MNI EXCLUSIVE: Trade Spat May Hit Tech, Finance:China Advisors

     BEIJING (MNI) - The trade dispute between the U.S. and China could spread

into the technology and financial sectors, and prompt the use by Beijing of rare

earth minerals as a weapon, if talks produce no deal and relations between the

two sides deteriorate, government advisors told MNI.

     "We have seen the U.S extend the conflict into other fields, so we have no

choice but to fight back," said one advisor, asking to remain anonymous.

Restrictions on China's exports of rare earth minerals - vital for high-tech

products like mobile phones - could be a weapon in a trade war, the advisor

said, although for the moment they merely remain a deterrent.

     The advisor's comments came after China released a white paper on Sunday

saying the U.S. government "should take the whole responsibility" for the

break-up of the latest round of trade talks. The country also announced Friday a

plan for a list of "unreliable entities", targeting foreign companies, groups

and individuals considered to have damaged the interests of Chinese firms.

     Like the advisor, Li Yong, a senior fellow at the China Association of

International Trade under the Ministry of Commerce, said the U.S. should drop

tariffs on Chinese goods imposed since last year as a precondition for resuming

trade talks. Li noted that American businesses are also suffering from the

increased levies.

     "We are still willing to talk, but any negotiation should be based on

mutual respect and credibility, " Li said. "Any deal should be mutually

acceptable".

     He added that he was cautiously optimistic that the two sides could agree

to resume talks before or during the G20 summit in Japan at the end of June, but

cautioned: "this optimism is based on the Trump administration's acting

rationally."

     --SELF-INFLICTED PAIN

     The U.S. would inflict economic pain on itself by imposing additional

tariffs on goods from China, particularly as it is also moving against imports

from other trade partners like Mexico and India, Li said: "American consumers

may not appreciate the excessive pressure from these tariffs, which may not help

[Donald Trump's] election campaign."

     China's economy is already feeling the consequences of trade disruption,

said the first advisor, adding that Chinese firms should be able to cope, with

the help of the authorities.

     The government has taken measures including the provision of tax

preferences to help companies, and more could such moves be announced if

necessary, the advisor said.

     The U.S., which wants China to remove subsidies for state-owned companies

and to crack down on violations of intellectual property rights, is demanding

policies which are in line with China's own objectives as it moves towards a

more sustainable growth model, said the advisor, But Washington's expectations

have been for unrealistically fast change.

     Talks, meanwhile, can only proceed if the U.S. backs down from its tariff

plans, the justifications for which the advisor said were based on false claims:

"When you agree to talk, you should put the gun down."

     In order to facilitate a deal it would be best for the parties to avoid too

many references to areas other than trade, the advisor said, when asked about

China's stance on the yuan exchange rate. The U.S. has sought guarantees that

Beijing will limit any depreciation of its currency.

     Even if the two sides reach a deal, trade conflicts between the U.S. and

China could be a feature of the next 10-to-20 years, the advisor said.

     "For as long as the U.S. does not change its attitude to the rise of China,

the two countries will inevitably continue to compete and conflicts will be

unavoidable."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MC$$$$,MT$$$$,MX$$$$,MGQ$$$]