"Trump's election ups risk of China trade war"

Prof. Christopher Balding Photo: PR
Prof. Christopher Balding Photo: PR

China expert Prof. Christopher Balding will tell the Globes Israel Business Conference how the Chinese see the election of Trump.

Prof. Christopher Balding, Associate Professor in Political Economics at Peking University HSBC School of Business in Shenzhen and one of the world's leading experts and commentators on the Chinese economy will take part in the opening plenary session of the Globes Israel Business Conference in Tel Aviv next week. The session is entitled "World Economy: Assessing the Risks and Identifying the Opportunities." Bearing in mind Donald Trump's election promise that he would impose customs duties of 45% on goods imported from China, we asked Prof. Balding how seriously this could be taken.

Prof. Balding said, "The risk of a trade war between the two largest economies absolutely has increased by a not insignificant amount because you have to take Trump at his word if he is going to try and raise tariffs on Chinese products by a not insignificant amount. You have to take him at his word that that is what he is going to try and do and you would be a fool to not take him at his word."

However, he added, "But I think for many reasons this is very unlikely because he does not have the legal authority to go in from day one and do this. It can't be 45% tax, he just doesn't have that authority."

"First of all, there would be a very large business lobby push back in the US to that. Whether it's just small and medium size businesses in the US that export to China, which fear that their businesses would be hurt from exporting to China or whether it's the large multinationals that have very large business interests in China. And then tariffs especially on the type of products that are imported by the US from China that would be a very large tax on the poor primarily in the US. A very simple example would put a very large tax on Walmart products. OK. That would have a big proportion impact on the poor and middle income in the US."

"There is also the matter of what are the legal and regulatory hurdles that would come up on this. Luckily, one of the big things about American power is that the American system of government has a lot of restraints on executive power and I think it is very true to say that on these types of issues the American president cannot just come in and say that I am going to impose taxes, he doesn't have that pull, there are both legal and regulatory things that he has to go through to be able to do that."

"I'll be honest and say fundamentally anybody that says this is what Donald Trump is going to do is just making it up. Nobody really knows what he is going to do. OK. And I think that we can say that throughout his public life, let's says the past 10 years or even in the past 15-20 years he has taken nearly every imaginable solution that's been thought up for just about everything during that time. So if you just listen to his words, you know, even in the past five years, he has been for and against so many different things, so it is in some ways difficult to tell."

"With China, I think that if Trump goes to the Chinese and says guys look you got to open up your markets more. OK. Something like that. Now there is some discussion within Chinese policy circles about these type of issues and there are those pushing for greater market opening and stuff like that and the Chinese reforms right now are really going backwards, I think even the most optimistic would agree with that and so they might be able to say that the big bad Americans are looking for a deal to strike and that might kind of give them cover to maybe undertake the reforms they might not be willing to otherwise."

"And then Trump can go in and say hey guys I extracted some concessions, so we're going to give the Chinese the benefit of the doubt right now because over there are a lot of opportunities. So both sides take something valid in terms of a trade deal."

How is Trump perceived in China?

"You know it's very difficult to say about the man on the street. I think there are definitely some positive feelings from the man on the street. There is also concern that he does not seem as stable as a Hillary Clinton. So there is that mixed concern about that. So there is an attraction to him in that he kind of projects and acts like a little bit more of the strong man, which I think kind of also appeals to many Chinese, so it's kind of a complicated perception of how he is perceived and there is definitely positive and negative of how he is perceived."

The role model of Trump as a successful businessman who has led a very glittering life and has been a celebrity, is this something that appeals to the Chinese?

"I do think there is something that appeals to the Chinese and I think it is such the opposite of Chinese politicians. Chinese politicians all wear identical clothes, their hair is all the same so Trump is very much out of character for the way that China normally sees politicians. So there is a fascination about Donald Trump and how he behaves which is so unlike all other politicians."

So you don't see a significant rise in anti-American sentiment following the election results?

"I wouldn't say so right now and I think a lot of that has to do with even though he has banged on the table a little bit before about like raising tariffs by 35%, he hasn't really hit the hot button issues and in fact in many ways he has indicated some potential agreements to the Chinese and the Chinese public but again it is very difficult to know how much of that he really intends to follow through. You know one of the things about Trump is that he indicated an isolationist interest in foreign policy.

Which is something the Chinese are supportive of

"Yes they would be very positive and receptive to a more isolationist tendency in US foreign policy as long as Chinese goods could still get into the US. So if Donald Trump takes the US in that direction where their cares about the South China Sea were watered down. If the US took a less muscular foreign policy in other areas whether it was in Africa, whether it was in Europe, things like that, those are areas absolutely China would be very appreciative of a more isolationist US foreign and economic policy but again it is very difficult to say with any certainty what type of foreign and economic policy President Trump would take."

But there hasn't been any reaction yet by the Chinese government?("Globes" interview took place before Trump's Taiwan call last weekend)

"My understanding is that President Xi called President Trump and said that he hopes to work constructively together and things like that. But other than congratulations and things like that there has been very little reaction."

