The trade war between the US and China isn’t likely to end soon. The Chinese ambassador to the European Union told Handelsblatt China would respond in kind to US protectionist measures.
“A policy of compromise or appeasement would only be counterproductive,” Zhang Ming said. “We must have the determination to show the initiator of the trade war that this is a wrong thing and it cannot go ahead.”
Indeed, the Asian country fired back immediately on Friday, hitting US shipments of soybeans and cars imported into China after Donald Trump’s administration had slapped a 25 percent levy on $34 billion of Chinese goods entering the US.
China would do everything possible to prevent a trade war, the Chinese diplomat said. “But if the threat is actually turned into reality, and the trade war is imposed on us, China will fight back firmly as well.”
Everyone would lose from the conflict, he said. “Once the trade war actually breaks out, nobody can be a winner, neither China, nor the EU. America itself would not be a winner either. (…) In case of an outbreak of a trade war, the whole world economy would be severely affected.”
Mr. Zhang, who was China’s deputy foreign minister from 2013 to 2017, said that at an EU-China summit in Bejiing on July 16-17, the two blocs hoped “to send a positive message on upholding the multilateral trading system.”
Read the full interview below.
Handelsblatt: Mister Ambassador, last Friday the United States imposed a 25% tariff on Chinese products with a volume of 34 billion US dollars and China retaliated at the same magnitude. Is the trade war now inevitable?
Zhang Ming: Before talking about such bad things please let me start with good news. China and the EU are working intensively to prepare for the 20th China-EU summit.
Handelsblatt: To be held on the 19th of July in Beijing?
Zhang: Actually from 16 to 17 July. Both sides share the view that China-EU comprehensive cooperation is conducive to global growth, peace and stability. Under the current global circumstances, both sides wish to present a positive outlook on China-Europe cooperation. The summit is expected to achieve the following goals. First it will fully demonstrate the positive commitment of China and the EU to deepen practical cooperation. And it will also highlight the consensus of the two sides on international issues and on the strategic significance of China-EU relations. The second goal is to chart the future course and identify new areas of cooperation. And the third goal is that in light of the current hot-spot issues and global challenges, we hope to send a positive message on upholding the multilateral trading system.
Handelsblatt: The current hot spot issue is the trade dispute with the US. It seems that China wishes to pull the EU on its side in this conflict. What has China to offer the Europeans in terms of market opening, for example, the investment agreement talks?
Zhang: These are two different issues: the tensions in global trade and the China-EU talks about an investment treaty.
Handelsblatt: Europeans don’t see much progress in these talks.
Zhang: Both sides regard the talks as a priority in the economic and trade relations. According to the agreement reached during last week’s China-EU High-level Economic and Trade Dialogue, both sides would seek to exchange market access offers during the upcoming summit. If that happens, it would be a significant and encouraging progress.
Handelsblatt: Europeans are not happy with the fact that Chinese companies are going on a buying spree in Europe but on the other side China does still close its own market to European investors.
Zhang: Our bilateral trade has enjoyed a fast development and exceeded 610 billion US dollars in 2017. With that, investment is developing as well.
Handelsblatt: For Chinese investment in Europe this is true…
Zhang: No, mutual. The EU is currently the third-largest source of investments for China. A growing number of Chinese companies are now going global and looking for global partners including European partners. No doubt that such investments have contributed to growth, employment and tax revenues of the host countries. Especially when the financial crisis hit Europe, Chinese investment played a positive and helpful role.
Handelsblatt: For instance?
Zhang: Not far from here in the city of Ghent, a factory owned by the Volvo car company was in a very difficult situation in 2008. Then a Chinese company acquired Volvo car company. With capital coming in and innovation motivated, this factory in Ghent has managed the turnaround.
Handelsblatt: Another good example is the port of Athens acquired by a Chinese investor. But not all Chinese investment is welcome in Europe. That is the reason why the European commission has proposed an investment screening scheme. How do you appreciate this scheme?
Zhang: Investment is driven by market forces. So it is not true to say that Europe does not welcome Chinese investments.
Handelsblatt: The German and the French governments are very concerned about the fact that Chinese companies backed by the state are buying out companies in sensitive technology sectors in Europe.
Zhang: If an investment is not a win-win deal for both sides, it could not happen at all. If the project itself is not attractive enough, no investor would put money in. Investment is a market behavior in nature. Market as an invisible hand is playing its role. But currently unfortunately there seems to be a busy hand that is trying to do a disservice, trying to tie down the invisible hand of the market.
