By Clay Chandler and Eamon Barrett
May 18, 2019

Clay Chandler here, chiming in from Hong Kong with CEO Daily’s weekly Sino-Saturday edition.

It has been more than a week now since the collapse of trade talks between the world’s two largest economies. Beijing and Washington have since announced billions of dollars in new tariffs on each others’ exports. Official rhetoric between the two sides has deteriorated from muted to downright nasty.

This feels like a decisive rift. Global investors are adjusting to the grim prospect that the U.S.-China trade war could drag on indefinitely.

How did negotiations, which seemed so close to accord, lurch so suddenly off track? We may never know the full story. An analysis published in Thursday’s New York Times lays blame for the breakdown at the feet of Chinese president Xi Jinping.

Only he, the Times argues, could have ordered the series of sweeping last-minute changes that torpedoed the deal: “In China’s top-down political system, where President Xi has amassed formidable power, it’s unlikely that anyone else would have had the authority — or, for that matter, the nerve — to fundamentally alter the emerging pact” at such a late date.

The Times speculates Xi “misjudged Mr. Trump’s eagerness for a deal,” and suggests the fact that he has monopolized so much decision-making authority contributed to the error. Xi and other senior Chinese leaders may not have seen a translated version of the proposed deal until very final stages of negotiation, the Times notes, and Xi’s own frenetic travel schedule didn’t help. The story quotes China expert Scott Kennedy who attributes the agreement’s undoing to “insufficient policy coordination” on the Chinese side.

If the Times story seems to suggest that China’s problem is that Xi is too powerful, it also portrays a leader who is deeply insecure: afraid to be perceived as having “given in” to Donald Trump, wary of party rivals who might condemn him for “humiliating” China, lacking confidence to push legal changes through what is often described in the Western press as China’s “rubber-stamp” legislature.

In an article published Thursday in one of China’s leading theoretical journals, Xi bemoaned China’s “bloated” economy and lamented its “lack of strength in innovation ability.” Many of the changes sought by the U.S. in the trade negotiations would accelerate Chinese innovation by paring back public subsidies for state-owned firms, strengthening intellectual property rights, and giving greater sway to markets. And yet Xi has resisted those demands not only for fear of losing face, but because he has stacked state-controlled firms with political allies.

Is China’s problem that its “core leader” is too powerful—or that he is too weak?

More China news below.

Clay Chandler


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