Chinese Premier Li Keqiang strikes upbeat tone amid tensions with US

Chinese Premier Li Keqiang said on Wednesday (March 15) that China does not want to see a trade war with the United States.
Chinese Premier Li Keqiang said on Wednesday (March 15) that China does not want to see a trade war with the United States.PHOTO: REUTERS

BEIJING (NYTIMES) -  China’s Premier Li Keqiang presented an optimistic picture of relations with the Trump administration on Wednesday (March 15), arguing that the two sides would be able to overcome their smoldering tensions over trade imbalances, currency policy and geopolitical disputes across Asia.

The comments appeared intended to set an upbeat tone for a first meeting between President Donald Trump and his Chinese counterpart Xi Jinping that is provisionally scheduled for next month at Trump’s Mar-a-Lago resort in Florida.

“This relationship is crucial for not just China and the United States, but also for regional and global peace, security and stability,” Li told hundreds of reporters at the end of the annual meeting of China’s legislature, the National People’s Congress (NPC).

“China and the United States now share extensive common interests. It’s also true that there are some differences between the two countries,” Li said. “But I believe it’s important for both countries to uphold strategic interests and to sit down to talk to each other so as to enhance mutual understanding and trust.”

Before and after his election victory in November, Trump threw down a number of challenges that rattled policymakers in Beijing. He threatened to punish China over its big trade surplus with the United States. He suggested he might abandon longstanding American policy on Taiwan, the self-governed island that China treats as an illegitimate breakaway territory.

His Secretary of  State Rex Tillerson promised to stop China’s building of islands as military outposts in the disputed South China Sea, where the Philippines, Vietnam and other neighbours have competing territorial claims.

But more recently, Trump and Xi have spoken over the phone, and Trump reaffirmed established American policy that Taiwan is a part of “one China.”

Administration officials have also reined in warnings of possible military action in the South China Sea. And so far, at least, the White House has not introduced measures that could sharply cut the flow of Chinese goods into the United States.

Last year, the United States’ deficit in trade in goods with China reached US$347 million (S$491 million), and Trump has promised to close that gap, which he has also attributed to what he calls China’s rigged currency exchange policies. But Li said that a trade war of tit-for-tat protectionist measures would ultimately damage the American economy.

“If a trade war breaks out between China and the United States, it would be foreign companies, in particular American firms, that would bear the brunt,” he said, citing what he said were findings from a foreign think tank.

“Our hope on the Chinese side is that no matter what ructions this relationship experiences, this relationship will continue to move forward in a positive direction.”

He also stressed that China would pay close attention to whether Trump’s administration stuck to the One China policy, which in effect denies Taiwan the possibility of recognition as a separate country, something to which pro-independence groups in Taiwan aspire.

“This policy constitutes the political foundation of China-U.S. relations,” Li said of the One China policy. “With that foundation in place, we believe there are bright prospects for China-US cooperation.”

Li also presented an optimistic view of China’s economy this year. At the opening of the meeting last week, he said the government wanted the economy to grow 6.5 per cent or more in 2017. The target represented a slight easing from last year’s goal, which was 6.5 to 7 per cent. China’s economy grew 6.7 per cent last year, according to official statistics.

At his news conference, Li said that the 6.5 per cent target differed little from last year’s target. “We believe that China will continue to be a strong driving force in the face of a sluggish global economy,” he said.

But the trade-offs between stoking growth and fixing underlying economic problems have become increasingly difficult and contentious.

The government says the economy must keep expanding at a relatively fast pace to create enough urban jobs for roughly 11 million rural migrants and new university graduates this year. Xi will also oversee a big leadership shake-up at a Communist Party congress this autumn, when he starts his second term as party leader, magnifying the government’s hunger for social confidence and stability.

But China has come to depend on bigger and bigger injections of bank lending to fire up investment and demand, worrying economists who say that increasingly heavy debt and misspending will eventually drag down growth.

Much of the lending has ended up in housing and construction projects, including new expressways and airports, even in regions where demand is tepid. As a result, the growth dividend from each dollar of new credit has been shrinking year by year, even as company debt has expanded.

Industrial production and investment were strong in the first two months of this year, government statisticians announced on Tuesday, but that strength was again underpinned by heavy investment on the part of already indebted state-owned enterprises, as well as a continuing, mortgage-fueled frenzy in the country’s real estate markets, already among the world’s least affordable relative to local rents and incomes.

Li, however, sought to allay worries about rising Chinese debt. He said that there was no risk to the overall financial system and that the Chinese government’s relatively low budget deficit – roughly 3 per cent of economic output – and large capital bases in banks would protect the country. But there were risks, he added.

“We are fully aware of potential risks and will take prompt and targeted action,” he said.