Handelsblatt: When the Chinese state is financing investments in Europe with subsidies one can’t see any more of an invisible hand of the market.
Zhang: I think this is just your assumption. The pockets of the Chinese government are not as deep as you believe. And the vast majority of Chinese companies in international markets are private companies.
Handelsblatt: But they still rely on state subsidies. The other side of the coin is that China is still one of the most-closed economies of the world.
Zhang: European companies are very active in the Chinese market. I would like to share with you some figures to see the state of China-EU investment. By the end of April the EU’s stock investments in China amounted to 120 billion US dollars, accounting for 4 percent of the EU’s total stock investment overseas. And China’s stock investments in the EU amounted to a little over 80 billion US dollars, only 2 percent of the total FDI flows into the EU.
Handelsblatt: The European Chamber of Commerce in China said recently that a vast majority of European investors still does not see an opening of the Chinese market.
Zhang: Last October and again April this year China made announcements to further open up its markets. Last week the Chinese government announced even more measures, including the new negative lists for foreign investment, to cut restrictions on market access. These measures include further opening of 22 sectors. The manufacturing sector is now basically opened up. And the level of opening-up in the service sector has fairly increased. China is delivering on its promise. I have seen positive comments in European and American media on this and also by the European Chamber of Commerce in China. The business climate in China is not bad. According to a survey conducted by the World Bank, the ranking of China in terms of ease of doing business has gone up by 18 places, and the ranking in terms of setting up a business has gone up by 65 places.
Handelsblatt: But the director of the European Chamber of Commerce in China Mats Harborn said recently that he sees not so much progress in the opening up of Chinese markets.
Zhang: According to the latest business confidence survey issued by the European Chamber of Commerce, more than 60 percent of European companies are optimistic about their future in China. Of course nobody is perfect and so is China and we will continue to improve the business environment. There is another fact that about 20 to 30 years ago, the decades that I personally lived through, foreign investors were granted supra-national treatments. After China’s accession to WTO in 2001, these supra-national treatments have been gradually replaced by national treatments. As we Chinese often say, it is more difficult to go from extravagance to frugality than the other way round. It is natural for companies to have some complaints, but we will continue our efforts to improve business environment as I said.
Handelsblatt: Chinese and European leaders are meeting often these days. On Monday the Chinese premier will meet the German chancellor in Berlin. What is his main message?
Zhang: The first message is a strong commitment to cooperate with Europe. And the second message will be to say No to unilateralism and protectionism.
Handelsblatt: Some observers in Europe got the impression that China tries to benefit from the trade dispute between the western allies Europe and America…
Zhang: No one will benefit from the trade conflict. Everyone is a loser in this scenario including China, the EU and also including the initiator of the conflict.
Handelsblatt: What can China do to avoid further escalation of the trade conflict with the US?
Zhang: China has made great efforts to avoid that the trade conflict develops into a trade war. And we are making great efforts to avoid the world economy falling victim to such a trade war. But, as we often say, it takes two hands to clap. If only China makes such an effort and the other side does nothing, this will not be accomplished. If such a trade war would be imposed on China, we will fight back as firmly as we are prepared to prevent a trade war.
Handelsblatt: The U.S imposed a 25% tariff on Chinese products with a volume of 34 billion Dollars. How severe will be the consequences for the Chinese economy?
Zhang: Once the trade war actually breaks out, nobody can be a winner, neither China, nor the EU. America itself would not be a winner either. But a policy of compromise or appeasement would only be counterproductive. We must have the determination to show the initiator of the trade war that this is a wrong thing and it cannot go ahead.
Handelsblatt: President Trump is already threatening another round of tariffs targeting Chinese products worth 200 billion US Dollars. Would China retaliate again?
Zhang: China will not give up any opportunity to prevent the whole world from falling into the danger of a trade war. But if the threat is actually turned into reality, and the trade war is imposed on us, China will fight back firmly as well. The Chinese people love peace, and I think the same is true for Europeans. We don’t want to see any kind of war, including a trade war. So, we must let the initiator of the trade war know that it’s wrong to do so.
Handelsblatt: The consequences of such an escalation for the Chinese and the world economy would be very serious…
Zhang: Very serious, yes.
Handelsblatt: There are concerns about the financial stability of China. The currency and share prices are under pressure. Is this a serious point of concern for the government?
Zhang: In case of an outbreak of a trade war, the whole world economy would be severely affected. The consequences you just mentioned might happen in many members of the international community. That’s why we have to say No very firmly to the initiator of such unilateral and protectionist behavior.
