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China cedes to US by opening car industry to foreigners

Charles Clover, Emily Feng and Sherry Fei Ju
China's President Xi Jinping claps after his speech as he and other new Politburo Standing Committee members meet with the press at the Great Hall of the People in Beijing, China October 25, 2017.
Jason Lee | Reuters

China has conceded to a key demand from American carmakers while increasing tariffs on imports of sorghum from the US, as Beijing adopted a carrot-and-stick approach to its deepening trade dispute with Washington.

With the threat of a full-blown trade war hanging over US-China relations, Beijing is seeking to show an uncompromising attitude in the face of tariff threats from Washington while also yielding to pressure to bring trade policy in sectors such as automobiles in line with global norms.

A 178 per cent import duty on imports of US sorghum announced on Tuesday came in tandem with plans to continue liberalising its automotive sector.

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China's state planning agency outlined a five-year timetable to ease restrictions on foreign investment in the car industry and some other manufacturing sectors, in line with a promise made by President Xi Jinping last week.

The moves by Beijing came after US president Donald Trump threatened to impose tariffs on a range of imports from China worth about $150bn a year. After releasing a detailed list of products covering the first $50bn in trade in retaliation for alleged Chinese technology theft, US trade officials are working on a similar list for the remaining $100bn that could be released as soon as this week.

Meanwhile, the debate in Washington is intensifying over Mr Trump's tariff threat, with much of the US business community and Republicans in Congress opposed because of fears it could spark a trade war between the world's two largest economies.

There are also signs that the Trump administration is engaged in its own debate between those who favour a quick deal with Beijing and those who want to wage a longer conflict aimed at reining in China's economic ambitions.

The announcement on Tuesday from China's state planning agency will abolish foreign ownership caps on electric vehicles, shipping and aircraft manufacturing by the end of the year, while restrictions on commercial vehicles would be removed by 2020. At present foreign companies wishing to produce cars domestically are required to have a 50-50 joint venture with a local Chinese partner.

Foreign car groups have long complained that Beijing's use of ownership caps and joint venture requirements has protected domestic manufacturers at their expense.

Tu Le, head of Sino Auto Insights, a market research company, said the new rules could be meaningful for electric vehicle makers such as Tesla that do not already have operations in China.

But the changes were unlikely to lead to massive shifts in the way foreign vehicle manufacturers conducted business in China, as most had learnt how to make handsome profits in the country despite the restrictions.

"Most of them already have established fully functioning operations in China so this might after all might not be that helpful to them," Mr Le said.

By targeting agricultural commodities, Beijing can affect the "red states" that voted for Mr Trump in the 2016 presidential election.

China imported about 4.8m tonnes of US sorghum last year, worth about $957m, according to customs data. The sorghum levy was in response to a Chinese anti-dumping investigation that began in February.

Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant, said hitting sorghum was a relatively painless move for China because the main reason for large imports was inflated grain prices set by the Chinese government that had made US sorghum relatively cheaper. China began importing large amounts of sorghum from the US in 2014.

"It doesn't make a big difference to China if we don't import from the US," he said. "The reason for starting sorghum imports in the first place was because of the pricing policy."

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