Last week’s HSBC China Conference – the sixth of the annual gatherings – attracted a record attendance for its three-days of meetings, presentations and debates in Shenzhen. In his opening remarks, HSBC Chairman Mark Tucker put in context why Shenzhen was such an appropriate venue, quoting former leader Deng Xiaoping’s vision for the city to experiment and inspire.
In a further nod to the host city, there were sessions on developments at the Shenzhen Stock Exchange, as well as broader dialogue with senior investors on China’s standing in global asset allocations.
Other trending topics were the knowns (and unknowns) of the debt situation of the local government financing vehicles and the perennial debate on the progress of reforms at the state-owned enterprises.
Company executives led sector-specific discussions on areas like the digital disruption of Chinese retail, the rise of healthcare-on-demand, and the battle for pole position among the country’s electric vehicle manufacturers.
Experts and insiders also held forth on topics as diverse as demographics and population policy, the intricacies of China’s regional property markets, and the outlook for the Greater Bay Area (GBA) in which Shenzhen is a pioneering force.
Yet there was an elephant in the room – more a herd of them, in fact – that needs very little introduction.
Only a few days before the conference the Trump administration had topped up its tariffs on Chinese goods, casting a sudden shadow over the late-stage negotiations to resolve the trade war.
That meant that Sino-US relations were a key point of concern at the conference sessions and in many of the conversations on the sidelines.
No one ducked the debate and the consensus was that even though the tensions are being framed as a trade row, there are deeper disagreements that are going to be even harder to resolve.
There was talk about how technology rivalry has morphed into a debate about national security that isn’t going to abate in Washington, even if Donald Trump claims a victory in driving down some of the trade deficit with the Chinese.
Another theme was the different worldviews of the protagonists, best summed up in an analogy that compared the trade row to a football match in which the two teams are playing rival forms of the game, because of their different economies.
The hypothesis was that the Chinese have been playing gridiron, with their companies padded up heavily with state support, and running muscular plays, typically dictated from government huddles.
In contrast, the Americans are playing soccer. Their firms don’t wear the same protective gear but they take their decisions out on the field, making them more nimble and more market-driven.
From this viewpoint, the clash of codes has gone on for a while but the Americans have put up with China’s more muscular approach, seeing it as the junior player.
However, China’s economic might has turned it into a much harder-hitter and the American players are starting to feel more bashed up. Hence the refusal to keep playing the same game, especially as policies like the Made in China 2025 programme have signalled that Beijing isn’t about to change tactics.
Other speakers at the conference picked up on the playing field meme, but argued that American companies seem to be doing well enough in their trade ties with the Chinese.
One example was how GM has been selling more cars in China than in its home market; another was how most of Apple’s smartphones are made in Chinese factories. How are profits even possible if the odds are stacked so unfairly against American firms, it was asked.
Another interpretation was that the trade dispute reflects how times have changed and how global institutions like the WTO and the IMF are not changing with them. Various speakers (not all of them Chinese) argued that the traditional ways of setting international rules and resolving disagreements are outdated, and called for a new approach to global governance.
Another theme resurfacing regularly was the interconnectedness of global supply chains and the intertwining of trade and investment across the combatants in the tariff row.
To extend the analogy of the fractious football match – even if the two sides disagree on some of the rules of their game, they are playing it on the same field, and each is more reliant on its opponent than it is willing to admit.
Here there were words of warning that global trade flows were already showing signs of retreat before the tariff row ignited at the start of last year.
Part of that is because of trends like digitisation and the increasing share of trade flow in services, which is harder to capture in the trade data. But another reason is that a greater proportion of trade is consolidating within regions, especially inside Asia. Another fundamental factor in this process is that an increasing share of Chinese trade stays inside China. One of the speakers noted that 10 years ago about half the computers made in China were exported. Today that proportion is less than a third.
Trends like these led to questions of how much leverage the Americans have in the trade negotiations. Probably less than in the past, it was acknowledged, especially as China now counts as the largest trade partner for more than a hundred other nations.
Other speakers sounded sanguine about the impact of the latest tariffs on China’s economy. One argument was that the tariffs aren’t as shocking to the Chinese any more, because they have been through the initial rounds without the damage to the real economy that they first feared. Another is that the country’s leaders are more confident about speeding up public spending or easing monetary conditions on signs of a tariff-triggered slowdown.
Policymakers are also going to push ahead with measures that support trends like domestic consumption, making their economy less exposed to external events.
Some of the people at the conference were still hopeful that the trade dimensions of the row might be resolved when the two presidents meet at the G20 summit in Osaka next month. But most of the attendees didn’t seem confident that agreement will be reached in Japan. While talks on previous trade issues have tended to be technical in tone, the dialogue this time has been more public and much more political. Both leaders have staked personal capital on delivering a win. Neither will want to be seen as weak or backing down.
Despite the backdrop of trade tensions, HSBC’s China Conference was the best attended ever, hosting almost 1,200 delegates from over 30 countries. That was another signal that business goes on, whatever the political context. In a similar style, some of the speakers picked out a few positives amid all the uncertainty. Both countries have made much more of an effort to get to a settlement in the last few months than at any point in the last two decades, it was ventured. The two governments are also talking together in an unprecedentedly frank and persistent way.
That means that even if they don’t get a deal in the coming weeks, they will have a better grasp of each other’s gripes than at probably any time before – not an ideal situation, admittedly, but equally one not without value.
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