Handelsblatt: Is the European answer to this American unilateralism firm enough?
Zhang: China and the EU have broad shared interests and also consensus on upholding the rules-based multilateral trading system. And the EU’s approach is similar to ours. Both sides have strong determination to address the situation.
Handelsblatt: Washington is demanding Beijing to change its industrial policy as outlined in the “Made in China 2025” strategy. Is that negotiable for your government?
Zhang: I think it’s groundless for the US to target the “Made in China 2025” policy. The strategy aims to provide strategic and information guidance for the upgrading of China’s manufacturing sector. Its nature is therefore very similar to the EU industrial policy strategy released by the Commission last year or Germany’s Industry 4.0 strategy. In drafting the strategy, we have made sure that it’s consistent with China’s WTO commitments. If partners have different views on this, we’re open for discussion, but in the multilateral framework and not resorting to unilateral actions.
Handelsblatt: Prime Minister Li Keqiang met the Heads of 16 Eastern European Countries on Saturday in Sofia. Many European officials see this initiative as a way of increasing Chinese influence in the region, as well as in the EU.
Zhang: In the past six years, the “16+1” cooperation has brought important progress in terms of economic and trade cooperation, marked by growing trade, investment, tourism, etc. Both the 16 CEE countries and China are satisfied with the cooperation. We see this cooperation as an important part of China’s overall relations with Europe. And we believe greater development in this region will contribute to the integration process of Europe. I also want to emphasize that “16+1” cooperation is open and transparent. It is a tradition that we invite EU leaders to “16+1” summits. Every summit has EU observers.
Handelsblatt: Member States such as Hungary and Greece have blocked unanimous EU decisions targeting China several times. Is China using its strong economic relations to these countries to split the EU?
Zhang: China has strong economic relationship with many countries. But we do not think that economic issues should be politicized. As to the Hungary and Greece cases you refer to, China appreciates the objective positions they upheld. But there is no linkage with China’s economic cooperation with these two countries. Business is Business.
Handelsblatt: But isn’t the economic Belt & Road Initiative by President Xi Jinping exactly the opposite – using an economic vehicle to increase China’s political influence in the countries involved?
Zhang: China proposed the initiative in 2013 when the world economy was still recovering from the impact of the international financial crisis. It is a platform to enhance economic cooperation and development. Therefore it has been welcomed by many members of the international community. It’s a misperception to insist on linking the initiative with geopolitics. But we have the patience to do more for clarification and communication.
Handelsblatt: How do you explain the high level of mistrust China is facing in Europe?
Zhang: I don’t see mistrust in Europe concerning the Belt & Road Initiative – actually many business people are very eager to participate. Some others might still be watching and there may be even skeptical voices. This is understandable because the initiative is still young, and it takes some time to better understand it.
Handelsblatt: The perception so far is that the initiative is mostly about Chinese money for Chinese contractors.
Zhang: An important principle for implementing the Belt & Road Initiative is extensive consultation, joint contribution and shared benefits with the partner countries. That principle also applies to financing cooperation.
Handelsblatt: The EU has strict rules for transparency and public procurement. The projects don’t always meet those standards as was the case with the new railway between Belgrade and Budapest.
Zhang: The Belt & Road Initiative follows market principles and globally recognized WTO rules. But different participants may have different levels of development and therefore different realities on the ground. We have to take into account the local conditions as well.
Handelsblatt: That means less strict rules in non-EU countries such as Serbia?
Zhang: The Belgrade – Budapest railway is an important infrastructure project in the region that will boost economic development, and of course it will follow local rules. For the project that’s within Europe, it will of course follow European rules.
Handelsblatt: Coming to the end a more principal question. You say Business is Business, that’s an important sentence…
Zhang: Not only for China but for everyone…
Handelsblatt: China is becoming an economic world power, but what about its political ambitions? Is it only about business?
Zhang: For China the most important political task is delivering a good life to our nearly 1.4 billion people. This is not easy to achieve. In the past 40 years we have successfully lifted 700 – 800 million people out of poverty.
Zhang: Thank you, but we’re not complacent. There is still a lot of room for further improvements. In terms of income per capita our ranking is behind 80 in the world. We still have 30 to 40 million people living under the poverty line today. And we have 80 million people with disabilities; it’s not easy delivering a good life to them. That’s why Chinese people want peace and stability in the world. Our development is still a daunting task.
Handelsblatt: Is there something Europe can learn from China’s economic success?
Zhang: I would say that China has a lot to learn from Europe – your managerial expertise, environmental protection and innovation, for example.