By Hamid Bayati

Beijing does not surrender to Washington

June 12, 2019

TEHRAN-The U.S.-China economic struggle continues. The conflict is aggravated by the fact that US President Trump's policies over the past few years have not yielded Washington's interest. The economic challenge of the United States and China has entered a new phase. While, until about a mont ago, American and Western media spoke of the Washington-Beijing economic agreement in the near future, we are now seeing a sharpening of trade disputes between the two US and China. Many analysts believe that as long as the trump at the head of the US political and economic equation, this trend will continue.

As Fox Business reported, China Opens a New Window.  is promising to “fight to the end” if the U.S. escalates tensions in their ongoing trade war Opens a New Window.  as President Trump edges closer to deciding whether to impose tariffs on another $300 billion worth of Chinese goods. Chinese Foreign Ministry spokesman Geng Shuang said China is willing to negotiate with the U.S. if both sides are willing to come to a fair agreement but said it was “not afraid of fighting a trade war," Reuters Opens a New Window.  reported Tuesday.“China does not want to fight a trade war, but we are not afraid of fighting a trade war,” Geng said. “If the United States only wants to escalate trade frictions, we will resolutely respond and fight to the end.”

Geng stopped short of confirming whether Chinese President Xi Jinping will meet with Trump when both leaders head to Osaka, Japan for the G-20 summit in late June. He said information about a possible meeting would be released when it was available.

"We note that for some time, the U.S. has made multiple public statements that it looks forward to a meeting between the two heads of state during the G-20 Osaka Summit," Geng told reporters in Beijing. "We will release information on this when we have it."
Trump has said he would meet with his Chinese counterpart at the summit, while U.S. Treasury Secretary Steven Mnuchin also told reporters over the weekend that any major progress to resolve the trade war will come during the leaders’ meeting.

The president said in an interview with CNBC's "Squawk Box" on Monday that if Xi doesn't meet with him at the Osaka summit later this month, more U.S. tariffs on Chinese exports will go into effect. Trump told reporters last week that “a lot of interesting things are happening” during talks with China, but said he could impose tariffs on “at least” another $300 billion worth of goods. He provided no further details on the negotiations. Trade tensions escalated last month when Trump increased tariffs on $200 billion worth of Chinese imports to 25 percent. China responded by increasing tariffs on $60 billion worth of American products that went into effect earlier this month.

Washington then raised the stakes by placing Chinese telecom giant Huawei on a blacklist that effectively bars U.S. companies from supplying it with computer chips, software and other components without government approval. Chinese state media has also warned that Beijing could cut the U.S. off from rare earth minerals Opens a New Window.  that are widely used in electric cars and mobile phones.

Battered Chinese companies put American plans on hold as trade war rattles confidence in U.S.
As South China Morning Post reported, Batten down the hatches is the central message from Chinese companies operating in the US, buffeted by increasing regulatory restrictions from both governments and a tightening labour market.

Investment by Chinese companies in the United States has fallen by nearly 90 percent since its peak in 2016, including a sharp drop in 2018 and early 2019, with more companies reporting lower revenues and thinner profit margins than a year ago.

“The trade war creates a less welcoming business environment for Chinese companies,” said Chen Xu, chairman of the China General Chamber of Commerce-USA and president and chief executive of Bank of China USA, in introducing the chamber’s annual business survey, which was released on Monday. “This environment’s uncertainty shakes our members’ confidence and discourages them from making further investments in the US.”

Half of the respondents in the survey – conducted in February and March – felt the investment and business environment had deteriorated in 2018, more than double the 23 percent that saw it that way last year. With investment decisions lagging broader shifts in US-China relations, the report’s relatively downbeat findings likely understated the mood given the bad news since members were surveyed a few months ago.

In a mirror image, the most recent American Chamber of Commerce in China survey of US companies operating on the mainland, released in February, was similarly downbeat, referring to relations as a “ticking time bomb”.On Monday, US President Donald Trump renewed his threat to put tariffs on another US$300 billion of Chinese goods in a CNBC interview, the latest salvo of the tit-for-tat trade war. Investment and security-related regulations are tightening on both sides of the Pacific.

Distrust has gone well beyond trade and the military to include education, visa policy, and people-to-people exchanges, with little prospect of relief. “This year marks the 40th anniversary of US-China diplomatic relations,” the China General Chamber survey said. “At this moment, our relationship is being tested.”A third of companies predicted that conditions would get worse over the next two years, up from 12 percent last year.

The 240 responses from Monday’s survey that involved Chinese companies such as Fuyao Glass, Hisense, and International Vitamin, out of a pool of 1,500 chamber members, suggested that most were managing their existing US operations but delaying on putting much new money on the table. Respondents were particularly concerned by higher tariffs and tighter US investment rules, especially where hi-tech companies faced tougher scrutiny from the Committee on Foreign Investment in the United States (CFIUS), part of the revamped Foreign Investment Risk Review Modernisation Act.

While Chinese investment has declined globally in recent years, the drop has been sharper in the US than Europe given tighter scrutiny by Washington over China’s state-led campaign to acquire sensitive Western technology.

Companies reported smaller profit margins on average this year compared to 2018 or 2017, while 60 percent of respondents said their US revenue stayed the same or fell last year, compared with 47 percent a year earlier.

At least as great a factor behind the Chinese investment chill in recent years was Chinese government policy, analysts said, including tighter capital controls imposed when the yuan came under pressure in early 2017 as China’s capital reserves fell to less than US$3 trillion, spooking authorities.

