China scolds US over economy ‘distortion’

By BLOOMBERG

WASHINGTON • China said the US refusal to classify it as a market economy was a “serious distortion” of the facts, as tensions between the super-powers heated up just days before US President Donald Trump’s first trip to Beijing.

The US decision “ignored massive achievements China made in building a market economy,” harms the interests of Chinese companies and should be corrected, the Ministry of Commerce said yesterday. “The Chinese government will adopt necessary measures to safeguard the legal rights and interests of Chinese enterprises,” a spokesperson said in a statement on the ministry’s website.

The US Commerce Department said on Monday in a memo following a review of China’s market status that the state’s pervasive role in markets and involvement in the private sector causes “fundamental distortions” in its economy. The department performed the review in connection with its investigation into imports of aluminium foil from China.

“At its core, the framework of China’s economy is set by the Chinese government and the Chinese Communist Party, which exercise control directly and indirectly over the allocation of resources through instruments such as government ownership and control of key economic actors and government directives,” it said.

The reluctance of the US and Europe to consider China a market economy demonstrates that the strong role played by Beijing and state-owned enterprises (SOEs) do not sit well within the existing global trading system, said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. “This is bound to create friction, including in terms of trade and investment relations,” he said.

In its memo on Monday, the US Commerce Department said China fell short of being a market economy on a number of fronts, noting that the government maintains “significant” capital controls, imposes major barriers to foreign investment, and keeps control over the means of production through SOEs.

China argues it should be automatically recognised as a market economy after the expiry in December of a World Trade Organisation (WTO) clause allowing members of the trade body to determine China’s status.

Being endorsed as a market economy would be a symbolic victory for China, which joined the WTO in 2001 and has been vying for recognition as a major player in the global economic system.

The US has long maintained that China shouldn’t qualify as a market economy in anti-dumping cases. Under the rules of the WTO, countries that consider China a non-market economy can charge higher duties on Chinese products being sold in the US below fair-market value.

The move comes as Trump prepares to embark on a his first official trip through Asia, including stops in Japan, South Korea, Vietnam and the Philippines. Trump will visit Beijing starting Nov 8 for a series of meetings, including with President Xi Jinping.

After hammering China during the election for trading unfairly and costing US jobs, Trump hasn’t followed through on threats to label the nation a currency manipulator and crack down on what he sees as Chinese dumping of steel and other products.

US Commerce Secretary Wilbur Ross said last week that Trump will probably announce some “decent deliverables” on the trip, though he cautioned that more complex issues such as forced technology transfers may take longer to resolve. Representatives from more than 40 companies are expected to accompany Trump.