China takes new step in trade war with Trump

China has a new buzzword in its trade war with Donald Trump, and Australia’s former competition tsar Allan Fels says it could be a “big step” forward for the communist state.
The Trump Administration has attacked China’s economy as being dominated by state-owned enterprises, which rank as some of the biggest companies in the world, with combined revenue of $US3.38 trillion last year (K10tril).
As it wages a multi-billion dollar tariff war, the US also wants new rules for the World Trade Organisation that curb China’s state companies, which it claims are unfairly competing with US firms.
Instead, China’s reserve bank governor Yi Gang announced Beijing is considering applying a “competitive neutrality” policy. The term has reverberated across the front pages of Chinese state newspapers this week, with business magazine Caixin saying it was first proposed by the Australian government in 1996.
“Competitive neutrality” means that state-owned and private companies compete on a level playing field, by ensuring government businesses don’t enjoy an unfair advantage in a raft of areas including tax, pricing and financing.
The former chairman of the Australian Competition and Consumer Commission, Professor Fels was also involved in drafting China’s 2008 anti-monopoly law.
He tells Fairfax Media that a decade on, “they need to take stronger measures”.
“The full adoption of competitive neutrality would make a big difference to the acceptability of SOEs (state-owned enterprises) internationally,” says Fels.
But he said this must involve ending Chinese government subsidies of SOEs, and “no subsidised loss making”.
“It would require a political decision to make it happen… They are well short of full competitive neutrality. It is a very necessary step,” he said.
Competitive neutrality is a term that should be familiar to Australians, says Peter Drysdale, head of the East Asian Bureau of Economic Research at Australian National University.
In the mid 1990s, when Australia embarked on a spate of privatisations, a competitive neutrality office was set up inside the Productivity Commission. It continues to investigate complaints against government-owned companies such as the NBN, testing whether they gain an unfair advantage by being government owned.
He said the critical issue was whether SOEs operate according to market principles.
Drysdale says Yi Gang’s use of the term is “an important development”.
“This is the way forward on this, and it is consistent with what China is trying to do with SOEs, massive political task as it is.”
Chinese business magazine Caixin wrote in an editorial that China’s SOE reform hadn’t lived up to expectations because of obstruction from vested interests, but also fear of reprisals if state assets were sold off too cheaply.
SOE reform has now become “a key aspect of economic reform”, the editorial said.
Drysdale said the issue should be dealt with through the World Trade Organisation or Regional Comprehensive Economic Partnership (RCEP) and not under duress from Trump.
In Australia, where more investments are made by Chinese private companies than Chinese SOEs, it may be less of a burning issue than in Washington.
A new database on Chinese investment in Australia run by ANU shows 15 per cent of 234 transactions between 2014 and 2017 involved a Chinese state owner. – SMH