China's Xi Promises to Open Up Economy

Chinese President Xi Jinping reiterates his promises to open up China's economy further and impose lower tariffs.

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Chinese President Xi Jinping renewed his promises to open China’s economy further and to impose lower import tariffs on different products, including automobiles. His speech took a softer tone in an attempt to squash its brewing trade dispute with the United States.

Xi’s speech also pushed US stock futures, the US dollar, and Asian shares higher. On the flip side, most of Xi’s promises were a repetition of his previously announced measures. Many foreign business groups say that such promises have been long overdue.

Xi said that China will widen market access for foreign investors. The narrow and strict market access has been one of the major complaints of the Asian country’s trading partners. Market limitations are also a key contention for US President Donald Trump’s administration.

Previously, Trump threatened to slap steep import tariffs worth billions of dollars on Chinese goods.

The speech was made at the Baoao Forum for Asia in Hainan, a southern province in China. It has been widely anticipated by most market participants as Xi’s first major address this year. 2018 has been particularly special since this year marks the 40th anniversary of the ruling Communist Party’s landmark reforms.

Xi said that the country would scrape foreign ownership limitations “as soon as possible” in sectors such as automobile, shipbuilding, aircraft. He said he will also follow on his previously pledged measures to open up the financial sector.

“This year, we will considerably reduce auto imports tariffs, and at the same time reduce import tariffs on some other products,” the Chinese president said.

He also stated that “Cold War mentality” and isolationism would “hit brick walls.” However, in his speech, he did not single out the United States or its trade policies.

Since at least 2013, Chinese officials have been promising to loosen up the tight restrictions on foreign joint ventures in the auto industry. This would enable foreign businesses to take majority stakes.

Currently, foreign ownership is limited to a 50 percent stake in joint ventures. Foreign businesses are also not allowed to put up wholly owned factories.

Tesla’s Chief Executive Officer Elon Musk has voiced out his disapproval of an unequal playing field in China. Musk wants to retain full ownership over a manufacturing facility the company wants to build in the Asian territory.

Meanwhile, Chinese Vice Premier Liu He pledged at the World Economic Forum in January that the Asian giant would kick off fresh market openings in 2018. He also said it would lower auto import tariffs in an “orderly way.”

Foreign business groups showed positive response to Xi’s commitment to reforms, which include promises to fortify legal deference on intellectual property violators. However, they said that the speech failed to address some of their specific concerns.

“Ultimately, the US industry will be looking for implementation of long-stalled economic reforms, but actions to date have greatly undermined the optimism of the US business community,” said Jacob Parker, the vice president at US-China Business Council for China operations.

Brewing Tensions Ease Up

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The head of Beijing office at Everbright Sun Hung Kai, Jonas Short, said that the market welcomed Xi’s speech, which helped ease up trading tensions. However, he also warned about the possible extent of the promised reforms.

“China is opening sectors where they already have a distinct advantage, or a stranglehold over the sector,” said Short while citing China’s banking industry that consists mostly of domestic players.

Xi also said in his speech that China would open up its insurance industry. According to local news agency, foreign investors should be able to hold a controlling stake or full ownership in an insurance company in the future.

Recently, China has accused the United States of promoting global protectionism, even if its trading partners have been calling it out for years for alleged abusive use of the World Trade Organization’s rules.

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