Chen Wenling: Can the heads of state of China and the US reach an agreement during the G20 in Japan?

speech at the discussion on China-US relations in Jeju Forum, South Korea

Questions from the moderator: the G20 summit will be held in Japan this June, at which President Xi Jinping and Trump will meet. Do you think that the two sides will sign a China-US trade agreement? Will a miracle happen?

Chen Wenling: Thank you! Whether or not the miracle may happen, depends on President Trump. For example, one second President Trump was shouting on the megaphone with Kim Jong-un, the next second he shook hands with Kim Jong-un in Singapore.

When President Trump met with President Xi Jinping in Argentina on December 1, 2018, they reached a consensus. They also reached other consensus when they met each other or called each other. Unfortunately, president Trump did not implement any of them. Instead, he chose to break his promises and exert extreme pressure on China.  If he continues to do things in the same way, miracles will not happen. The trade war has gone through 11 rounds and four stages since the beginning of the trade consultations. On March 22nd last year, the US imposed 25% tariff on US$50 billion of Chinese goods. Since September last year, it added 10% tariff on $200 billion of China’s exports to the US. On 10th May this year, the tariff on $200 billion of Chinese goods was increased to 25%. On June 17th, the US will conduct an investigation on $325 billion of Chinese exports and plans to add 25% tariff. As can be seen, Trump’s actions have escalated the situation. Now, it has started to suppress China’s high-tech products and enterprises. As a country, the US uses all means to suppress a company from another country, this is far beyond international rules. So far, 13 companies have become the target of the US. Such kind of practice has confused the Chinese people because the US always advertised itself as a free market economy. The US advocates market economy in the international community and also listed China as a non-market economy country. Why the US, as a market economy country, does not allow companies from other countries to compete equally in the international market? Is this the behavior of a market economy country?

Most of the Chinese high-tech companies that are now targeted by the US are concentrated in Shenzhen. In fact, Chinese high-tech companies are not only located in Shenzhen but also in many other places such as Beijing, Shanghai, Hangzhou, Chengdu. Using national power to kidnap a foreign company’s executives, this is not a practice a market economy should have. If the US does not stop this kind of practice, no agreement can be reached when the two leaders meet.

But miracles are also possible because Trump is actually under great pressure. Recently, he said in Japan that he hopes that China can return to the negotiating table as soon as possible and an agreement can be made with China. 90% of the tariffs imposed by the US are passed on to US companies and consumers. According to the latest IMF research results, the high tariffs currently imposed by the US will be borne by American exporters. Therefore, the US stock market fell sharply when the US imposed high tariffs on China, especially the companies that are closely related to Chinese high-tech companies.

Therefore, I said that miracles may happen. In fact, the US, especially Trump, is very anxious. Trump needs a good economy to run for the next presidential election. However, the US economy is not doing well after launching the trade war. China is a big country as well and it has to fight back in the trade war with the US. Of course, the trade ward will also hurt the Chinese economy, but the US economy is more likely to collapse. Trump wants to go back to the negotiating table, so a miracle may happen. Thank you!

Question from the moderator: The US is now sanctioning China’s Huawei, and it wants to cut off the supply. How will this affect China? Will this lead to heavy losses in Chinese high-tech companies?

Chen Wenling: Thank you very much for your question. The question you asked is also a concern of China. The US is indeed a leading player in the high-tech field, especially in the areas of semiconductors and certain core components.

Chinese enterprises are part of the global industrial chain and the world economy has become more interconnected than ever. In some areas, China is even in the upstream of the industrial chain, such as Huawei, but most of the industries are still in the low-end. To whom can the US sell all their high-end products if it cuts the industrial Chain? 60% of the core component, especially chip produced by US companies like Qualcomm, Broadcom or Intel, are sold to Chinese companies. In 2017, China imported $260 billion of chip worldwide, of which $87.5 billion are imported from the US.

The suppression of the US on Huawei has also brought tremendous pressure on companies such as Broadcom, Qualcomm and Intel. During the 90-day grace period, these companies are working day and night to make sure that Huawei has as much stock as possible. In fact, I believe that these American companies also want to reduce their losses. If the US cuts off its supply to Huawei in the future, it will shoot itself in the foot. Even if companies like Huawei and ZTE will be affected, the high-tech enterprises in the US will suffer more because they need to find new markets for their products. Where can they find a market as big as China? Are US companies withdrawing from the global industrial chain? Sooner or later, the pain, and even bankruptcy of these American companies will put the US government under enormous pressure. When the US tries to re-sell its chip to China, ZTE, Huawei and other Chinese companies may already have their own. The national innovation system in China is striving to produce its own chip. The Chinese people and enterprises have the will and ability to accomplish this transformation, it is only a matter of time.

The US has never blocked China successfully since the founding of the People’s Republic of China. The chip developed by Huawei has reached 7 nanometers. I went to Shanghai for a fact-finding trip recently. A remote sensing system developed in Shanghai can have large-scale commercial application and the chip they use is 28 nanometers. The world’s most advanced Panasonic imaging technology also use the 28 nanometers chip. It is not that the smaller the nanometer of the chip, the wider the application because different chips can be applied in different industries and products. Therefore, the vast majority of the industrial chain will not be blocked by the US. The US is the leader in certain industries but this does not enable it to block other industries. It will hurt the US companies badly if it tries to do so, or even lead to the disappearance of the US export market.

As time goes by, the US companies, markets, and consumers will feel more painful. This is my main point of view.

