Talking Point

When duty calls

Tariffs shock makes Liu He’s debut trip to Washington a difficult one


Who’s He? China’s new economic tsar is struggling to identify who to talk to in the Trump administration

Senior politicians in China rarely make public comments about their colleagues, although this etiquette was breached when Xi Jinping met Tom Donilon, Barack Obama’s National Security Advisor, in Beijing in 2013.

“This is Liu He,” the Chinese president told him, pointing to the tall aide by his side. “He is very important to me.”

Donilon’s entourage took the hint and set up a session with Liu that evening, the Wall Street Journal reported, in an article which described the researcher as “Xi Jinping’s choice to fix a faltering Chinese economy”.

Liu is usually spotted at Xi’s side when economic issues are on the agenda. And in a further sign that he was ready to move centre-stage, Liu led the Chinese delegation at Davos in January, where he was the only non-state leader to speak in a keynote session. For the first time he spoke publicly and at length about China’s economic plans.

In the coming weeks the Chinese parliament is expected to appoint Liu as a vice-premier, and possibly as governor of the central bank. In spite of this, the Wall Street Journal said “the man in charge of China’s economy” – who it nicknamed “Uncle He” – was cold-shouldered by American politicians when he visited Washington last week. Certainly, Donald Trump had no time to see him. On the same day that Liu’s five-day tour began, Trump also announced new tariffs on steel and aluminium imports, stoking fears of a trade war between the world’s two biggest economies.

So where is the row heading and what role might Liu play in reducing trade tensions?

Meet “Uncle He”…

Liu was born in January 1952. According to Hong Kong’s Ming Pao newspaper, his father Liu Zhiyan was a Hebei native who joined the Communist Party in 1936 during the revolutionary era.

Liu junior studied at the Beijing 101 Middle School, an elite school for the children of senior Party officials. Some media outlets have reported that Liu and Xi Jinping may have been classmates but the suggestion has never been substantiated (Xinhua has reported separately that Xi attended the Beijing August First School).

Yet it’s possible that Xi and Liu could have known each other: Xi is only a year younger than Liu and both the boys had fathers who were persecuted during the Cultural Revolution (Ming Pao has reported that Liu senior committed suicide in 1967).

Both boys were ‘sent down’ to rural China for hard labour as well. In 1969 Liu was dispatched to a commune in Jilin’s Taonan county. A year later his fortunes improved when he joined the army, serving in in an artillery regiment. Liu was discharged in 1973 and started work in a radio factory in Beijing. In 1979 he was one of the first batch of students to go to university after the Cultural Revolution, studying ‘management of the industrial economy’ at Renmin University. This kick-started a career as a scholar and government researcher.

In 1992 he became a visiting scholar at Seton Hall University in New Jersey and in 1994 he spent another year studying international finance and trade at Harvard’s Kennedy School.

This means that Liu is a rare hybrid: a hongerdai (a “red second generation” or child of a former leader) as well as a haigui (a “returning sea turtle”, or beneficiary of overseas study). Moreover, his resume boasts an array of experience as a farmer, soldier, worker, scholar as well as Party official.

What are Liu’s official roles?

In 1986 Liu joined the Development Research Centre, a key think tank under the State Council. A year later he joined the National Planning Commission, the predecessor of the state’s leading economic planning body, the National Development and Reform Commission (NDRC). For the next decade Liu was involved in drafting a series of policy blueprints for different industries. He’s also believed to have taken part in the formulation of the country’s various Five-Year Plans since 1992.

His star has risen further since Xi took power in 2012 and he was subsequently elected as one of the 205 members of the Communist Party’s ruling Central Committee (which picks the Politburo).

There have been more promotions since 2013, including Liu’s appointment as NDRC vice minister, and his position as director of the Party’s leading group for financial and economic affairs.

Liu’s ascent comes at a time when the leading think tanks are shaping more of Beijing’s policymaking (see WiC216). Xi seems to like more scholarly figures at his side and Liu was chosen as one of the 25 Politburo members during the 19th Party Congress last October. Wang Huning, a career political scientist, has climbed further still, and was named as one of the Politburo’s seven Standing Committee members (see WiC387).

