Opening up, China’s reaction to Trump’s Tariffs

Huang Qifu, Deputy Director of China's 12th National People's Congress Financial and Economic Committee and former Mayor of Chongqing, is widely recognized as one of the top government officials that has a deep understanding of the operation of market economy. Chongqing is one of the four Chinese municipalities that directly reports to the central government with a population over 30 million.

Atranscription of Huang's recent speech is spreading widely in the Chinese social media. It is a long speech with some of the standpoints very novel and bold.

Huang started with a description of the new characteristics of the international trade. He pointed out that intermediate goods and raw materials became the heavyweight contributing to 70% of the international trade by value last year. In contrast the share of finished products by value in the international trade was 70% in the 1980s.

The underlining factor to this change is that products are no longer produced in one country and sold to other countries. Instead, products are assembled with the parts and components made by hundreds of suppliers in dozens of countries.

To coordinate this highly internationalized production chain, or value chain, gives rise to the service industries whose share in the value of international trade has increased from a very low level to 30 percent at present.

These servicing industries such as logistic, finance, insurance, legal and arbitrary, accounting, auditing and etc are mainly developing in free-port cities such as Singaporeand Hong Kong where internationalized rule of law is standard and tax rate is low, around 12.5% to 15%.

Huang emphases that the benchmark for nations to be successful in the contemporary international trade should be:

First, be able to foster giant corporations that are in control of advanced technology, manufacturing of key components and establishment of standards which are key junctions in the contemporary international trade

Second, be able to develop hub cities capable of accommodating the service industries related to international trade.

Huang admitted that except for a few, such as Huawei, the majority of Chinese enterprises only take subordinate role in the value chain dominated by major multinationals. And a great deal of the transactions related to the Chinese international trade is settled in cities outside of mainland China.

Huang's suggestion to improve China's stature in the international trade is to further open its market to the world.

In Huang's opinion the convergence of the world economy is accelerating. The EU and Japan have finalized negotiations on EU-Japan Economic Partnership Agreement (EPA). Developments have been made on the negotiation for the free trade agreement between the US and EU. Japan and Australia have led to rebirth of TTP. These free trade agreements in combination with NAFTA account for 54% of the global trade.