US puts verification of China’s commitment to industrial reform at heart of next trade war talks

The next stage for China-US trade talks would be the creation of a framework to verify China’s commitment to structural industrial reform, a move that could be a stumbling block in ending their trade war, analysts said.

The assessment came after delegations wrapped up their negotiations on Wednesday, when the US negotiators challenged China on a series of grievances.

The Ministry of Commerce in China said the talks laid a foundation for resolving their disputes, as both sides had in-depth discussions about structural economic problems.

But a statement from the United States trade representative body said the meetings were part of a push to achieve “needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture”.

The US side gave no indication as to what, if any, agreements had been made during the latest round of talks, but its statement said the US pushed for verification and enforcement of earlier agreements.

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The two sides held intense discussions at the vice ministerial level from Monday to Wednesday in Beijing. The delegations were led by Chinese vice commerce minister Wang Shouwen and deputy US trade representative Jeffrey Gerrish.

Both nations would continue their negotiations, and Vice Premier Liu He is expected to visit the US soon.

The Chinese statement did not mention the grievances and the verification mechanism, which analysts expected the US will focus on in the next round of talks.

Julian Evans-Pritchard, senior China economist at Capital Economics, said while it is relatively simple to track changes in Chinese purchases of US goods, it would be difficult to create a verification framework for China’s follow-through on structural changes.

“The lesson of the past few years is that, even in cases where China has opened up on paper, removed restrictions to foreign investment for example, that has not really balanced the playing field in practice, with a lot of sort of indirect ways where the Chinese government can favour state firms and domestic firms,” he said.

And while Beijing may offer piecemeal measures on its structural reform, it would not be likely to abandon its core industrial policy, including its Made in China 2025 plan, or policies that favour domestic firms over foreign ones, he said.

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“That does not necessarily mean that there will not be a deal because it seems to me that the US side, and [US President Donald] Trump in particular, appears much more keen on reaching a deal, even if it’s not the deal that they originally wanted,” he said. “If the deal is much more narrow in scope, then that will make it much easier to monitor the implementation … of what is agreed.”

Shi Yinhong, a China-US relations specialist with Beijing’s Renmin University, said China is willing to discuss a verification mechanism with the US, but with limitations.

“If the US is too harsh, for example, by demanding China to make drastic changes to its economic structure, the Chinese government will not accept it,” he said.

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Key friction will come with US demands for China to cut subsidies to state-owned enterprises, Shi said.

Shi noted that Trump has not raised the issue over the past two months, but expected it will be addressed again in trade talks when other issues, such as purchasing more US products, are tackled.

Additional reporting by Jane Cai