Trading up

China and the US have been at loggerheads all year, as a series of trade disputes mar what is arguably the world’s most important economic relationship. Many in the US think they have a solution: China should fully liberalise its currency. To that end, the US House of Representative voted in favour of a bill on Wednesday that could enable Congress to label China a ‘currency manipulator’ – and punish the world’s second biggest economy with trade sanctions.

American businesspeople have another demand: China must liberalise its domestic market, allowing foreign firms to compete on a level playing field with locals.

But not everyone agrees. Cambridge development economist Ha-Joon Chang argues that all developed countries have got where they are today by employing high levels of protectionism, combined with regular government intervention. This is true of recent success stories, such as Japan and South Korea, but also the US and UK, which in previous centuries took strong measures to protect their fledgling industries.

Chang points out that when developing countries have adopted free market policies, in Latin America and Africa especially, they have sometimes seen their growth slowed significantly.

So when rich countries harangue developing countries to open up, Chang says that they are operating according to a policy of “Do as I say, not as I did”.

This is the kind of argument that will probably be deployed by Gao Hucheng, China’s new International Trade Representative. As the man responsible for carrying out China’s trade negotiations, Gao will need a well-stocked arsenal to counter anincreasingly frustrated foreign group.

In a world of career bureaucrats, 59 year-old Gao has a particularly eclectic background. Some believe this makes him well-suited to represent China on trade matters: “Gao is not a scholarly official,” one Ministry of Commerce official told the Economic Observer. “He has very rich experience, including work in large enterprises. This makes people think that he is very upright.”

Beijing, Kinshasa, Paris

Gao was born in Shuoxian, Shanxi province, in 1951. Like many growing up in the early years of Mao’s China, part of Gao’s youth involved a period of manual labour – he spent eighteen months working on a farm, and another two years as a worker in a cement plant. He left the work unit to attend university in the capital, studying French in the prestigious Beijing International Studies University.

After graduating, he then spent two years studying at the School of Literature in the National University of Zaire (not an obvious choice, then or nowadays), before working in the commercial section of the Chinese embassy in Kinshasa, gaining valuable African experience decades before China started its investment drive into the continent.

By 1980, 29 year-old Gao was working at the China National Machinery Import and Export Corporation in Paris. He took some time out to study economic sociology at Paris Diderot University, and was awarded a PhD in 1985. A couple of years later, he joined the Communist Party, and his business career continued to progress – he moved to China Resources, one of China’s largest trading companies, where he eventually became the deputy general manager.

Over the next decade, his role as an official really took off. He worked in the Ministry of Foreign Trade and Economic Cooperation, and after spending a year in a senior position administering Zhuang Autonomous Region in Guangxi, he became a vice-minister in the Ministry of Commerce (Mofcom).

In 2005, Gao was appointed China’s first international trade representative, thrusting him into a series of a series of tricky negotiations with major trading partners. Most significantly, he played a key role in resolving a dispute with the US and Europe, at the time threatening to impose sanctions on Chinese textile imports. But as the frequency of these disagreements subsided, Gao relinquished the role to focus on his full time job as a vice-minister in Mofcom.

Moving up as he trades places

Gao’s reinstatement to the role of trade representative comes at a time of re-emerging tensions between China and its trading partners in the developed world. The role has been upgraded to a ministerial position, upping Gao’s pay but also giving him more autonomy to make decisions in negotiations.

There are other advantages to having a top official focus on discussions relating to foreign trade. Typically, Chinese negotiating groups have been formed on a temporary and ad hoc basis, which has sometimes led to poor coordination and blurred responsibilities. Having Gao in charge of the process provides a single voice in negotiations.

Perhaps the first issue Gao will get involved with is the ongoing debate over the value of the renminbi. Market observers, especially those in the US, anticipated a more rapid increase in the currency, only to be disappointed by the tiny rises that followed the government’s announcement in June of a more ‘flexible’ approach. If Wednesday’s ‘currency manipulator’ bill gets ratified by the Senate, the issue will become even more pressing.

And there are other disagreements with the US that need addressing. China placed anti-dumping and countervailing duties on a US specialty steel product, which Washington is challenging by filing a case with the WTO. On the other side, the US has imposed duties on Chinese coated paper, claiming that Chinese paper mills receive government subsidies, allowing them to sell their products in the US at unfairly low prices.

When it comes to market access, the US is also unhappy with Chinese policy in electronic payments, which has blocked companies like Visa from entering the fast-growing domestic market (currently controlled by UnionPay, see WiC64).

Worldly and multilingual, Gao could well be the best person to represent China in these debates. And with his new ministerial brief, he will be able to meet with the most senior foreign officials on an equal footing.

More generally, Gao could become something of a champion for the developing world. China’s economic growth over the last few decades has been characterised by protectionism and state participation in the market. Although this approach often comes in for criticism by foreign businessmen, protection for fledgling industries is often welcomed by policymakers in ermerging markets.

If Gao is able to reduce the criticism from its trading partners in the US and Europe, he will help vindicate a certain model of growth – not just for China, but for the rest of the developing world.

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