In Giant Trade War Concession, China Prepares To Replace "Made In China 2025"

  • Written by Zero Hedge
  • Published in Economics

Did President Trump just win the trade war?

Stocks futures exploded higher Wednesday morning following a report in the Wall Street Journal claiming that China is planning to increase access to its domestic market. If accurate, this would constitute a major concession in the trade war and address one of the Trump Administration's biggest complaints about the inherent unfairness and anti-competitiveness of China's "Made in China 2025" policy.

China's top planning ministry is working on a replacement for "Made in China 2025" that would play down Chinese dominance in manufacturing and open the door to more competition from foreign firms.

China’s top planning agency and senior policy advisers are drafting the replacement for Made in China 2025—President Xi Jinping’s blueprint to make the country a leader in high-tech industries, from robotics to information to clean-energy cars. The revised plan would play down China’s bid to dominate manufacturing and be more open to participation by foreign companies, these people said.

Current plans, these people said, call for rolling out the new policy early next year, a time when the U.S. and China are expected to be accelerating negotiations for a deal to end their bruising trade battle.

One of the biggest concessions would be abandoning targets for domestic content for components, something that Chinese officials are likely considering for their own economic reasons - like mitigating waste - rather than doing it purely to appease Trump.

A key concession under consideration would be dropping the numerical targets for market share by Chinese companies, these people said. Made in China 2025 sets defined goals of raising domestic content of core components and materials to 40% by 2020 and 70% by 2025, an increase that comes at the expense of foreign competitors.

Chinese officials backing the proposed changes emphasize that China needs to move away from Made in China 2025 and state-led development for its own reasons. President Xi’s economic adviser, Vice Premier Liu He, and other senior officials have criticized Made in China 2025 for creating waste. Cheap loans made available by various levels of government, for example, have led to extreme overcapacity among electric-vehicle battery makers in the past couple of years, making the sector less viable.

It's also worth noting that the decision to abandon "China 2025" isn't entirely unexpected.

Chinese leaders in recent months have stopped mentioning the Made in China plan in public remarks. At a press conference last month, President Trump took credit for China shelving the plan, saying, "China got rid of their China ’25 because I found it very insulting."

But rather than uncritically embracing the reforms, the Trump Administration will likely remain skeptical - at least at first - as WSJ reports that China likely won't go as far as the US would like, and some US officials might see the changes as "more cosmetic than real."...

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