MNI INTERVIEW: China Needs Regional Trade Deals, Investor Push

     BEIJING(MNI) - China should seek to join regional trade deals and provide a

fairer playing field for foreign investors as it copes with tension with the

U.S., the threat of a wider spread of global protectionism and potentially

rising market volatility as the Federal Reserve eases monetary policy, a former

head of the Chinese Academy of International Trade and Economic Cooperation told

MNI.

     "As long as foreign investment and trade, the two key areas impacted by

trade conflicts, can be stabilised, economic growth should not take a big hit,

and then forex and financial stability should be easy to address," Huo Jianguo,

former head of the think tank run by the Ministry of Commerce, said in an

interview.

     China should seek to join regional trading groups including the

Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which

links Canada and 10 other countries in the Asia-Pacific region, said Huo, now

vice chairman of the China Society for World Trade Organization Studies.

Regional deals are taking on more importance because the WTO's major members

cannot achieve consensus on its reform, he said.

     The U.S. wants China to give up some of the advantages as a developing

country it won on entering the WTO in 2001. Beijing is likely to continue to

insist that developing countries should enjoy preferential treatment, although

it will continue to move towards opening up its own domestic market, said Huo,

who was on the Chinese negotiating team ahead of its WTO accession.

     The Financial Stability and Development Committee, China's top financial

regulator, on Saturday announced measures including moves to make it easier for

foreign institutional investors to set up wealth management firms, currency

brokerages and pension management companies, as well as to encourage

international participation in interbank loans and in more of the bond market.

     --FREE TRADE ZONES

     The economist conceded that the world's second-largest economy faces strong

headwinds, with exports under downward pressure, but said that measures to boost

free trade zones and special economic zones will provide new drivers for growth.

     "China will redouble its efforts towards improving the business

environment, in order to attract and retain foreign investment, such as in

Guangdong and Shanghai," Huo said, mentioning the Greater Bay Area linking

Guangdong, Hong Kong and Macau, and the broader Yangtze River Delta Zone centred

in Shanghai.

     "Robust growth in these regions will boost and lead other regions," he

said.

     The so-called Negative List, which sets out areas off limits to foreign

investors, will be further streamlined in the 12 free trade zones, Huo said.

     There is no obvious sign that foreign companies are retreating from the

country at present, Huo said, noting that the U.S. decision to suspend new

tariffs on about USD300 billion in Chinese imports has calmed nerves among

international investors. If tariffs already imposed on another USD200 billion in

imports are removed, investors would have no need to shift operations out of

China, he said.

     While Huo is optimistic that China and the U.S. will eventually settle

their differences through negotiation, rather than resort to an all-out trade

war, he said a deal is unlikely in the short run.

     Meanwhile, increasing geopolitical conflict could contribute to an increase

in global financial market volatility as the Fed loosens its monetary policy.

     "The prices of world commodities could rise and create new uncertainties,"

Huo said.

     China should also remain wary of the U.S.'s capacity to affect the value of

the dollar and influence international financial markets, he advised.

     While Beijing has moved towards meeting some U.S. concerns in the trade

talks, indicating willingness to open up its financial sector, protect

intellectual property and cut tariffs, Huo said American demands had to be

realistic.

     Additional purchases of U.S. goods should focus on areas serving Chinese

demand, such as for farm produce and aircraft, Huo said, noting that purchases

of American gas and oil would be constrained by the availability of the

necessary infrastructure.

     Referring to a list of so-called "unreliable entities" Beijing has said

could be used to target companies and individuals damaging Chinese interests,

Huo said that while it could have a significant deterrent effect, its

introduction will depend on progress in trade talks. The list will also require

a clear legal basis, he said.

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

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