Impressive figures for the foreign trade deals touted following official visits by heads of government to China could be little more than hot air if they lack binding force.
Over the past several months leaders of some of the world’s biggest economies have made official visits to China, and returned home with exorbitant trade deals amongst the diplomatic spoils.
British businesses reportedly signed 9 billion pounds worth of deals with Chinese companies during Prime Minister Theresa May’s trip to Beijing last week, while earlier this year French President Emmanuel Macron’s visit reaped 20 billion euros in commercial agreements.
When US President Donald Trump visited China last November, he bagged around USD$250 billion in trade and investment deals.
While these impressive trade deals make for great press fodder, one experts points out that they are likely grossly inflated as they do not reflect when the deals with executed or whether or not they are binding.
Writing for The Financial Times, Dechert’s China managing partner Tao Jingzhou points out that the trade figure of $250 billion for Trump’s visit is likely inflated, given that most of the agreements were not new ones negotiated by the president, but transactions previously agreed upon or already pending.
Tao further points out that the headlines figures for trade deals do not indicate whether or not they are binding, and that non-binding agreements are often executed when signatories do not plan on fulfilling their end of the bargain.
“Given that the declaration of these deals is often largely politically driven, it is not surprising that figures are often inflated,” writes Tao. “A major obstacle [is that] commitments made at the governmental need to be transplanted into the domestic law in order to be implemented.”
China’s central government has recently made much ado about its plan to further liberalise and open up its USD$40 trillion finance sector to foreign investment, with leading policymakers including PBOC governor Zhou Xiaochuan and head of the banking regulator Guo Shuqing all weighing in on the issue.
Tao points out that many remain skeptical about Beijing’s commitment to opening of China’s financial sector given that absence of a detailed schedule or road map for the process, and the potential for bureaucratic resistance to thwart central government policy.
“Implementing diplomatic declarations made by the Chinese government and transplanting these into domestic legislation is a long march,” writes Tao. “Even if the government genuinely intended to fulfil its commitments at the time of signing, the process of making these concrete is never easy.”