The trade dispute between China and the US could be the biggest challenge Chinese President Xi Jinping has faced since coming to power in 2012, analysts said.
During his first term of office, a period Beijing described as a time when “the West is chaotic and China is prosperous”, Xi accomplished many of the goals on his to-do list, both at home and abroad.
Besides boosting China’s military presence in the South China Sea, he also expanded its global influence through the “Belt and Road Initiative”, his pet infrastructure development plan. On a personal level, he succeeded in silencing his opposition both within and outside the Communist Party, had presidential term limits scrapped, and got “Xi Jinping Thought” enshrined in the nation’s constitution, leading many to describe him as China’s most powerful man since Mao Zedong.
But a so-called trade war with the United States is a whole new ball game.
“It is the biggest challenge,” said Shi Yinhong, an international affairs specialist at Renmin University in Beijing and adviser to the State Council.
“If the [trade] war is fought on a broad scale and lasts some time, China’s economy and finances will surely be damaged. The great rejuvenation of the Chinese nation, or Chinese dream, won’t always be upwards.”
Soon after Washington on Friday delivered on its threat to impose additional 25 per cent tariffs on US$34 billion worth of Chinese imports, questions began to be asked as to how hard the measures would hit China, both in financial and political terms.
Shi said the trade row could see China changing the way it behaves on the global stage, perhaps even toning down the assertive stance it has adopted in recent years.
“China has been going too fast on the strategic front in recent years,” he said. “Now it needs to adjust its priorities.”
Faced with growing pressure from the United States and other Western nations on trade issues, China will have to make significant concessions, he said.
“Discontent among developed countries at China’s trade practices has been building for years,” Shi said.
“China hasn’t reduced its trade surplus or broadened market access significantly, but is asserting more state control over the economy. After not doing much in terms of trade for all these years, the concessions it now has to make will have to be major ones.”
China was also likely to be less aggressive in terms of foreign investment projects due to reduced funding for them, he said.
While China is widely criticised by foreign companies and governments for the restrictions it puts on market access, Xi and other senior officials have vowed to promote free trade and condemned protectionism.
Last week, Beijing released a new, shortened negative list – which details those areas in which foreign investment is not permitted – opening the doors to its shipbuilding and rare earth mining sectors.
Shanghai-based political scholar Chen Daoyin said, however, that whatever happened in trade terms, people should not expect any significant changes on China’s political front.
“There are hopes among the country’s intellectuals that it will force economic and political reform,” he said. “But that’s simply not feasible. The ruling group has been very clear in terms of maintaining the regime.”
Speaking in March at a forum to discuss the China-US trade dispute, former finance minister Lou Jiwei dismissed those who believed market reforms would lead to substantial political change.
“I’ve met some of them [US strategists]; they are generally disappointed,” he said. “They assumed that after becoming a market economy, China’s ruling party would also become a Western-style democracy. It didn’t come true.”
The key to China’s economic reform was the unchallenged leadership of the Communist Party, Lou said, a position that was strengthened in March, when the country’s largely ceremonial legislature voted to lift presidential term limits.
A bigger problem could be if the trade conflict led to an economic slowdown, Chen said.
“For decades, the legitimacy to rule of the Communist Party was built on economic performance,” he said. “If an economic crisis happened because of the trade war, it would surely damage that legitimacy.”
Perry Link, a specialist on Chinese politics at the University of California, Riverside, agreed.
“An economic downturn … would be a much bigger threat to the stability of the Xi regime than anything the ‘dissidents’ can generate,” he said.
“And I don’t think the new nationalism would help [him], and could even go against him if things go badly.”
In a departure from tradition, Beijing has sought to tone down nationalist sentiment among the public in recent weeks, including playing down its “Made in China 2025” plan for industrial upgrading and modernisation.
In a series of three online commentaries published by People’s Daily, Beijing condemned articles that exaggerated China’s technological innovations and achievements, saying they provided the fuel needed for outsiders to criticise China.
As trade tensions have grown between China and the US, so Beijing has sought to secure closer ties with Europe, which has also been the target of Trump’s tariffs.
During the visit to Beijing of European Commission Vice-President Jyrki Katainen last month, the two sides said they would set up a working group to revamp the World Trade Organisation to counter US unilateralism.
EC President Jean-Claude Juncker is expected to visit Beijing in the coming weeks before travelling to the US at the end of the month.
Christopher Balding, an economist at Peking University HSBC Business School, remains sceptical about the possibility of a Beijing-Brussels alliance on trade issues.
“Quite frankly, Europe sees Trump as a cold. He’s going to leave office at some point, and they have a much deeper history with the US, being a much more open market,” he said.
“They don’t have any of those assurances with China. You don’t know when Xi is going to leave office, and China has no history of an open market.”