Is China Really Reforming Its Business Practices?

Paul Ausick

The U.S. trade battles with China have not yet become a full-fledged war, but there does not appear to be any roadblock to that eventual outcome. Chinese President Xi Jinping outlined his country’s reform agenda a year and a half ago at the World Economic Forum in Davos. U.S. President Donald Trump made his position vis-a-vis China abundantly clear last week with the imposition of $34 billion in tariffs on Chinese imports, along with the threat of pushing the total to some $500 billion.

A report issued Tuesday by the European Union Chamber of Commerce in China, “18 Months Since Davos: How China’s Vision Became a Reform Imperative,” the group criticizes China for failing to implement Xi’s stated agenda to open the country’s markets in any kind of timely fashion.

From the Chamber’s report:

It seemed that on the Chinese side more attention was being paid to what was going to be done, rather than what was actually being done. This was reflected by the continuous stream of positive, forward-looking articles published by Chinese state media, in contrast to the very limited amount of reporting on any concrete steps that had been taken.

The report also notes positive changes to China’s enforcement of environmental protection, the environment for local businesses, consumer protection procedures and encouragement for research and development.

But on the issues that have most rankled the United States and other nations, China’s performance has been “particularly disappointing.” Those issues are the government’s strengthening of its massive state-owned enterprises to the point where they wield heavy influence or absolute control over an entire market sector; failure to reform the country’s intellectual property rights, especially unfair technology transfers; and regulations that are overbearing, unequally applied and unpredictable.

Will tariffs help? European Chamber President Mats Harborn told CNBC, “The most important thing is we get away from using tariffs as a tool. That is very dangerous for the world economy ….”

Trump has also threatened to pull out of the World Trade Organization (WTO), a move that China has countered by announcing plans to establish two international courts in the country to settle cross-border disputes related to China’s massive Belt and Road Initiative. Withdrawing from the WTO is likely to have precisely the opposite effect that the president intends by legitimizing China’s proposed courts. Replacing the WTO with a Chinese-led substitute is not a winning strategy.