Our takeaways from President Xi’s speech: China’s reform and opening-up not that important even under US pressure

• President Xi’s speech marking the 40th anniversary of China’s reform and opening up must have left US trade negotiators in the cold. Since the three-month truce to the US-led trade war that was announced at the sidelines of the G-20 meeting at Buenos Aires on December 1st, the Chinese leadership seemed to have been accommodating US requests, especially with regard to the (temporary) dismantlement of tariffs on US imports (autos and soy in particular) but also with promises to strengthen intellectual property rights and opening up of specific sectors to foreign competition (and especially US competition).
• President Xi’s speech, though, fell short of announcing any specific reform but rather confirmed the importance of the State in the Chinese economy, let alone the Party. Clearly focusing on a domestic audience, President Xi made it very clear that China’s policies would not be influenced by the West. On the contrary, the country should continue to remain united and support the Party’s skillful guidance towards China’s economic success. One could interpret the above as “United against the West” rather than “Reform to please the US” or at least “Reform for our own good”.
• The lack of a specific announcement of either reforms or stimulus could imply that China has realized that there is limited scope for concessions to the US. In other words, China cannot offer the reforms that the US wants (or needs) and what China can offer (basically additional imports from the US) will not satisfy US negotiators. In addition, Xi’s mention to multilateralism “the promotion of a transparent but also non-discriminatory” multilateral trading system, might offer an indication of the different views between China and the EU on WTO reform and in particular of the EU’s push to tackle the issue of subsidies to state-owned enterprises. All in all, Xi’s speech seems to be directing China to self-reliance and as quickly as possible.
• The key question is why China is cornering itself in the self-reliance mantra, which somewhat of a Soviet Union type flavor. The answer might be that China’s leadership may have come to the conclusion that an era of strategic competition and increasing delinkage of the Chinese and American economies has just begun and cannot be stopped. On that basis, the annual economic policy meeting tomorrow is bound to focus on the stimulus needed to navigate through the cold winter that is awaiting China’s economy in the next era of lack of reform and strategic competition with the US.

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