The proportion of the state-owned economy in GDP continues to decline and private and foreign capital now enters almost all industries and fields.
In the financial industry, there are more than 3,000 private capital holding banking institutions among the total of 4,588, and most of the 170 Chinese-funded insurance companies are privately held. Most of the securities companies and fund companies are also controlled by social capital.
As for the top five banks, the share of non-state-owned capital at home and abroad has averaged about 30 percent and some even exceeded 40 percent. The market share of the five banks is now only 37 percent. Compared with the major economies in Europe and America, such market concentration is at a lower level.
China's financial technology is in a leading position in the world, mostly because the government is prudent and inclusive towards private Internet companies and creates a fair playing field.
China's goal of improving corporate governance structure will not change. As independent entities, China's private enterprises have always operated independently under the company's articles and structure in accordance with the market, free from the intervention of the Party.
In state-owned enterprises, the leadership of the Party has always played a central role. We have optimized and improved corporate governance in the reform of state-owned enterprises and have helped the Party to play a better role so that the Party and corporate could promote each other.
From the perspective of global theoretical research and practical exploration, there is no unified standard model for corporate governance and there is no optimal model as an example. The G20 Hangzhou Summit clearly stated in the communiqué that it supports the principles of corporate governance advocated by the G20 and the Organization of Economic Co-operation and Development.
Chinese enterprises are consistent with international general standards in terms of corporate governance principles and frameworks. Meanwhile, the corporate governance principles try to adapt to specific national conditions.
Facts have proved that the establishment of a modern enterprise system and adhering to Party leadership are totally compatible. We encourage the meeting of shareholders, the board of directors, the management staff and the board of supervisors to take their own responsibilities. The Party committee implements collective leadership and plays a role in guiding the direction of the company.
Such a governance structure can form a scientific and effective check and balance mechanism and better protect the interests of stakeholders. It could also prevent the problems such as insider control, manipulation of major shareholders, and inadequate performance of directors. The corporate governance model with Chinese characteristics is completely feasible.
There are rumors that China has given huge subsidies to exports, manipulated the exchange rate and refused to open up the market. These statements tend to be self-contradictory and couldn't be supported by convincing evidence.
China should focus on its own development
No external force can stop China from moving forward, and the Chinese nation must firmly hold its destiny in its own hands. The key for China to move forward at a steady pace is to focus on its own affairs.
We must unswervingly and comprehensively deepen reforms. In the financial sector, it is necessary to fully optimize the institutional, market and product systems.
We must intensify efforts to develop and improve the capital market and continue to deepen the reform of interest rate and exchange rate formation mechanisms. The short-term fluctuation of the RMB exchange rate is expectable, but in the long run, the scenario won’t happen because China has strong economic fundamentals. In addition, the RMB exchange rate will continue to approach purchasing power parity.
We must expand opening up. The financial sector is an important area of the service industry. To better serve the real economy and improve people's livelihood, we must further expand opening up, cultivate market entities, innovate financial products and stimulate market vitality. While expanding financial openness, we must also be alert to the excessive flow of cross-border capital and speculation, and resolutely avoid bubbles in real estate and financial assets.
We must make great efforts to solve outstanding problems we face, such as the aging population, environmental pollution, income inequality, uneven regional development and insufficient innovation capacity. The financial industry has made great achievements in these aspects.
We firmly believe that under the strong leadership of the Central Committee of the Communist Party of China (CPC) with Comrade Xi Jinping as the core, the Chinese people will surely be able to achieve the two centenary goals.
(The author, Guo Shuqing, is Party chief of the People's Bank of China and chairman of the China Banking and Insurance Regulatory Commission)