According to Hong Kong media, the Chinese lawmakers who gathered this week for the annual “Two Sessions” conclave in Beijing are expected to elect Liu as a vice premier with oversight of the economy. Citing Beijing sources, Reuters also reported last month that the 66 year-old would replace the long-serving Zhou Xiaochuan as the governor of the People’s Bank of China.

If both of these predictions turn out to be accurate, Liu would become the first official to hold the two positions concurrently since Zhu Rongji, who was popularly known in the West as “China’s economic tsar” in the early 1990s.

What might Liu do?

“Until recently Liu was largely regarded in Beijing and Washington as a pencil-pusher who lacked influence,” the Wall Street Journal noted in 2013, citing officials in China and the US. “In meetings, he dodged sensitive questions by posing questions of his own in response.”

Despite a soft-spoken style – reportedly the result of a throat ailment – Liu’s colleagues told the Journal he also has a non-conformist streak. In a strangely-Chinese demonstration of independent thinking this includes not dying his hair black (also in the no-dye camp: other senior figures with reputations for more progressive outlooks, such as Zhou Xiaochuan and Guo Shuqing, now the head of the China Banking Regulatory Commission).

Unusually Liu sometimes meets one-on-one with foreign guests outside of formal office arrangements – typically a no-no in Chinese politics because of security concerns.

In fact, the Chinese media reckons Liu has maintained good working relations with many senior financial officials, including central banker Zhou. Both were behind the creation of the China Finance 40 Forum in 2008, an independent think tank comprised of up-and-coming bureaucrats working in financial regulation.

As a trusted confidant of Xi, Liu’s influence is also believed to have overshadowed the work of Chinese Premier Li Keqiang, whose programme of “Likonomics” was once seen as the blueprint for market reforms (see WiC204).

Since then Li has been marginalised and the prime minister is actually Liu’s deputy at the Party’s leading group on financial and economic affairs.

Liu is also rumoured to be the “authoritative figure” who penned a widely-discussed piece on the future of economic policy in the People’s Daily in May 2016 (see WiC325). The unusual op-ed was widely seen as a result of disagreements in the leadership over China’s economic planning.

(In another sidenote on speculation about the cold relationship between the president and his premier, reporters said Xi didn’t pick up the printed version of Li’s work report to look at a single time during his two-hour speech to delegates on Monday.)

What was the purpose of Liu’s Washington visit?

Beijing has dispatched two special envoys to Washington within a month. The first delegation, led by China’s top diplomat and state councillor Yang Jiechi (also one of the 25 Politburo members), arrived during the second week of February. Yang was able to secure a meeting with Trump and Rex Tillerson, his secretary of state.

Following Yang’s two-day visit, the Financial Times reported that Xi Jinping and Wang Qishan (who is expected to be appointed as Chinese vice-president in coming weeks and put in charge of relations with Washington) met with Terry Branstad, the US ambassador to China, in Beijing.

A pre-arranged visit by Chinese Finance Minister Xiao Jie was then cancelled and the more senior Liu He was dispatched to the American capital instead. “Yang’s visit … didn’t seem to accomplish anything. And now they have sent Liu He,” a diplomatic source told the South China Morning Post.

Scheduled between February 27 and March 3, Hong Kong newspapers noted Liu’s visit was “exceptionally lengthy” and came at a key time – it meant he had to skip the opening of the Two Sessions gathering at home, plus the Party’s Third Plenum (a grouping of the Central Committee that decides on important economic policies).

In normal circumstances, Liu’s trip would have been arranged for later this month, so that he could visit as the Chinese vice premier or central bank governor. But the Chinese seemed to have concluded that matters couldn’t wait. Perhaps they got wind of the Trump tariffs that are now threatening to disrupt relations between the two countries.

