Ahead of Trade Talks, China Strengthens State-Owned Enterprise Control While Maintaining Current Agricultural Imports Policy... Conflicting Moves

[Image source=Yonhap News]

[Asia Economy Beijing=Special Correspondent Sunmi Park, Reporter Hyunjin Jung] As expectations grow for the signing of the US-China Phase One trade agreement next week, China has announced its stance to strengthen the Communist Party's influence over state-owned enterprises and not to increase the current import quotas for major agricultural products, which is expected to cause considerable friction between the US and China. Although the US-China trade war has significantly impacted both countries' economies, the US has seen a reduction in its trade deficit with China, and China has achieved positive outcomes such as attracting investment from US companies, highlighting some positive aspects. Therefore, the need to resolve the trade war does not seem as strongly emphasized as before.

◆Government Strengthens Control Over State-Owned Enterprises... China Out of Sync= According to China's Xinhua News Agency, on the 7th, China published a book based on the "Regulations on the Organization of the Communist Party of China and State Organs" and distributed it to bookstores nationwide. The regulations include provisions to further strengthen the connection and responsibility between the Communist Party of China and state-owned enterprises.

These regulations, which came into full effect last week, stipulate that state-owned enterprises with three or more Party members must establish a Party organization within the company. This aligns with the Party Constitution, which states, "Wherever there are Party members, Party organizations must be established. A Party branch (?支部) can be formed if there are three or more Party members, a Party general branch (??支) if there are 50 members, and a Party committee (?委) if there are more than 100 members."

The regulations also clarify that the Party committee within state-owned enterprises will have higher authority than the board of directors. Furthermore, all major business and management decisions must be discussed within the Party organization before being submitted to the board or management. There is also a rule that the overall person in charge within state-owned enterprises must be a Party cadre.

The Hong Kong South China Morning Post (SCMP) described this move by China as "not containing entirely new content but officially codifying practices that have been implemented for years," interpreting it as "regulations aimed at strengthening the Communist Party's control over state-owned enterprises."

While the US demands fair competition among companies during the trade war and disapproves of the Chinese government's and Party's expanding influence over enterprises, China is instead taking measures to strengthen government control over state-owned enterprises. SCMP noted that since China has publicly declared it will treat state-owned, private, and foreign enterprises equally in a fair environment, this strengthening of Party influence over state-owned enterprises is inevitably criticized as being "out of sync."

Meanwhile, China's declaration that it has no intention to increase the current import quotas for major agricultural products ahead of the US-China Phase One trade agreement signing is also seen as a potential source of tension with the US, which expects large-scale agricultural exports to China.

Han Jun, Vice Minister of China's Ministry of Agriculture and Rural Affairs, stated in an interview with Chinese economic media Caixin the day before that there are no plans to adjust the existing import quotas for the three major imported agricultural products: wheat, corn, and rice. Vice Minister Han clearly said, "We cannot adjust the total import quota for a single country."

China applies import quotas to wheat, corn, and rice, except for soybeans, which have a fully open market. Within the quota, a low tariff of 1% is applied, whereas imports exceeding the quota face a high tariff of 65%, which is unfavorable from the US perspective as China's quota freeze is unwelcome.

Some in the international community speculate that it will be difficult for China to realistically purchase $40 to $50 billion worth of agricultural products annually as the US demands.

◆Despite the Trade War... US Sees Improvement in Trade Balance with China, China Benefits from Opening Up= As the US and China approach the signing of the Phase One trade agreement, the US trade deficit with China decreased in November last year, improving the US trade balance.

According to MarketWatch and others on the 7th (local time), the US Department of Commerce announced that the goods and services deficit in November last year was about $43.1 billion (approximately 50.3 trillion KRW), down 8.2% from the previous month. This was lower than the expert forecast ($43.6 billion) and the smallest deficit since October 2016 ($42 billion) in over three years.

This reduction in the trade deficit resulted from increased exports and decreased imports. In November last year, US exports totaled $208.6 billion, up 0.7% from the previous month. Meanwhile, imports decreased by 1.0% to $251.7 billion.

Notably, the trade imbalance with China, amid ongoing trade tensions, improved, reducing the US trade deficit. The goods deficit with China was $25.6 billion in November, down 7.9% from the previous month. Exports increased by $1.4 billion, and imports decreased by $0.8 billion. MarketWatch predicted, "If this trade balance gap remains at the same level in December, the US could record an annual reduction in the trade deficit for the first time in six years."

Meanwhile, China gained an opportunity to highlight the effects of market opening as Tesla, a leading US electric vehicle company, successfully entered the Chinese market despite the escalating US-China trade war.

On the 8th, China's state-run Global Times praised Tesla as the true beneficiary of China's market opening efforts amid the US-China trade war.

Tesla's successful production and delivery of the electric vehicle "Model 3" to Chinese consumers just one year after building its Shanghai factory is regarded as quite successful in China. The newspaper noted that China has removed restrictions on foreign automakers' local factory ownership and possesses the most efficient and comprehensive supply chain in the new energy vehicle sector. Tesla's success story serves as a "showcase" demonstrating China's manufacturing capabilities, efficiency, and the government's active industrial support.

Tesla established its wholly-owned Shanghai factory during China's active market opening amid the US-China trade war, avoiding the tariffs of the trade war and securing price competitiveness.

At the Model 3 delivery celebration held at the Shanghai factory the day before, Tesla CEO Elon Musk expressed his joy over the successful production and delivery in China by performing an impromptu energetic dance on stage. Wearing a black suit, Musk, during a conversation with the host, was unable to contain his excitement when the background music "More Than You Know" played, throwing off his jacket and starting to dance. The audience responded with cheers and applause.

This content was produced with the assistance of AI translation services.