August 25, 2017 2:05 am JST

Beijing questions US trade probe but hints at concessions

China says majority of trade surplus involves end products for foreign companies

ISSAKU HARADA, Nikkei staff writer

BEIJING -- China is opposing a U.S. inquiry into its trade practices by downplaying the enormity of their trade imbalance, while at the same time signaling compromise on imports and metals production in an effort to avoid friction.

U.S. President Donald Trump directed his trade representative last week to examine whether to launch an investigation into alleged intellectual property theft by China under the rarely used Section 301 of a 1974 American trade law. The U.S. formally launched an investigation last Friday. Such a probe carries the possibility of import tariffs and other measures aimed at reducing the U.S. trade deficit with Beijing.

Counterarguments

Chinese statistics indicate a trade surplus of about $250 billion with the U.S. in 2016, contributing about half of Beijing's overall surplus. The U.S. reported an even greater deficit of over $340 billion, and Trump has zeroed in on the imbalance, saying American jobs are being taken away.

But 59% of China's overall trade surplus comes from exports by companies based overseas, the Ministry of Commerce says. End products assembled in China make up most of the country's exports to the U.S., and such shipments tend to be of higher value than those of components.

Many overseas companies -- such as American tech giant Apple -- set up factories in China and export their goods made there to the U.S. As a result, Chinese companies' exports of their own products totaled less than 40% of the overall surplus, the ministry says.

China also claims to reap less of a profit than the trade surplus suggests. Manufacturing and assembly generally are the lowest-margin phases of a product's creation after stages such as planning, design and sales.

"An Apple product may sell for $400 in the U.S., but China gets only $10 in manufacturing fees," said Ni Yueju, an international trade researcher at the Chinese Academy of Social Sciences.

Concessions

While fending off Washington's criticism with one hand, Beijing is extending olive branches with the other.

The governing State Council decided at an executive meeting Wednesday to reduce aluminum output and downsize production facilities. China produced 31.87 million tons of the metal in 2016, three and a half times more than a decade before. With U.S. aluminum makers facing a profit squeeze, Washington has pressured Beijing for cutbacks.

Regional Chinese governments already were moving to reduce aluminum production, as it demands a lot of electrical power and takes a heavy toll on the environment. The central government's announcement appears timed to position the cutbacks as a concession to Washington as well, with an eye toward the Section 301 probe.

China is considering importing U.S. goods including wheat, oatmeal, dairy products and pork, said Wei Jianguo, a former commerce vice minister versed in Sino-American relations. "The U.S. may surpass the European Union in 2017 to become China's biggest trade partner," Wei said.

China's open stance toward expanding U.S. agricultural imports, following the decision in June to resume buying American beef, shows an intent to stave off the Section 301 investigation and prioritize negotiations with Washington.

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