Henry Huiyao Wang: Anxious West seeks to rewrite global trade rules to counter China
Beijing should not be accused of trade unfairness simply because Chinese companies have become efficient, innovative and globally competitive, says CCG President.
From Henry Huiyao Wang’s opinion column in the South China Morning Post yesterday (Tuesday, 23 June)
Anxious West seeks to rewrite global trade rules to counter China
Beijing should not be accused of trade unfairness simply because Chinese companies have become efficient, innovative and globally competitive
At the recent Brussels summit, the leaders of all 27 European Union states called on the European Commission to expand the bloc’s trade defence toolbox against “global macroeconomic imbalances”, widely understood to refer to China’s so-called overcapacity.
Measures under discussion include mechanisms for sector-wide tariffs and other restrictions in industries such as chemicals and green technology. Europe, long a critic of Washington’s Section 301 tariffs, is now considering instruments that increasingly resemble them.
For decades, the United States and Europe championed an open trading system built on multilateral rules, comparative advantage and global supply chains. They also urged China to open up its markets, lower tariffs, welcome foreign investment, strengthen intellectual property protection and integrate into the rules-based trading system.
Yet, as industrial competition intensifies, governments increasingly fear deindustrialisation, supply-chain vulnerabilities, technological dependence and the political consequences of economic dislocation. From Washington’s tariffs and industrial subsidies to Europe’s growing embrace of trade defence instruments, protectionism seems to be back in vogue.
That is the context in which the “overcapacity” debate exists. Overcapacity is a misnomer. China’s manufacturing capacity grew because it opened up and integrated itself into global supply chains. Chinese products became more competitive through scale, market discipline, infrastructure, industrial clustering and decades of manufacturing expertise.
China changed laws and regulations to meet international standards. It welcomed foreign joint ventures and wholly foreign-owned enterprises, deregulated its economy, created more incentives for businesses and entrepreneurs, and offered stronger protection for intellectual property rights. In other words, China did the things its trading partners wanted it to do.
Still, the concerns of advanced industrial economies are real and should not be dismissed. Germany, France, Italy, Spain, Japan and South Korea are all export economies with skilled workers, advanced manufacturers and communities whose livelihoods depend on the automotive, machinery, chemicals and other high-value sectors.
China’s industrial competitiveness does create pressure for them. But Beijing should not be accused of unfairness simply because Chinese companies have become efficient, innovative and globally competitive.
BYD is a useful example. Its advantage is not the product of state support. The private company’s advantage comes from vertical integration, digital-native production, battery expertise, engineering discipline, cost control, hard work and technological innovation. Recent estimates suggest BYD produces around 70 per cent of its components in-house, including batteries.
It also benefits from being located in China, the world’s deepest industrial centre, with access to dense supplier networks, skilled labour, engineers, logistics systems and manufacturing know-how. That ecosystem allows companies to reduce costs through efficiency, not merely through subsidies.
Nor is China’s automotive sector a sheltered paradise. It is one of the world’s most brutally competitive markets. It has consolidated sharply since 2018, when there were reportedly 487 electric-vehicle makers to just 129 last year – with only 10 to 15 expected to still be profitable by 2030. And while China’s vehicle exports have risen quickly, it still sells most of its cars at home.
Last year, China made and sold more than 34 million cars, with 8.32 million exported – this is not a sector producing mainly for foreign markets. For comparison, Germany produced 4.15 million passenger cars last year and exported 3.17 million of them, an export rate of 76.5 per cent. Japan produced 8.41 million passenger vehicles last year and exported 4.17 million of them – about half.
If global production for global markets is normal when Western multinationals do it, it cannot automatically become illegitimate when Chinese companies do it.
At the same time, amid a real transition strain for Europe and other advanced economies, China should and will continue to rebalance its growth model towards stronger household consumption. A larger and more confident Chinese consumer market would not only absorb more domestic production but also create greater opportunities for European, Japanese, Korean and American producers inside China. In doing so, classic market mechanisms would recycle China’s gains into domestic demand and imports.
China should also gradually allow a more flexible and market-responsive exchange-rate regime. The yuan operates under a managed float, but a clearer move towards greater flexibility would bolster the natural shift towards a balance in global markets and increase Chinese citizens’ spending power and quality of life while bolstering foreign manufacturing jobs abroad.
Europe also has a role in addressing the imbalance. Rather than relying mainly on tariffs, it should welcome Chinese investment and partnerships that create local jobs and transfer process knowledge. This is especially important in green industries.
Europe cannot demand a faster climate transition while excluding some of the world’s most competitive producers of electric vehicles, batteries and solar technology. Just as European firms contributed capital and industrial knowledge to China during its reform and opening up, Chinese companies can now support Europe’s industrial renewal.
The answer is not for Europe to follow Washington down the path of unilateralism. The US weakened the World Trade Organization as a mechanism for resolving disputes by blocking appointments to the appellate body after rulings went against it; Europe should not repeat that mistake. Nor should Beijing dismiss every foreign concern as protectionism. China should continue its reform and domestic rebalancing, while Europe should recognise that industrial success is not the same thing as unfair trade.
Both sides should refer these disputes to negotiation and focus on WTO reform and renewed multilateral discipline, working together to manage the dislocations of trade rebalancing while retaining the benefits of free and open markets.
