China Daily is by far the best news source on the planet. As the editorial arm of the Central Communist Party (the only political party in China, really), this newspaper, printed in English, gives a very thinly veiled Pro-China and Pro- "Communism" (they are really more of a blend of capitalists and socialists now) slant on all current news. It is directed propaganda, but better than that, these stories give us insight into how the leadership feels about international trade. You have to read these stories understanding the basic political tenets of the Chinese political philosophy. Once you can grasp that, these "unbiased" reports basically telegraph government positions on certain items.
Issue
There are two articles on the front page of the China Daily website today which need looking at:
followed by:
China, EU may hold investment deal talks
(Note: The article bashing Murdoch's divorce is pretty hilarious. They clearly don't like Fox News over in Tiananmen)
In reading both articles, I noticed three observations should be made regarding Chinese actions in the international trade environment.
1) Premier Li will most likely be opening up chinese economic policies to a more capitalistic stance because external restrictions on Chinese trade is hindering their own domestic economic ascendency.
2) That these changes will come to allow more transparency in trade and agreement to customary international law norms in the realm of transactions
3) That the issue with which this will be couched in is Solar panel countervailing duties imposed by the EU.
Nitty-Gritty
1) Li is open to negotiating and change. The Maoist Premier from Anhui province is showing that at heart, he is still more Shanghai than Beijing. While he has been speaking of anti-protectionism on a global scale (He did so in 2010 in his presentation of China's long term economic growth at the World Economic Forum in Davos), He did so doing so with an eye towards other country's regretful actions towards China. However, this was during his ascendency to power where Li had to carefully campaign within the party. He had to strike a fine balance between reverence towards the current leaders and their supporters while still putting forth a sexy campaign that allowed his candidacy to rise. He did so with his "olive" theory, stating that lowering protections would allow China to move more of its citizenry to a thriving, consuming, middle class (to make the classes apportion to the shape of an olive). Prior to his succession of Wen Jiabao, I had feared that the hard-line Maoist parties he had affiliated with throughout his life would cause him to turn the clock back to 1979 (and it was that side of him that may have allowed his election in the first place). Now it appears that his schooling in Economics is winning out as Li, having gained the second highest seat in Chinese Government is driving down the notion of Chinese protectionism and bringing China to the Negotiating table.
2) Although there was significant improvement in the China oversaw by Hu Jintao and Wen Jiabao (the predecessor President and Premier to Xi JingPing and Li), China was often accused of three international trade faux pas:
a) Lack of transparency in materials, accounting, and contracts,
b) IP piracy,
c) Violating international customary laws regarding competition.
These two articles, in combination with Xi Jing Ping's talks with President Obama last week, Almost seem like an IPO "road show" for the country ( a "road show" is where a company about to go public flies all over to pitch major potential investors to buy their stock in an attempt to not only whip up a frenzy of positive valuation but also to lay the groundwork for a reaction to such a drastic change in the company). Both the President and Premier Li have shown that now that China has modernized (save the discussion about their toilet preferences later), it is seeking to become a well respected and abiding player in the realm of international trade law. The knock-offs will still be out there, but China is finally realizing that they now have companies, technology and trade that can be severely hindered if they don't start to "Play nicely". Li is laying down this ground work for his message to be accepted both abroad and domestically.
3) In typical Chinese fashion, bold is not smart. Li and Xi can't just come out and say "Listen y'all, we surely do apologize for the way we've been acting and we were wondering if we can join y'alls club now." (yes I just made the President and Premier of China sound like Western Alabamans, and it was fun) If they did, they would lose support within their own party. It is considered extremely rude in that culture to say anything confrontational or direct that is not done so with circumspection or pleasantness. For example, unless you are at a Doctor or with a close family member (maybe a best friend), you never answer the question "How are you?" with anything less than "Not Bad".
Here, Li and Xi need a vehicle for altering the discussion on China's lowering of protectionist practices and the Solar Panel "penalty" put forth by the EU is perfect. Acquiescing to the United States on any issue would be seen as cowardice in the People's Republic, and no other economic power besides the EU would be seen by the Chinese has having relatively equal stature to their own. The EU has enough clout to make them ok for Xi and Li to talk to as equals without the stigma of the U.S. (Australia and Japan are the other big options for China, but the History of Japanese Occupation rules them out and Australia is still viewed as kind of a second fiddle that merely meets China's mining needs). The funny thing is that on the Global trade scale, The Chinese top trading partners are all outside of the E.U. and a particularly narrow product that is not a major industrial boon to China is not something usually worth a fight. However, Premier Li and President Xi need some root issue as a platform to push this new trade stance direction, and Solar Panels are it (notwithstanding China's energy shortage issues).
Take-Away Practitioners
Custom and caution are big in China (their language has remained relatively unchanged for a couple of millennia), but Premier Li appears to be making good on his calls for anti-protectionist stance in his ascendency platform, even in acknowledgement of his own country's possible shortcomings on the issue. It might take years before we see a noticeable leap towards greater capitalism and fair dealing in trade out of the Middle Kingdom,
If you are in the business of buying products from or selling them to the People's Republic, you should start to be able to see a more efficient thwarting of piracy of your products (note: you will still have to give up certain technologies if you want to create an FDI in China due to their Joint Venture requirements). However, look in the next 18 months-three years for China's dealings with exports (and especially imports) to become more systematically friendly to westernized business practices. Customs, Customs inspections and duties/tariffs/etc. are a priority to the top CCP brass, as they looked to become more developed, costs of producing and sourcing in the PRC will rise, but at least more risk will be taken out of daily dealings.
Xi JingPing won't be running point on this as much as Li KeQiang, so only become concerned that the advances I referred to in Li's Olive theory aspirations become contradicted by Xi's actions- though the fact that the President brought up similar issues in his talks with Obama last week serve as a kind of green light to Li's forward march of free markets.
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