Although much of the reporting about the coming U.S.-China trade deal has focused on the challenge that lingering tariffs and follow-up enforcement presents to a potential agreement, one obstacle has been given less attention to the threat it could pose to the ruling Communist Party of China. 

Analysts say that even if and when a deal is reached, China’s communist leaders will find it extremely difficult to convince party cadres, local industries and the public of the merits of a deal.

The United States sees its decision to impose severe tariffs on Chinese goods as an attempt to press Beijing to reduce the trade deficit and ensure a level playing field for its trade and investments.

But in China, the 9-month-old trade war is seen more as an attempt by Washington to force Beijing to accept an unequal deal. The Chinese media have painted a different picture portraying Washington as a bully that is trying to contain a rising competitor.

View from China

From the Chinese point of view, “it sounds like the U.S. is trying to impose an unequal treaty on China, which reminds many in China of the ‘Century of Humiliation’ when the declining Qing Dynasty had to accept unequal treaties imposed on China by foreign powers,” said Zhiqun Zhu, a political science professor at Bucknell University in Pennsylvania.

Accepting something perceived as an unequal treaty would be seen in China as a sign of weakness.

“I think it will be politically dangerous if the CPC does not put up a strong resistance (to Washington) and seek a fairer deal with the U.S.,” he said.

Since July 2018, the two countries have been engaged in a tit-for-tat tariff war that has resulted in losses worth billions of dollars to businesses across the globe. The two sides have held nine rounds of intense talks for a deal to end the trade war, but the outcome of the negotiations remains uncertain.

Challenge for Communists

For the rank and file of China’s Communist cadres, there is an expectation Chinese leadership will match the United States in political strength and negotiation capability.  Some even see the trade war as a tussle between Presidents Xi Jinping and Donald Trump.

“The U.S. demand that China genuinely move toward a market economy is a challenge for any CCP leadership, but is particularly the case for a China led by Xi Jinping,” said Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies in Washington.

That is equally challenging because under Xi Jinping’s leadership, China has moved backward in terms of market reforms, Kennedy said. 

“Previous CCP leaders have adopted policies less inimical to markets, and they did not see marketization as a vital threat to CCP rule the way Xi Jinping apparently does,” he said.

U.S. reports suggest Washington wants to craft the deal in a way China cannot deviate from it, leaving no future room for Beijing to impose counter-measures like tariff increases on American business.

The Trump administration has imposed tariffs worth hundreds of billions of dollars on Chinese goods. Washington appears to be negotiating from a point of strength as China has exhausted its ability to impose counter tariffs on American products.

The U.S. is asking China to address old concerns like industrial subsidies, technology transfer, and intellectual property rights.  Accepting these demands would impose a heavy financial burden on Chinese industry because it will result in costly restructuring and an increase in product prices. Price increases can in turn affect China’s exports.

Questions are being asked whether the United States will find a way to make sure the deal is implemented at the factory and trade levels across China.

Deal or no deal, the situation in China is unlikely to change, said Fraser Howie, author of the book Red Capitalism.

“China will pay lip service to much of what is being discussed, sign a weak deal, buy some stuff, approve some deals in the short term, but longer term China will be pursuing Made in China 2025, they will be stealing IP (intellectual property) where they can, and they will be treating foreign companies differently as much as they can,” he said.

Party vs. US relations

The worst to be hit will be state-owned enterprises that thrive on government subsidies and preferential policies. State support for enterprises is the cornerstone of the Chinese economy and the foundation power at the local level, analysts note.

And restructuring heavily staffed state-owned enterprises is likely to result in large scale unemployment and throw up another political challenge for the party.

“If they (Chinese leaders) don’t make the concessions necessary for a deal it will only be because the Chinese leadership has determined that maintaining the place of SOEs and special interests is more important than an amicable relationship with the United States,” Kennedy said. 

In the end, the importance of the one-party system matters a lot more to China than its relations with the United States or Western ideas of the free market.

“China is run by a Leninist dictatorship which has made no secret of the importance of the party as the core of the society and economy,” Howie said.
…