Question from the moderator: the Chinese market is very large and what are the prospects for future development? Many people are very concerned about the issues in China’s intellectual property protection, could you please tell us more about this. After South Korea deployed THAAD, the Chinese government restricts Chinese citizens from traveling to South Korea and staying in Lotte. What do you think of this?

Chen Wenling: the question you asked is very challenging and sensitive except the first question. The Chinese market is indeed very big and 70% of China’s economy is driven by domestic consumption in recent years, which is the main driving force for China’s economic growth. Last year, China’s tourist trips reached 5.5 billion, and the catering industry’s revenue exceeded 4 trillion. Chinese tourists are shopping in many countries and made an impact on their economies.

China has now an even better connection with its neighboring countries through the building of the belt and road program, therefore, the market is getting bigger and bigger. Moreover, China has hosted many imports and exports exhibitions, such as the China International Import Expo(CIIE)-Canton Fair and China International Import Expo(Shanghai). In the future, China is no longer merely a manufacturer but will become the center of international trade. I am very confident about the Chinese market, which will become China’s biggest dividend.

Actually, the Chinese government attaches great importance to the protection of intellectual property rights because Chinese companies need it as well, not just international enterprises in China. China’s total number of patent invention rights are second only to the US. The papers published by Chinese scholars in core journals rank the first in the world and are the sum of the US, Japan and South Korea.

Over recent years, a large number of Chinese enterprises have made great efforts in innovation. For example, Huawei’s expenditure on R&D last year exceeded 100 billion yuan. In the semiconductor industry, Huawei ranked the first in terms of R&D investment, and had the largest number of inventions and patents. The third one is ZTE. You can see how much money is invested by Chinese companies in R&D? China’s investment in innovation accounted for 2.18% of GDP last year, second only to the US. China’s achievements in innovation, including our high-speed rail, nuclear power and smart grid also require intellectual property protection because China is also engaged in international capacity cooperation and technology export.

Intellectual property protection is definitely not just the need of the US, China also needs it. As a matter of fact, the Chinese government has done a lot of work to protect intellectual property. China has established three intellectual property courts, one in Beijing, one in Shanghai, and one in Guangzhou. Besides, China has also established 16 intellectual property courts and more than 200 intellectual property rights protection. center. Both Chinese and foreign companies will be punished if they violate the protection of intellectual property rights.

As for the THAAD and Lotte you mentioned, I can say bluntly that the deployment of THAAD hurt the feeling of the Chinese people. The installation of the THAAD will enable the US to monitor China all the time and of course, China opposes it! If the US wants to supervise North Korea, it can deploy the THAAD around North Korea. This has not only caused conflict between the DPRK and the ROK, but also caused great anxiety in China. Therefore, China must oppose it. The emotion of the Chinese people cannot be controlled by the government. At that time, there was a big ship with thousands of Chinese tourists arriving at Jeju Island but they refused to go ashore after hearing that the Korean government will allow the US to deploy the THAAD. That was not an order from the Chinese government, it happened spontaneously.

Question from the moderator: Has China solve the problem relating to intellectual property protection completely?

Chen Wenling: China has indeed established an intellectual property protection system, and attaches great importance to the protection of intellectual property rights. It fights against counterfeit and shoddy goods, it even burned counterfeit and shoddy goods sometimes.

However, the violation of intellectual property rights will remain in the future. Not only China, Japan and Korea also experienced the same problem. During their rapid economic development in the past, Japan and Korea used to be a distribution center for counterfeit and shoddy goods. With the industrial transformation and advancement of society, these problems have become less and less. With the continuous development of the Chinese economy and the establishment of the intellectual property protection system in China, I believe that violations of intellectual property rights will be sanctioned by law, and it will have no place in the society.

I do not want to say that China does not have any violation of intellectual property rights. If this is the case, it will be useless for us to establish courts and protection centers for intellectual property in China. However, other countries have the same problem, including the US. All nations need to work together to protect intellectual property rights.

I am particularly in favor of the speech delivered by Mr. Jeffrey from the Peterson Institute. We have had many rounds of discussions before, and I have been to the Peterson Institute many times. Here, I would like to say a few last words.

Regardless of the current China-US trade war, or trade conflicts with other countries initiated by the US, the US should be liable. The actions of the Trump administration have undermined the credibility of the US. The US sacrificed its long-term interests for short-term interests, and sacrificed strategic interests for trade benefits. This will accelerate the economic slowdown of the US, or become a turning point of the US economy.

We must face the future. The current China-US trade frictions can no longer be simply resolved by consultation. Just now, the American experts, Korean experts, and Japanese experts all advocate rule-based free trade, and I agree with them.

I have a few tips or warnings to the US government.

Firstly, the US government must abolish the high tariffs it has imposed on various countries. The tariffs are imposed based on the US laws and regulations, not international order and rules and therefore, they must be abolished immediately.

Secondly, the US must redirect its strategic shift toward China. The previous strategic shift of the US is based on a misjudgment. Therefore, the US must implement a strategic reorientation. Now the US regards China as its main strategic opponent and a hostile force, which is completely wrong. China and the US should establish a constructive partnership to face the world and the future, so as to work together and build a better world.

Last but not least, Trump should stay clam and learn how to be a national leader. I think he is not mature enough. American economists, like the senior experts from the Peterson Institute could tell President Trump more about economics so that he can understand the principles of economics, the law of trade, and the order of trade.