Chapter 24 Analyzing Sino-US trade conflicts

In July 2005, CNOOC's bid for Unocal and the dispute over the RMB exchange rate made Sino-US trade frictions a hot spot of public opinion.What are the deep-rooted reasons for the Sino-US trade conflict?How should China reduce obstacles and risks in foreign trade? ◎Reporter: So far, how do you judge the outcome of CNOOC's bidding for Unocal?Do you think CNOOC will win the final victory? Chen Zhiwu: I hope this acquisition will be successful.However, judging from the current political resistance encountered, the prospect is not too optimistic.There are many reasons here, some of which are difficult for CNOOC to control.First, many members of Congress have spoken out against it.It is very good that CNOOC hired a very good PR firm to lobby members of Congress before the end of last month.But for lawmakers who have spoken out against it, the public relations efforts come too late to change their positions.Secondly, in the current situation where public opinion in the United States is generally one-sidedly opposed, it is difficult for congressmen who have not publicly expressed their views to express their support.This involves China's overseas public relations issues. As you know, there have been many debates unfavorable to China in the US political circles and society over the past year around the RMB exchange rate, textile quotas and tariffs, etc. Before these emotional debates At the end, CNOOC acquired Unocal, a 107-year-old American company. We can imagine the reaction of American society. For many Americans, this came too soon.

◎Reporter: At that time, when Lenovo acquired IBM PC, some members of Congress raised objections and sent a letter to US Secretary of the Treasury Snow.In the end, however, the merger was reviewed and completed. Chen Zhiwu: There are many essential differences between Lenovo's acquisition of IBM PC and CNOOC's bid for Unocal.First of all, the PC industry is a sunset industry with thin profits, and the IBM PC itself has been losing money for many years.Moreover, PC technology is very mature, and the content of "cutting-edge" technology is relatively low. Although those politicians also said that the acquisition involved national security, knowledgeable people know that IBM PC does not involve national security issues.Furthermore, Lenovo has already had the technology that IBMPC can have.Theoretically speaking, there will be a formal investigation when a foreign company acquires any company in the United States, which is a procedural issue.Therefore, at that time, most people also believed that the review would not have a substantial impact on the acquisition,

But this time CNOOC’s bid for Unocal is different: First, in the past few months, the media in the United States and abroad have been overwhelmingly talking about the future shortage of oil resources, making many different predictions, some predicting 20 years Oil resources may be used up in the future.This gives people the feeling that, as a strategic resource and a major energy source, the crisis is not a crisis in the long future, but a crisis in the near future. This is very fatal to the American people who cannot do without their cars every day.The price of oil also matched this feeling, rising all the way to $60 a barrel.Second, it is quite a coincidence in terms of season. July 4th is the National Day of the United States, which also symbolizes the arrival of the peak summer vacation in the United States.Many American families will take the whole family to drive to other places for vacation during the summer vacation, so the level of oil prices at this time is very personal to many families.In addition, the debate over the RMB exchange rate and the trade deficit with China has also risen to a higher level.

Several factors combined to give members of Congress the possibility to manipulate this topic.Through CNOOC's acquisition of Unocal, they show how much they think about the American people and the future national security of the United States. They can express themselves well and use this to win votes.What people did not expect is the famous economist Paul?Krugman also wrote a column in the New York Times, suggesting that the US government veto the takeover.He has always been more supportive of globalization and transnational trade.In the face of these politicized operations, CNOOC reiterated that this merger is a purely commercial act, which is very good.However, this did not prevent its acquisition from triggering a big discussion in the United States, pushing the China threat theory to a new level.

◎Reporter: Judging from history and the experience of other countries, is the current US response targeted?Is it particularly serious? Chen Zhiwu: This is not aimed at China.In fact, trade protectionism has always existed in the history of the United States, but while there are people with a tendency to trade protectionism, most of the time there are more people who advocate free trade. In 1988, I saw the presidential election for the first time in the United States. I had a deep impression that the trade deficit between the United States and Japan became the main topic of almost every election debate at that time.If you check the news reports at that time, you will find that the situation at that time is very similar to today's Sino-US trade.

From the early 1980s to the 1990s, the trade friction between the United States and Japan lasted for more than ten years.Today, due to the rise of China's trade status, the trade friction between the United States and Japan has been squeezed to the second place. Japan should thank China for taking over this position, although the trade problem between Japan and the United States has not been completely eliminated today. But to some extent, no matter what trade frictions Japan has with the United States, there is no difference in soft power between them, that is to say, there is no difference in basic values.Both countries are market economies, and the political systems of both countries are democratic elections, with certain power checks and balances and government structures, free news media, and no differences in views on human rights.