On the Chinese buyout of foreign companies. Would it be wise for the Israeli government to define sectors, which are not for sale?

"I am generally in favor of free trade but one of the few exceptions is in national security concerns. National security is sometimes difficult to define. For example there are a lot of metal companies that might have nothing to do with national security but there might be a metal company that is making a specific metal alloy or something like that which is used in specific or very unique functions that could be very pertinent to national security. A lot of times it is on a case by case basis but there is a lot of concern, especially because there is a symmetry, such a large symmetry between how Chinese companies are treated in the world and how foreign companies are treated in China."

"Let me give you an example. In China, they are only allowed to import 34 foreign films a year that's for the entire country. But one of the key investments of Chinese firms is to buy movie studios all around the world so they are currently buying up pieces of most of the major movie studios around the world and so it's very understandable that a lot of countries are looking at this access being given to Chinese firms and looking at the openness and access for Chinese firms and looking at the closed nature of the Chinese economy and investment market and saying hey this program is really repressive."

On the question of national security, I think it is very fair to say that there are proposed acquisitions of Israeli firms that have been firms that have served some kind of national security function and I personally would urge a lot of people to be careful of a narrow definition of national security. Some countries have taken very broad definitions of national security so that includes just about everything. China takes an incredibly expansive view of what constitutes national security and I urge a more narrow definition so that if it is involved in key aspects of military or technology or things like that might be used for national security functions that's a very understandable rule for a government take, you might not want to let big companies be sold to a foreign company, to a foreign power, especially a company that might be linked to a government that might not be as friendly as others."

The latest figures I have seen is about $400 billion that the Chinese companies have spent over the past year in purchasing foreign companies and assets. Do you see these numbers growing still in the future?

"Yes I think these numbers absolutely will continue to grow. I think that trend is very much continuing. I don't think there is any doubt about that it will definitely continue for the foreseeable future."

What is the motivation for that, economically speaking?

"I can tell you which industries basically interest Chinese companies. I can tell you that they are interested in virtually any football club that they can buy in Europe, the government has told them to go out and buy foreign clubs.The government decides what industries they want to target and one of those industries on that list is the soccer clubs."

"President Xi wants China to become a football power and so various sums of money are being spent in building a domestic league in building a domestic industry of football teams. They've gone out and spent large amounts of money to bring foreign footballers to Chinese clubs and they have allowed their firms to go out and buy foreign football clubs and so it is completely in line with their policy to become a football power."

Are there any other sectors likely to be added to the shopping list for Chinese companies?

"Technology, finance, world trade, media, not as much natural resources any more but also natural resources would be. I think high technology will further their industry a lot and so high-tech type of firms, in terms of having a real technological advantage are encouraged."

Do you see the stability risks China poses to the global economy abating or is it still one of the risks to the global economy?

"I think that the Chinese economy right now is actually relatively stable. The problem is that it is high in credit, driven by credit and is investment driven and while there is stability that continues to stir up longer term growth, but there is a wide variety of organizations like the Bank for International Settlement or the IMF with loans so these are concerns that simply aren't going away.

Can you talk about the house prices in Shenzhen?

The government has started introducing restriction measures around the country and so this is putting downward pressure on the Chinese real estate market. It will be interesting to see how fast that happens and how much that happens. Things like that. But I think it is very fair to say that real estate sales has been very high. I can says that household income in the Shenzhen area is maybe about $30,000 a year and the average apartment in the Shenzhen area would probably be about $1.5 million or something like that. So the number is really large. It is quite staggering. So this is very much a bubble but the measures being taken might deal with it.

Is the ballooning of corporate debt - an inconceivable $18 trillion - and debt in general being contained?

"Debt will continue to go up very rapidly, it appears to be going up maybe not as rapidly in the corporate sector. We really are seeing a lot of debt going very rapidly, and this relates to the real estate storm, is household debt is rising very rapidly again this is raising a lot of concern here that something is wrong."

Could this lead to a crisis as happened in the West in 2007-2008?

"Yes. That's exactly so."

Tourism to Israel from China has doubled over the past year. Is tourism in China growing as rapidly as it is abroad?

"There are two parts to that. The upper end of the travel market let's say domestic air travel and international air travel from China are growing strongly. Domestic air travel is up probably about 10% and international air travel is probably up about 30%. So those two sectors combined are up strongly. But other travel in China is down probably about 40% so far this year, so that matches data we have seen in hotels and restaurants and things like that. So there seems to be very different populations that are engaging in those kinds of travel. The Chinese middle and upper classes. So we are seeing a divergence in the tourism and travel market both domestically and internationally. International tourism is growing very strongly and I think will continue to grow very strongly for the foreseeable future."

Published by Globes [online], Israel business news - www.globes-online.com - on December 7, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Prof. Christopher Balding Photo: PR
Prof. Christopher Balding Photo: PR
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018