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Chinese President Xi Jinping attends the opening ceremony for the first China International Import Expo in Shanghai on Nov. 5.   © Reuters
China up close

Xi's dream of beating US backfires

Beijing hides seriousness of trade war from citizens

KATSUJI NAKAZAWA, Nikkei senior staff writer | China

SHANGHAI -- One day before the U.S. midterm elections, Chinese President Xi Jinping was in Shanghai, the country's economic center, hosting what Beijing has dubbed the most important diplomatic event of the year: the first China International Import Expo.

Whenever China wants to show a conciliatory stance to foreign countries, it turns to the panda. And so the mascot of the Import Expo was a jumping, scarf-wearing panda, alongside the catchphrase "New era, shared future."

Scheduled just before the U.S. vote, the expo was supposed to send a political message about China's seriousness about cutting its huge trade surplus with the world's largest economy. The chosen venue was Shanghai, where Xi served as Communist Party secretary, just before ascending to the country's top leadership.

Since it was not just a trade fair but an important diplomatic event for Beijing's relations with the U.S., Xi himself, rather than his head of economic affairs Premier Li Keqiang, attended the event.

The trade war has soured ties with the U.S., and all eyes were on how Xi would respond to U.S. President Donald Trump's attacks on China.

"Having myself worked here, I know personally just how important it is for Shanghai to be open and for China to keep the city open," Xi said. "Indeed, openness, innovation and inclusiveness have become the hallmark of Shanghai. They are also a vivid reflection of China in the new era," he said.

There was no direct mention of Trump, the U.S. or Washington. But a closer look at Xi's remarks reveals more subtle messages.

His speech is peppered with euphemisms intended to respond to Trump's China bashing. For example, Xi said: "Countries need to improve their business environment by addressing their problems. They should not just point fingers at others to gloss over their own problems."

While Xi and the organizers of the Shanghai expo had always had the U.S. in mind during the preparations, the actual atmosphere at the venue turned out to be quite different.

Foreign dignitaries who attended the event, such as Russian Prime Minister Dmitry Medvedev, were mostly from countries participating in the China-led Belt and Road Initiative. No senior U.S. officials were present.

After delivering his keynote, Xi led Medvedev and other guests through the exhibition stands.

Many of the exhibits they saw were run by Japanese companies, reflecting the warming relations between China and Japan after the recent visit by Prime Minister Shinzo Abe.

In his Shanghai speech, Xi acknowledged the economic difficulties that China is facing, something also closely related to the Sino-U.S. trade war.

"The economic situation at home and abroad has created some significant challenges for the Chinese economy, such as more uncertainty in some sectors, more difficulties for some enterprises and growing risks in certain sectors," Xi said.

Such a blunt acknowledgment of the country's ills from the stage of a big international event is rare in China, and reflects Xi's current woes.

Five days before the Shanghai expo, the Communist Party's powerful 25-member Politburo met and expressed deep concern over the current state of the Chinese economy amid the escalating trade war with the U.S.

"The economy has seen changes amid overall stability with increased downward pressure," the state-run Xinhua News Agency reported the Politburo as saying. "Some companies are suffering from operating difficulties while some risks accumulated a long time ago have been exposed."

The Politburo meeting was convened and presided over by Xi, who doubles as the Communist Party's general secretary.

It was the first time that Xi clearly admitted the difficulties of the current economic situation amid the bruising trade war launched by Trump.

The trade war has not been widely reported in China. The Communist Party has carefully controlled public opinion, giving top priority to maintaining social stability.

Due to a lack of information on the internet as well as in newspapers, many ordinary Chinese have been left in the dark about how serious the impact of the trade war between the world's two biggest economies is.

Streets in Shanghai are full of glittering lights and bustling at night. Restaurants there are crowded with diners as usual. Many ordinary people still do not feel a strong sense of crisis about the state of the economy.

But its recent deterioration is so serious that the Communist Party can no longer ignore it.

Curiously, Premier Li Keqiang played a key role in convincing Xi to acknowledge the crisis.

A week earlier, on Oct. 24, Li had already presented a gloomy assessment of the Chinese economy, similar to the Politburo's, at a gathering of the All-China Federation of Trade Unions.

"Many companies are facing difficulties and market confidence has been affected under rising downward pressures," Li said. China should "pay close attention to difficulties and challenges," he said.

China's economy grew by 6.5% in the July-September quarter, down from 6.7% in April-June. Many analysts think the real economic situation is worse than the figures suggest.

From the timing of the speeches by Xi and Li, one can deduce that the premier has been leading China's attempts to shield the economy from the effects of the Sino-U.S. trade war.

This marks a significant political change as Xi had reined in Li's influence over the past five years. Li is ranked second in the Communist Party hierarchy after Xi, but has not always been treated as such. While Li Keqiang is now increasingly coming into the spotlight, Xi's close aide Liu He, the vice premier in charge of economic affairs, is appearing less frequently, signaling a power shift.

Xi has also shifted his stance on private companies. On Nov. 1, the Chinese leader attended a round-table discussion with private sector entrepreneurs and said that while the public sector retains a "dominant position" in the economy, he will also attach importance to the private sector.

Ten entrepreneurs shared their opinions at the gathering and "Xi interacted with them," Xinhua reported. "Private enterprises and private entrepreneurs belong to our own family," Xi said.

It was quite a shift for the Chinese leader, who had always advocated "stronger and bigger" state-owned companies, arousing strong concern among private sector entrepreneurs. With darks clouds looming over the economy, Xi needed to appease them directly as the national leader.

The nature of the Import Expo, which was originally meant to strengthen ties with the U.S., changed after the Trump administration further toughened its stance on China. The turning point was Vice President Mike Pence's highly publicized "anti-China speech" on Oct. 4.

What fueled Trump's anger most was Xi's declaration at the Chinese Communist Party's 19th national congress in October 2017 that the country will "basically realize modernization by 2035."

The meaning of his message is: China will catch up with the U.S., at least on the economic front, within 17 years.

Trump himself acknowledged this during his news conference on Wednesday. The U.S. president told reporters he thought Beijing's industrial policy "Made in China 2025" was "insulting."

"China '25 means in 2025, they're going to take over economically the world," Trump said. "That's not happening."

Xi's grand vision for his country is the "great rejuvenation of the Chinese nation," which he calls the "Chinese dream."

It is the route he sees to put himself on a par with Mao Zedong, Communist China's founding hero. Xi may very well still be the man running the country in 17 years' time.

Four decades ago, Deng Xiaoping, then the paramount Chinese leader, introduced an economic policy of "reform and opening-up." On the security front, Deng advocated an external policy of "tao guang yang hui," which argued for keeping a cool head, being composed, standing firm, hiding one's claws, biding one's time and never trying to take the lead.

Since coming to power in the autumn of 2012, Xi has shifted away from Deng's policies, preferring a "great power" policy that positions China as a major country, almost equal to the U.S.

But Xi miscalculated. He had underestimated Trump, a "merchant president," who hailed from the business world.

The U.S. wants to remain the world's No. 1. It is prepared to make sacrifices to fight for that cause. On this issue, both the Republican Party and the Democratic Party share the same view.

Xi's declaration of China's intention to overtake the U.S. has provoked Washington.

And China is now paying a high price for hastily baring its claws.

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