Therefore, if you put a Japanese and an American together, although there may be different cultural customs, there is not much difference in their thinking in terms of basic values.When negotiating trade issues between the United States and Japan, because they have the same value orientation, they will discuss these issues like friends in a circle. However, while China's current institutional framework remains unchanged, another fundamental obstacle has been added to the trade frictions between China and the United States, China and the European Union, and China and Japan.In this sense, the trade friction between China and the United States is far more serious than the trade friction between Japan and the United States, and it is even more difficult to handle.

◎Reporter: I noticed that in the bill proposed by US Senator Schumer to impose tariffs on Chinese goods, he had a very important reason, that is, keeping the RMB exchange rate fixed violated the principle of free market and made the price of Chinese goods lower. Artificially underestimated, so they have to correct it with tariffs.What do you think of this statement? Chen Zhiwu: What he said is correct.After all, the exchange rate is a price.Just like apples, if there are too many apples in the market, the price of apples will fall; if the supply of apples decreases and the demand is high, the price of apples will increase.By the same token, the RMB exchange rate is the price of the currency RMB.If there is a lot of demand for renminbi in the market, the renminbi should appreciate; if the supply of renminbi increases and demand decreases, the renminbi should depreciate.If you believe in free market principles, you should allow the exchange rate to float freely.

But I think the RMB exchange rate bill proposed by these US lawmakers is more out of political needs.As an MP, he must be accountable to his constituents.If his voters worry about importing too much Chinese goods and affecting their employment, he will use every possible opportunity to prevent cheap Chinese goods from entering the US market.As for whether he believes in market principles or not, that is secondary. At critical times, his own interests are more important than principles. There is no perfect person or country in the world.He can even say that it is to protect the employment of voters without any reason.Of course, if the reason he finds is very pale, his appeal will be limited.However, if he finds that urging the appreciation of the renminbi is sound, no matter from the perspective of maintaining free market principles or protecting the employment of voters, then he will definitely use this to win the support of voters.

◎Reporter: Do you think the RMB exchange rate is undervalued? Chen Zhiwu: Our current exchange rate is about 8.3 RMB to 1 US dollar, which was fixed in 1994.You can check it out. From 1994 to now, how many times has China's export volume doubled?It has more than quintupled, and the trade surplus has increased from US$5.4 billion to US$32 billion last year. However, the exchange rate of the RMB against the US dollar has never been adjusted since 1994. According to the principle of market economy, this should not be the case. Export growth is especially An increase in the export surplus should imply an increase in the value of the renminbi.

