Early in May 2019,, the Chinese government sent the U.S. a trade deal draft that had been slashed from 150 pages — painstakingly assembled by both sides over five months of negotiations — to 105. The move riled U.S. President Donald Trump and brought progress on the trade talks to a screeching halt, as Beijing surely knew it would.
Reporting from Beijing in Nikkei Asia explains … “To understand why China went ahead anyway, we must go back to late April, when Chinese President Xi Jinping’s schedule was packed with events in and around Beijing. The first was the second Belt and Road Forum for International Cooperation, on April 25-27, which brought together leaders from more than 30 countries.
“At the first Belt and Road Forum two years ago, a large display at the event’s media center followed Xi’s every step as he strutted around the venue alongside other world leaders, with a confident smile befitting the head of a global superpower. This year, images of Xi strolling were nowhere to be found. When the president began his address, at an unannounced time, the display abruptly popped up in the media center — almost as if the organizers did not want to show his gloomy countenance for long.
“Voices within the Chinese Communist Party, growing louder day by day, were insisting that “an unequal treaty that codifies meddling in our domestic affairs into law is unacceptable.”
“These cries came not only from the party’s conservative left but also from the rank and file — from the core of workers and management at state-owned companies, from industries that rely on subsidies for survival and from the bureaucratic institutions that protect them. The proposed deal threatened their interests.
“Whether the proposed deal between the U.S. and China really qualified as an ‘unequal treaty’ is debatable, but regardless, it cut to the communist government’s heart. It would forbid forced technology transfers by a variety of both public and private means, theft of foreign technology or intellectual property, subsidies to state-owned enterprises and export subsidies given to all companies.
“In late April, Xi was forced into an about-face in his negotiating tactics. The negotiating team, led by Vice Premier Liu He, one of Xi’s close aides, had focused too much on reaching an amicable resolution and stepped outside the bounds of the discretion granted by party leadership.
“But the Xi-Liu axis would never compromise on the most vital points — those intertwined with Communist Party rule. This is “the last 10%” that U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin have said stood in the way of a deal.
“The talks broke down not over that 10% but over the 90% that had already been agreed to by Liu and Lighthizer. Shuttling back and forth between Beijing and Washington for multiple rounds of talks, the two teams had collaborated on that 150-page document, which covered seven areas.
“Liu must have felt some attachment to the draft. The text was carefully constructed, with the Chinese and English versions meticulously compared. Lighthizer, who negotiated successfully with Japan in the 1980s, examined it with an international lawyer’s eyes. The Chinese side even grew sick of his constant scrutinizing of the wording, sources familiar with the talks said.
“Even so, the deal moved 90% of the way to its goal. Given Liu’s closeness with Xi, it should stand to reason that at least the overall outline of the agreement had the approval of China’s leadership.
“Yet the text went back to the U.S. gutted. From Washington’s point of view, the agreement was now nothing more than 105 pages of words, with nearly all of the legal and other mechanisms to ensure compliance ripped out. It was proof that Beijing had given up on reaching a quick conclusion.
“Chinese media have reported that Xi said he will take responsibility ‘for all consequences.’
“Xi is believed to have made this pledge to either the seven-person Politburo Standing Committee or the full 25-member Politburo. Those gatherings would have taken place after the two big events, most likely at the end of April or the first days of May.
“The Politburo Standing Committee consists of Xi, who has the power to convene a meeting and chair it; Li Keqiang, the premier; and five other top party figures. If the seven cannot come to a unanimous decision, a vote is taken, with each member, including Xi, having one vote each.
“Every important decision, by rule, must be approved by the wider Politburo.
“The reports about Xi pledging to take responsibility smell of propaganda. The decision to show the U.S. the revised draft was made before Liu flew to Washington for trade talks late last week and would have been made collectively at the highest level.
“Despite being positioned as the ‘core’ of the party leadership, even Xi cannot overturn a collective decision without securing the consent of the party leaders.
“The Xi-Liu duo, which has been leading the trade negotiations, was, in effect, shackled.
Xi’s political momentum slowing – unrivaled power but little to show in terms of economic achievement.
“This is a sign that, seven years into his rule, Xi’s political momentum is slowing. While garnering unrivaled power through an anti-corruption campaign that eliminated his rivals, the president has little to show the public in terms of economic achievement.
“The credit of expanding China’s economy into the world’s second largest goes to Xi’s predecessors.
“The Chinese media is hardening its domestic stance, pounding the argument that China can never compromise on principle issues,
“Xi has no easy task.”
But Xi Jinping was declared “paramount leader for life” in Feb, 2018. Can he be overruled?
“China’s last ‘leader for life’ was Chairman Mao Zedong, who ruled China from 1949 until his death in 1976. Following the disastrous chaos of the Cultural Revolution that left hundreds of thousands dead, China’s communist leadership put in place rules and norms to support collective rather than personal leadership.
“Deng Xiaoping, the Chinese leader who spearheaded reform after Mao passed, spoke against personal rule in 1980: ‘Over-concentration of power is liable to give rise to arbitrary rule by individuals at the expense of collective leadership.’ Most China watchers expected Xi to follow his predecessor Hu Jintao’s example and rule for only 10 years, but now there is consensus that Xi will stay on after this period.
“In China, Xi packed key government positions with his supporters while purging rivals. He also created significant new organizations, such as small leadership groups, that he controls to circumvent rival power centers. With these latest constitutional changes, he has rigged the game in his favor, too. The Chinese Communist Party is a massive and powerful organization, but increasingly it is an institution ruled by just one man, Xi Jinping.”
Was paramount “leader for life” Xi Jinping overruled by the Politburo?
Or did he backtrack on the agreement because he saw his signature program, “Made in China 2025,” failing if he agreed to the proposals that USTR Lighthizer explained in congressional testimony on Feb 27, 2019
- “Much still needs to be done before an agreement can be reached, and more importantly, after it is reached,” he said. The issues between the two countries are “too serious” to be resolved by Chinese promises to buy more American goods, Lighthizer said.
- “We must have rules, enforced rules, that make sure market outcomes and not state capitalism and technology theft determine winners,” he said.
- The lead U.S. trade negotiator said the United States is seeking monthly meetings for lower-level officials, quarterly meetings at the vice ministerial level and semiannual meetings at the ministerial level for the enforcement process.
- Noting that Beijing has typically not made good on past promises, Lighthizer said it will be critical to have tough enforcement provisions. “I can point to many examples” of the Chinese government signing on to an agreement, “and in very few cases have they actually kept their obligations,” he said.