Last month, Chinese-owned electric-car maker Nio laid off 70 workers and closed an office in Silicon Valley, citing “uncertainty” over possible subsidy cuts by Beijing. Chinese state-owned companies, which tend to follow government directives more closely than their private counterparts, had been quick to pare their US investments, said Cassie Gao, a senior analyst with Rhodium Group.

Rhodium data showed that foreign direct investment from China into the US fell from a peak of US$46.2 billion in 2016 to US$29.4 billion in 2017 and US$5.4 billion last year. “We’ve seen things tank,” Gao said.

Companies in the survey also cited the challenge of wage inflation, a lack of qualified workers and difficulties in finding and keeping good local talent, given the tight US labour market. Many businesses said they had responded by increasing wages and trying to promote their “core values” and corporate culture. Amid all the gloom and doom, however, some warned that the political and economic punch-up between Beijing and Washington could give a skewed impression of matters, with relations stronger at local levels than headlines suggested.

“I think there’s tension between the view inside the Beltway and those outsides,” said Bonnie Glaser, director of the China Power Project at the Centre for Strategic and International Studies, a Washington think tank. “Mayors and governors are quite keen for Chinese business. Universities do not want to lose government money but they also want the tuition [fees] from foreign students.”

A few blocks over from the Washington hotel where the survey was released, economic development officials from dozens of US cities and states have gathered this week, tax breaks and other incentives in hand, in hopes of luring business executives from Chinese, Taiwanese and other foreign companies at the annual SelectUSA foreign investment conference.

The city of Tampa, Florida, said it was redoubling efforts to attract Chinese business to diversify its traditional economic focus on Latin America. In January, after investing US$24 million in high-capacity gantry cranes, Port Tampa Bay welcomed with a band and water spouts the start of direct shipping service to and from China through the Panama Canal operated by China Ocean Shipping, using ships with a capacity of 4,500 20-foot containers. On Friday, rival CMA CGM Group will start its direct service, connecting Tampa with such Asian ports as Hong Kong, Shenzhen, Ningbo, and Shanghai.

Those follow the 2015 purchase of Tampa-based World Triathlon Corp by Dalian Wanda Group for US$650 million and the expansion of a regional logistics hub for products made in China and elsewhere.

“China is certainly important to us,” said Steve Morey, senior vice-president of Global Tampa Bay, an economic development group. “The welcome mat is totally out.”

Farther west, the southern state of Louisiana received a 2019 award from the China General Chamber after Shandong Yuhuang Chemical Group decided to invest US$1.85 billion in a methanol production complex, one of the largest Chinese direct investments in the US.

This dovetails with a US$1.2 billion investment by Wanhua Chemical Group in a chemical manufacturing complex also in southeast Louisiana’s St James parish.

“Certainly, the challenging situation around tariffs and trade war activities has slowed activity down somewhat,” said Don Pierson, the state’s economic development secretary. “But we’re optimistic the differences between the two countries will be resolved.”

Pierson said he did not expect any new petrochemical investments by Chinese companies to run afoul of CFIUS given the basic, commodity nature of these investments in Louisiana.

Idaho is home to a semiconductor industry that is small by US standards but one that accounts for over half of its exports to China by value. State officials say because most of Idaho’s chip industry focuses on inspection and back-end cleaning, they do not see a huge risk from tightening US regulations.

And longer term, the outlook remains strong.“Trade with China is a train, no one can stop it,” said Eddie Yen, director of the state’s Asia Trade Office. “There may be some noise right now, but if you look at the bigger picture, the train can’t be stopped.”

But there will be collateral damage, he added, including the danger that more Chinese technology companies will question the reliability of US suppliers in the future.

The state also has tried to work around the tariff battle, focusing on products too important or high quality for China to levy punitive taxes on, including alfalfa hay to feed Chinese livestock, said Tara Qu, head of Idaho’s China office in Shanghai.

And while Beijing and Washington work to block each other’s trade, semiconductors and other products will find a way where there’s a need, she said, including items that may be sent to places like Vietnam, repackaged and sent on to China.“Traders always have their ways,” Qu said. “This won’t stop trade.”

As the Trump administration pressures US companies into divest from China and reroute their supply chains, Vietnam is often seen as a promising alternative given its efficient, relatively low-wage workforce and pro-business environment. Commercial property prices have increased some 40 percent in the past year in Ho Chi Minh City and beyond as US-China tension has intensified. Michael Vu Nguyen, president of Hanoi-based An Phat International Inc, said Vietnam was guardedly optimistic. But it is also wary of overreaching in such a volatile environment given its limited capacity.

“We want to help where we can, but we’re very small compared to the US and China,” he said. “When the two big guys fight, we just stay low.”

The top three sectors where Chinese companies in the US have focused in our industrial, energy and financial, while the top five states where companies have chosen to base their headquarters are California, New York, Texas, Illinois, and New Jersey, according to the chamber.

conclusion

What has happened today between the United States and China is rooted in the behaviors of the last two years of the US president with Beijing.US-China relations continue to decline during the Trump presidency. Of course, there were disagreements between Beijing and Washington over security and cyber-security issues at the time of Barack Obama, but the emergence of trade and economic disputes in their bilateral relations should be analyzed "beyond a simple controversy." In other words, from the beginning of 2017 and Trump's presence at the top of the political and executive equations of the United States, we have witnessed the emergence of constant crises and challenges in the relations between Washington and Beijing. Many international affairs analysts rightly believe that the conflict is not limited to economic and commercial issues, and it will also affect the political, security and regional spheres.