why?First of all, we must know how the market exchange rate is determined: when foreign companies come to China to buy goods, that is, when China exports goods, they need to exchange foreign exchange into RMB.In other words, the more Chinese commodities are exported, the higher the demand for RMB will be, and the greater the pressure for RMB appreciation will be.On the other hand, in order to import things, China has to exchange RMB for foreign exchange.The more imported goods, the greater the supply of renminbi, and the greater the pressure on renminbi to depreciate.What finally determines the direction of the RMB exchange rate is the difference between exports and imports.The greater the difference, the greater the pressure on the appreciation of the renminbi.Over the past 11 years, China's trade surplus has continued to increase, but the exchange rate of the renminbi has not changed. ◎Reporter: Some people worry that the appreciation of the RMB will repeat the mistake of the appreciation of the Yen, leading to a bubble economy and a prolonged economic recession. What do you think? Chen Zhiwu: Many people say that in the 1980s Japan ruined its economy by raising its exchange rate. I don't think so.In fact, it was precisely because the Japanese government was stubbornly resisting before that and was unwilling to allow the yen to appreciate, so that the asset prices and land prices in Japan, like the current real estate prices in China, continued to rise again and again, rising to the level of the Japanese Imperial Palace in Tokyo. The price of owning land is higher than all the land in California combined.In that case, the yen could no longer hold on and had to appreciate.In fact, if the yen had been appreciated earlier, this would not have happened at all.Many people attribute the evil consequences of not appreciating to the final "had to appreciate" and think that the appreciation brought down the Japanese economy, which is wrong. Because of this, I think that the damage to China's economy from a non-appreciation of the renminbi far outweighs its benefits on the whole.The first is the increasing pressure on asset prices to rise.The second aspect is the common problems in China's current export commodities and industrial structure: too much resource consumption; serious environmental pollution.Now the resource-consuming manufacturing industry is the main force of China's exports.In other words, if the RMB does not appreciate, it will encourage high-resource-consuming and environmental-polluting manufacturing industries to continue to expand production at high actual costs. If the RMB appreciates, through the price system, Chinese enterprises will be forced to improve resource utilization efficiency.Because the appreciation of the renminbi has raised the price of China's export commodities, in this way, in order to maintain the current export share, Chinese enterprises have to improve the efficiency of the use of resources and labor.Otherwise, they cannot compete in the international market.There are short-term downsides to doing so: export-related employment growth will be difficult.But in the long run, competition in the international market is not a bad thing.Under the pressure of competition, the efficiency of enterprises will increase, so that the output value created by each worker will be higher.And those eliminated enterprises and workers can transfer to other emerging industries.In this case, the income of each employed person will also increase. Unfortunately, the issue of RMB appreciation is now politicized.Some people think that in order to teach those U.S. lawmakers a lesson, we cannot appreciate it, and we oppose what others support.According to market principles, no one cares about whether the exchange rate should be adjusted.This tough stance is healthy to a certain extent, but if it goes too far, it will make people incomprehensible and feel that you are unreasonable. ◎Reporter: If the RMB exchange rate is floated, will the trade dispute between China and the United States be resolved? Chen Zhiwu: It should be said that there will be some help, because in this way, those who advocate trade protection in the United States will lose a very important reason.Of course, fundamentally speaking, with such a large population and such obvious advantages in labor costs, China still has great potential to provide commodities to the world.With the development of China's economy in the future, China's exports of goods and services will continue to expand, and more Chinese companies will invest overseas.In this process, trade friction and investment risks are inevitable. ◎Reporter What do you think the Chinese government should do to reduce obstacles and risks in foreign trade? Chen Zhiwu: Now China is facing many overseas investment and overseas trade challenges, which are exactly the same as those faced by Britain in the late 18th century and early 19th century.At this point, I think one aspect is of course unavoidable, where there is a fire, there is a place to save it.But while fighting the fire, it is necessary to think clearly about what kind of international order China wants to rely on or establish in the future. First of all, as for what kind of international order China wants to establish, it is of little significance if it is just an appeal.In fact, if any country wants to establish a new international order in any sense, before there is no world army and no world government, you must have its own very strong navy.Today, the Army has little significance other than a defensive role.It is also possible to have an air force, but it is also difficult for the air force without the support of the navy.For example, China now has a lot of investment in Sudan, but Sudan is a country that is politically unstable so far, and who will be in power in five years is a question mark.If the investment of Chinese enterprises there is one day confiscated by the local revolutionary party, what will these enterprises do? Secondly, I think China today should promote the concept of free trade around the world like Britain did in the early 19th century.Because the challenge China faces today is very similar to the challenge Britain faced 200 years ago, that is, to open up overseas markets and ensure that the source of raw materials for production will not be disturbed. According to this line of thinking, the Chinese government should use the concept of free trade to define China's international political strategy.China's leaders and spokespersons should stress the importance of free trade on various important occasions when visiting or making speeches abroad.China can use its own experience to talk about the benefits of free trade.In fact, China's economic miracle of more than 20 years is the result of opening the country and conducting free trade. Of course, some people may say that China's free trade policy itself has problems. For example, China's average tariff rate will drop to 10% next year, while the average tariff rate of Western countries is almost 3%.But I think this has nothing to do with it. China can focus on variables.We can say that in the past 20 years, China has adopted a series of measures to reduce tariffs from more than 100% to 10% step by step, and it is already close to Japan.In the future, we will further reduce tariffs under affordable conditions, so that China can move closer to the concept of free trade. In addition, I have observed that when Chinese leaders go abroad to give speeches, they put too much emphasis on China's characteristics, which is not conducive to improving trade relations.why?For example, if you visit a friend at his house, you first tell your friend that I am different from you.Why are there so many differences?For no reason, I'm just different from you.Making friends should not emphasize different aspects, but should emphasize common aspects.After emphasizing too much Chinese characteristics, it can only make the relationship that was not very close before worse. ◎Reporter: If CNOOC's acquisition of Unocal fails, what should we learn from it? Chen Zhiwu: It is not so much the failure of CNOOC, as it is a concrete reflection of the lack of experience in overseas investment and operation of Chinese companies and the lack of China's overseas soft power (softpower). The impact on society is too great.Specifically, for companies that are going to make sensitive acquisitions in the United States in the future, it is necessary to lobby Congress several months in advance, and even make some image advertisements in the American media to influence their views in advance.Secondly, just like any new thing, the society must have a process of adaptation, and the scale of mergers and acquisitions of American companies cannot be increased too quickly, or the impact will be too great. After the news of CNOOC's acquisition of Unocal came out, American political circles and public opinion reacted strongly. Many of us were surprised by this.The reason for this is that we are more accustomed to understanding America from our own perspective than from the perspective of Americans.Today, we are going to acquire an American company, and we have to operate there during the acquisition negotiation and after the acquisition. What we need to do at this time is not to evaluate whether the American society and its political operations are reasonable or not, but more importantly, to use the American To understand how the United States works from a human perspective, to understand and accept its reality, to integrate into it, and to choose business strategies based on this understanding.In the process of going global, Chinese enterprises cannot change other countries, but can only learn to adapt to these countries.