Just before Liu departed for Washington China’s Commerce Ministry dropped anti-dumping and anti-subsidy duties on American broiler chickens. However, the favour was not returned. On the same day the US government slapped duties ranging from 49% to 196% on Chinese aluminium foil – imposed, it said, for cases in which the product was being sold into the US market below fair value.

More tension followed a day later – immediately before Liu was due to meet US officials – when Trump announced that his administration will slap a 25% tariff on steel imports and 10% on aluminium.

How bad are relations?

Trump’s move on steel will have a more immediate impact on Canada, South Korea and Mexico, which are bigger exporters to the US. China only ranks tenth.

That may be a factor in why Beijing’s formal response to the tariffs has been subdued. However, the Chinese are clearly concerned that they’re set to become a target should Trump’s campaign broaden into a wider conflict over trade.

“Trade wars are good, and easy to win,” the US president crowed on Twitter last week. But he didn’t have time to tell Xi’s envoy this face-to-face. Snubbed, Liu had to make do with Treasury Secretary Steven Mnuchin, trade representative Robert Lighthizer and White House economic adviser Gary Cohn (who has since resigned).

During the meeting Liu promised to lower entry barriers to American businesses in sectors such as insurance. Washington has been asking for greater concessions, including that Beijing scrap subsidies to state-owned enterprises.

Trump’s aides said the talks were “frank and constructive”. But amid the many changes of personnel in the White House, one thing seems certain: the trade hawks have the upper hand in Washington.

Commerce Secretary Wilbur Ross has talked a tough line on trade policy and Peter Navarro, who heads the National Trade Council, has been warning about the threat from a resurgent China for years.

“Just as these Chinese leaders have been exploiting American weakness by cheating in the trade arena, they will acknowledge the strength and resoluteness of Trump and rein in their mercantilist impulses,” the two men wrote in a policy paper during the Trump campaign. Trump was responding to similar sentiment when he imposed tariffs on imports of Chinese solar panels and washing machines in January. In retaliation, the Chinese government launched an anti-dumping investigation into imports of American sorghum.

Liu wants to talk?

According to Bloomberg, one of the key objectives for Liu’s trip was to get Trump’s administration to “hand over a specific list of demands” and on Wednesday night the US president gave a little more clarity on what his team wants.

“China has been asked to develop a plan for the year of a One Billion Dollar reduction in their massive Trade Deficit with the United States. Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!” he tweeted. According to the Wall Street Journal the tweet contained a key numerical error. A source revealed to the newspaper that the US negotiating team instead told Liu that the deficit needed to be reduced by a far higher figure: $100 billion.

Making its case by social media is hardly Beijing’s style. But simply understanding who is shaping the decisionmaking in Washington would be helpful for Liu, who was entitled to feel even more confused when Cohn resigned on Tuesday.

“China doesn’t know who has the president’s ear in Washington,” a source from the Chinese team was reported as saying by the South China Morning Post. “The Trump team is so unstable, and we don’t know who we should talk to.” (The New York Times calculates 43% of Trump’s White House staff has left over the past 13 months.)

There was already a sense that relations were cooling. The annual Strategic and Economic Dialogue – a high-level meeting between the two governments initiated by Hank Paulson as Treasury Secretary – failed to reach new consensus last July and both sides cancelled their post-meeting news conferences.

So another of Liu’s tasks is to resurrect channels of communication, and Xinhua said the two sides have agreed to talks in Beijing in the near future “in a bid to create conditions for further cooperation”.

However, on Thursday there was another report from the South China Morning Post that seemed to confirm the hardening of Washington’s stance. It claimed that the Chinese had wanted to send a larger delegation of about 40 people with Liu, but that the Americans had said no, telling them to cut the number to about 10. “The time for promises is over,” an unnamed source warned, adding that the onus is on Beijing to “prove its sincerity” by opening up Chinese markets to foreign companies.

In the meantime China’s state media has been presenting trade conflict as a lose-lose situation for both nations. “Trump has claimed winning a trade war is easy,” the China Daily wrote on Wednesday. “If he persists in pursuing one, he will soon find out the hard way that this is not the case.”

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