China’s Open Markets Hoax

Xi Jinping claims globalist trade leadership role while excelling at protectionism

by Kevin L. Kearns | 19 Jan 2017 at 5:30 AM

The global economic community got a news flash from Switzerland this week: China is the leading defender of global open markets and the global trading system — according to President Xi Jinping and the media echo chamber covering his speech.

Pay no attention to Beijing’s many negative actions and attributes, folks. Please ignore the dictatorial one-party rule, the wanton disregard for human rights, the jailing of all political opponents, the squelching of independent labor unions. Overlook the egregious violations of International Monetary Fund  and World Trade Organization obligations, including flagrant government intervention in markets, manipulation of currency, subsidization of industries, and dumping of a wide range of industrial products — including steel — on world markets.

Unless government leaders and international elites stop kowtowing and start confronting Beijing on its failure to open its markets and halt internal repression, China’s rulers will have no incentive to change.

Yes, China is a benevolent actor on the world stage, as Xi explained to global elites at the World Economic Forum in Davos this week. His country proudly carries the banner of “economic globalization.” In fact, Xi is such an open-markets cheerleader that he laments the “protectionism” being advocated by President-Elect Donald Trump.

It’s the height of hypocrisy for the mercantilist Xi to claim that China is a beneficent trading partner in the global community. But such are the tactics of Beijing’s Communist rulers. Xi and his compatriots have mastered the art of the Big Lie. The ruling party is used to spouting falsehoods and having all too many foreign journalists and pundits take them seriously.

Xi’s outrageous claims are an attempt to capitalize on the global elite’s panicked response to Trump’s trade and America First policies. Of course, Trump’s alleged protectionism is designed to upset the globalization apple cart — by putting American interests ahead of global integration, and jobs for American workers ahead of profits for 1-percenters. Since the elites generally despise Trump, they are all the more likely to buy what Xi is selling.

Xi's ploy is the perfect cover for his nation's own rampant protectionism. Simply put, China flouts almost all international free trade rules — while warning others that cheating won't be tolerated. It's actually a smart stratagem, trying to co-opt other nations and potentially punish them economically if they don't submit to Beijing's line.

So let's review only a few of the high points of China's record as a free and free-trading nation:

China is a non-market economy with massive, state-owned, state-supported enterprises. The government freely intervenes to manipulate its currency and its stock market. Beijing employs multiple tariff and non-tariff barriers to protect its government-run economy, maintaining an average tariff rate of 19.6 percent, compared to the U.S. rate of 2.6 percent. China's government also uses a Value Added Tax (VAT), which is rebated on exports (lowering their price abroad), and which is imposed on imports, making them more expensive and therefore less desirable to Chinese consumers.

Beijing also maintains a long list of industries in which foreigners simply cannot invest. The list includes high-tech national security industries, and low-tech industries such as cotton. Most foreign investors are required to join with a Chinese joint-venture partner and transfer their technology. Foreign firms are simply prohibited from wholly owning a Chinese subsidiary.

China is a significant polluter. Yet President Obama gave China an unwarranted pass on industrial carbon dioxide emissions till 2030, since China is the world's largest user of coal-fired power plants, with many more to come. China's power plants do not utilize the expensive scrubbing and emissions-trapping mechanisms required of U.S. coal plants. So the electricity they generate is very cheap, further lowering the costs of manufacturing viz. their American competitors. Xi will worry about cleanup after his country dominates all global manufacturing.

Workers in China have little recourse to complain about wages or workplace conditions. Independent labor unions are banned. The country lacks enforceable, effective health and workplace safety regulations. The country does not have the rule of law or an independent judiciary. Instead, judges do as Beijing instructs. This corrupt system has hurt labor activists and dissidents the most, since Beijing readily imprisons critics and political enemies of the "Great Leader."

Dissent continues to be suppressed via restrictions on the internet. China's "Great Firewall" has not only blocked "subversive" commentary and free association but has limited internet speeds to 10 megabytes, significantly slower than U.S. speeds of 50 megabytes. America's IT giants must either conform to government mandates, including provision of "back doors" into their systems, or be excluded from China.

The Communist regime also continues to restrict international capital flows and manipulate the value of its currency, despite the yuan being added to the IMF's basket of leading currencies last November.

In short, it's ludicrous for President Xi to lecture the world on the merits of a free society or open trade, and worse for world media outlets to report the story with a straight face. Unless government leaders and international elites stop kowtowing and start confronting Beijing on its failure to open its markets and halt internal repression, China's rulers will have no incentive to change. And that's unfortunate, because Beijing's policies represent not global leadership but a massive threat to global economic and political freedom.

Kevin L. Kearns is president of the U.S. Business & Industry Council, a national business organization advocating for domestic U.S. manufacturers since 1933.

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