Date
11 December 2018
Tax reduction and stimulation of domestic consumption are some key short-term measures that  China should focus on to revitalize its economy, observers say. Photo: Reuters
Tax reduction and stimulation of domestic consumption are some key short-term measures that China should focus on to revitalize its economy, observers say. Photo: Reuters

Talks with US critical but China’s own reform the real key

In the Trump-Xi meeting at the G20 summit in Argentina late last week, the atmosphere was far less intense than what was seen during the APEC summit in Papua New Guinea two weeks ago when Washington was represented by Vice-President Mike Pence.

The ceasefire outcome from the Buenos Aires meeting was in line with expectations, and the financial markets responded positively on Monday before taking a dive the following day.

Is it the US or China that is taking the upper hand in the negotiations? The answer depends on who you ask. The way I see it, when both sides have their own complaints, that is often a good sign for a fair deal.

In the US, some people criticized Trump for having softened his stance. They pointed out that China’s offer to purchase more agricultural, energy and industrial products from the US is nothing new compared to the discussions in April.

It has also been pointed out that China does not have a good record of honoring its promises to enhance intellectual property rights protection, and that Beijing has denied any forced technology transfer. Another 90 days is not going to change much.

In China, meanwhile, quite a few were upset because the US has not made any concessions in return as Beijing agrees to increase US imports.

People are also worried a too-drastic structural change could destabilize the economy.

In my opinion, Beijing would spare no effort in negotiating a good deal within the 90-day period. While China will try its best to defend the areas of core strategic benefit, it would makes sense for it to address US demands on things like intellectual property rights protection, as reforms like these will also do China good in the long run.

The outcome of US-China trade talks is important, but China’s domestic economic reforms are even more critical to the nation’s future development.

VAT and other tax cut measures should be implemented as soon as possible to stimulate consumption. Deleveraging has to continue. In the longer run, acceleration in market opening and capital account liberalization as well as yuan internationalization are also key tasks.

This article appeared in the Hong Kong Economic Journal on Dec 4

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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RC

Eddie Tam is the founder and CEO of Central Asset Investments.

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