As US president Donald Trump escalated his trade war against China last summer, applications for two massive foreign investments were stuck in the Chinese government’s labyrinthine approvals system.
BASF, the German chemicals conglomerate, and ExxonMobil of the US each wanted to invest billions of dollars in the southern province of Guangdong. Both multinationals were proposing to build industrial complexes that would challenge the entrenched position of Sinopec and other Chinese state-owned energy giants.
According to Chinese officials and foreign diplomats familiar with the two projects, Vice Premier Liu He helped break the logjams.
BASF’s $10bn investment was announced on July 9, just days after the US first imposed punitive tariffs on Chinese imports.
ExxonMobil’s announcement followed in early September, two weeks before Mr Trump announced a second and more expansive round of tariffs on about half of all imports from China.
Both investments sent strong signals that, trade war or no, global multinationals still covet the country’s vast domestic market and are prepared to risk billions on decades-long investments.
This week Mr Liu, China’s de facto economic tsar and longtime confidant to President Xi Jinping, is in Washington trying to break a much bigger logjam.
If he and US Trade Representative Robert Lighthizer cannot negotiate an end to their two countries’ continuing trade war by March 1, Mr Trump will more than double the punitive tariff rates currently assessed on Chinese imports. The two-day negotiating round is scheduled to end later today, after which Mr Liu will meet Mr Trump.
The suddenness and severity of Mr Trump’s trade war has come as a shock for Mr Liu, who studied in the US, has a genuine affection for the country and maintains longstanding friendships with a host of prominent American academics, business executives and former government officials.
“Liu He is a serious, capable person,” said Graham Allison, a Harvard history professor who taught Mr Liu when he was a young up-and-coming, English-speaking official from China’s planning ministry. “He has the unusual combination of being knowledgeable about economics and rooted in history.”
In private conversations with his many foreign VIP friends, whose pictures hang on the walls of his offices in central Beijing, Mr Liu has often expressed bewilderment about how a country that he sees as a natural partner for China has become so hostile to it.
People who meet him regularly say he often observes that the US has the world’s most powerful military, best universities and most advanced technologies, so why is it suddenly so hostile to a still much poorer China?
“He is from the old school of ‘let’s find ways to get along with the global community so that we can continue to do business’,” said one US executive who has met regularly with Mr Liu and his protégés.
Many of the vice premier’s foreign interlocutors tend to see him as someone who is committed to implementing difficult financial and economic reforms — as evidenced by his backing for the BASF and ExxonMobil investments last year — but has been hemmed in by his president’s far more conservative instincts.
At a December speech marking the 40th anniversary of the economic reforms launched by Deng Xiaoping, Mr Xi vowed that while China “must resolutely reform what should and can be changed, we must resolutely not reform what shouldn’t and can’t be changed”.
The president’s emphasis, many Chinese officials and executives say in private, was clearly on what should not be changed. A month later Mr Xi convened a rare, four-day meeting of top Communist party officials to warn them about the dangers posed to China’s stability by various enemies, foreign and domestic.
These broadsides from Mr Liu’s boss have made it difficult if not impossible for him to agree to deep and lasting “structural” economic reforms that Mr Lighthizer says have to be part of any final trade settlement between the world’s two largest economies.
Scott Kennedy, a China expert at the Center for Strategic and International Studies in Washington, thinks those who view Mr Liu as a committed, albeit frustrated, market-oriented reformer give him too much credit.
Mr Kennedy describes the vice premier as a “pragmatic interventionist” whose signature policies to date — parallel crackdowns on industrial over-capacities and China’s shadow-banking sector — are all about state intervention in the marketplace.
“Regardless of his intellectual or philosophical leanings, [Mr Liu] consistently settles for policies that rely on expanded government intervention and increased party control,” he said.
True reformer or not, Mr Liu has met quite the opponent in Mr Lighthizer, who appears impervious to the vice premier’s charms and has so far prevailed over Trump administration rivals who have advocated a softer approach in dealing with China.
“It appears that Lighthizer’s main negotiating strategy — and it’s a good one — is to tell the Chinese to ‘fix this’ [particular problem],” said James Green, a fellow at Georgetown University and former head of the USTR’s Beijing office. “Then he will consider each thing that the Chinese put on the table and say ‘yes, no, we need to tweak that, that’s OK, that’s not OK’.”
Mr Liu’s negotiating constraints are “a reflection of where the Chinese political economy is”, Mr Green added. “There’s only so much you can do even if you’re best friends with Xi Jinping.”
