Tag Archives: Chen Deming

Turning The Other Cheek

If jaw-jaw is preferable to war-war, and it usually is, especially in trade and economic conflicts, the latest round of the China-U.S. talks under the aegis of the Strategic and Economic Dialogue just concluded in Washington can be deemed a success. The low pre-meeting expectations that nothing very much would be achieved were readily met, but the main point of the discussions is to get everyone around a table and the contentious issues on it. Taking them off is low on the agenda, if expressions of intent to do so is not.

That was the case with what is being touted as the main achievements of this round, improved market access for both sides. Beijing said it would disentangle policies designed to encourage domestic innovation from government procurement, a promise it has made before, and rewrite its procurement rules to be less discriminatory towards domestic firms. It also promised to look into making its occasional crackdowns on intellectual-property theft more permanent, and check officials weren’t using pirated software. As ever, proof of the pudding will be in the implementation.

In return, Beijing asked for more access to the American market for its companies, and particularly to relax Washington’s high-tech export controls, whose security reviews repeatedly snag proposed Chinese acquisitions in the U.S. It wants Washington to be more transparent about its whole process. Commerce secretary Chen Deming rather mischievously said “In this area, I regard the United States as my teacher and since my teacher is asking me to be open and transparent and fair, I certainly would also ask my teacher to do the same to me.”

Not so much jaw-jaw as cheek-cheek.

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China Open For Business, But That Business Is Changing

There is a turning point in the development of emerging economies at which the supply of surplus rural labor available to low-cost export manufacturers dries up and real wages start to rise. At that point industrial production becomes more capital and IP intensive, exports move up the value chain and domestic demand becomes more important for the economy overall as the society urbanizes. Japan and South Korea passed through that turning point; now China, too, is reaching it. Another way of putting it is that the era of manufacturing in China for export is coming to a close, and the era of manufacturing in China for Chinese consumers is getting underway.

For foreign multinationals, it marks a sea change in the reasons for them to be operating in the country. Change can always be uncomfortable, both for those that see it and those that don’t. To this Bystander that explains some of the concerns being voiced by executives at foreign multinationals about what they see as growing barriers to market entry and unfair treatment, intended to give domestic companies an edge as the economy changes.

Most of this criticism has been made privately, as is the custom, but the heads of companies like General Electric, BASF and Siemens have stuck their heads above the parapets of if briefly. All three companies have been working cooperatively in China for at least two decades so may have a degree of seniority that allows them to express frankly the wider view, but the level of concern has been sufficient for Chen Deming, China’s Minister of Commerce, to defend China’s foreign investment environment in a signed piece in the Financial Times.

Foreign direct investment in China was up 19.6% in the first half of this year compared to the same period a year earlier, but last year’s number was low so don’t set too much store by that. National tax breaks and provincial incentives for multinationals to invest have been significantly reduced. Wages have risen and employment regulations become tougher. Furthermore, China is upgrading its own industries in areas such as high-end manufacturing and environmental goods and services. To do this, as Chen pointed out, “China wants to make better use of the knowledge and expertise of multinationals.” That sounds more take than give, to foreign ears.

At the same time export markets in Europe and the U.S. have cooled whereas China’s domestic market has continued to expand, even though consumption rates in China are still far below those in Europe and the U.S. That doubles the vexation for foreign multinationals. A potentially huge and increasingly important market is in sight for but it remains frustratingly out of reach.

Changing that will require policy decisions in Beijing to raise the consumption rate further and to allow the greater internationalization of the economy, which will mean making the currency convertible. Meeting both those challenges are part of the rite of passage of economic development. Smart multinationals will align themselves with helping Beijing push forward change on those two fronts.

Smart multinationals will also realize that they will eventually change in the light of all this and will become more Chinese as the proportion of their sales, employees and assets in China increases, just as Sony is no longer a Japanese multinational in anything but name.

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China To Seek Regional Trade Deals Post-Doha Collapse

Commerce Minister Chen Deming  repeats the party line that China isn’t to blame for the recent collapse of the Doha round of world trade talks in an interview with the People’s Daily (here via Reuters).

Those talks broke down after the U.S. and China and India couldn’t strike a compromise over so-called import-surge protection for developing nations’ farmers. In an interview with CCTV (in video here), Chen cast the dispute in terms of one between the U.S. and India: “India proposed that if imports exceed 115 percent over a base period, it should be allowed to impose safeguard duties. But the US refused anything below a 140 percent trigger. China has fully demonstrated flexibility and constructiveness, so we should not be blamed for the failure.”

Chen said China will now pursue more regional and bilateral trade agreements and is bracing for increased trade friction. It is all part of the changing shape of multilateralism, in which the emerging economic powers, such as China, India, Brazil and Russia but not confined to the BRICs, want a new global consensus that more directly reflects what they see to be their interests.

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Doha Trade Talks Collapse

An update to our earlier post: Pascal Lamy, director-general of the World Trade Organisation, has declared the Doha round of world trade talks dead. There is a link to an audio feed of his statement here.

The finger will continue to be pointed at China, which U.S. trade officials, say at the last moment reversed its support for a compromise deal, but no country is blameless here. Commerce Minister Chen Deming said the U.S. was asking “a price as high as heaven”.

The tragedy is that a lot of good work was done on removing trade-distorting subsidies. In his audio clip, Lamy talks of progress being made on 18 of 20 to-do items at the Geneva summit before the 19th — the trigger point for protections developing countries could impose if they got a surge of food imports once farm tariffs were lowered — topedoed things.

It is too early to say if any of that can be salvaged. Or what lasting damage has been done to the multilateral trade system.

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Chen Deming & China’s Future

In the latest of the slow shuffle of top jobs that takes place in the six months or so between a quintennial party congress and the next annual session of China’s legislature — the hires, fires and retires that signal both the tides of time and the shifting sands of power — Chen Deming has been announced as commerce minister and thus formally introduced to the world as someone who will become a familiar face to American, Japanese and European trade negotiators over the coming years.

Chen, 58, is from Shanghai and had been deputy head of the National Development and Reform Commission since June 2006, holding an energy policy brief. He was formerly governor of the coal-mining province of Shaanxi though his early career was spent in Jaingsu.

Chen is, of course, already known to many of those foreign trade officials and sat in as a minister apparent on recent high-level talks with both Japan and the U.S., where he made a good impression by all reports. Or at least he will be known to the career bureaucrats if not the revolving door of U.S. cabinet secretaries who serve at the whim of the incumbent president. The current U.S. commerce secretary, Carlos Gutierrez, will be gone after next November, as will most likely the Bush administration’s steadiest China hand, Treasury secretary Hank Paulson.

Twenty years ago some Americans worried about the lack of institutional memory on their side in bilateral negotiations with Japan. There are echoes of that concern with China today. These matter more now. The U.S. relationship with China is more complex than that with Japan 20 years ago, and while Japan was a rising economic power then, it was never realistically a political threat to the U.S.’ superpower status in the way that China potentially is.

In the end, economic forces, particularly globalization and financial markets liberalization, neutralized the power of Japan’s esteemed bureaucracy, bending it to their will rather than vice versa. The same will, I believe, prove true in China — and the early signs of that can be seen in the difficulty the center has in controlling so many aspects of economic policy at the local level.

At 58 Chen will be one of those with a ringside seat to that clash of undercurrents – to mangle a metaphor. How well he and his senior party colleague’s manage that transition, if indeed a state can get to a point where political centralism coexists with economic decentralization (“one party, two systems”?), will determine how smoothly China makes the transition to superpower and not just a supereconomy.

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