When international relations get rough, China is not known for mincing words. The Sino-Soviet split of 1956, for example, was accompanied by the observation from Chairman Mao Zedong that “not all Soviet farts smell sweet”.
Decades later, in the aftermath of the 1989 Tiananmen massacre, the then Chinese leader Deng Xiaoping accused Washington of being deeply involved with “counter-revolutionary rebellion” — a grave crime in Beijing’s eyes. And when Nato forces bombed the Chinese embassy in Belgrade in 1999, the authorities allowed thousands of protesters screaming abuse at “American imperialists” to hurl rocks through the US embassy’s windows. By comparison, this month’s reaction from Beijing to an intensifying, US-led trade war has been rather restrained. It has imposed a round of tit-for-tat tariffs and pledged more if Washington escalates, but this response has been reactive and consistent with warnings made before the US slapped duties on Chinese exports. Beijing has also refrained from whipping up nationalistic sentiment to turn Chinese consumers against US brands.
Verbally, the regime has eschewed the earthy aphorisms so esteemed by Mao. At times this week, the People’s Daily, mouthpiece of the Communist party, was almost poetic: “The US trade bullying is like a crazed creeper that keeps wildly growing and will step by step drag the global economy into the mire of decline,” said an editorial. The foreign ministry’s statement called the US tariffs “totally unacceptable”, pledging that China would oppose protectionism and maintain the multilateral trading system. So, the question is: why is China so uncharacteristically calm? The answers appear to stem both from trade war tactics and deep-seated domestic vulnerabilities, according to analysts. They say the leadership has an eye on US politics: James McGregor of the international advisory group APCO Worldwide says the Chinese are hoping for a backlash against President Donald Trump’s policies — and have done their best to fuel it by targeting farmers and Trump voters.
To an extent, Beijing’s retaliatory tariffs on $34bn-worth of US imports was a surgical strike. They appeared designed to hit goods — including crops such as soyabeans— that are produced in heartland Midwestern states.
In addition to these fusillades, China also appears intent on eroding an already fraying western alliance. Li Keqiang’s visit to Germany this week saw the Chinese premier deliver goodies into the laps of big German companies that are challenging US rivals in China.
Deutsche Bank, the largest German bank, received a potentially lucrative licence to underwrite bonds in Shanghai. Beijing may also let BMW, the German carmaker, take a rare controlling stake in a manufacturing joint venture in China, becoming the first foreign company to benefit from opening the sector, according to Germany’s Manager Magazin. BMW has so far declined to comment.
Such moves appear designed to arouse envy, goading US companies into pressuring the White House to call off the dogs. Mr McGregor jokes that the Chinese may be relying on a missing volume by ancient strategist Sun Tzu: The Art of the Trade War. Another observer believes that China’s insistence on portraying itself as a victim buffeted by Mr Trump’s irrational excess is a further ploy to gather support for its free trade stance among European countries and Japan.
So much for tactics. The deeper motivation for China’s demure posture, however, is that if the cycles of tit-for-tat tariffs escalate — as the US now plans, with another $200bn round of levies — Beijing has too much to lose.
With growth in gross domestic product running at 6.8 per cent and the world’s largest stash of foreign currency reserves, China can appear unassailable. But this is at least partly a mirage; falling Shanghai stock prices and a slide in the renminbi, China’s currency, attest to growing anxieties.
One of these is that this year China could suffer its first deficit in the current account, which measures trade in goods and services, since 1993. This would put downward pressure on the foreign reserves and hit the renminbi.
If China was to haemorrhage capital even half as severely as it did in 2016, it might burn through reserves to prop up the renminbi. This in turn would diminish its ability to finance the Belt and Road Initiative, a huge project to amass global influence by building infrastructure in more than 80 countries.
Beijing is also anxious to maintain access to the US technology sector, both for imports of key items such as computer chips and for investments in US tech companies. Without links to US tech innovation, it will find it much more difficult to attain the global technological supremacy envisaged in its “Made in China 2025” industrial blueprint.
China has decisively ignored a backlash toward its policies from large trading partners, according to Yu Jie, at LSE Ideas, a think-tank. “Trump’s trade war is ridiculous,” she adds, “but China in some respects has opened itself to resentment from trading partners upon which it depends.” Ironically, Beijing’s vulnerabilities can be traced back to its own hubris rather than that of Mr Trump.