China claims to advocate free trade

China's leaders are probably furious that they are targets of U.S. tariffs because they view themselves as the proponents of a new improved version of globalization in the 21st century. The deep divide on China's role in global trade is one of the big challenges to resolving the current trade war.

At a meeting on agricultural trade policy in Beijing last November a Chinese agricultural official recited China's support for globalization, its practice of free trade, its adherence to WTO rules, and China's role as a driving force for global agricultural development and trade. The official went on to proclaim that China is ready to address "severe challenges" to global agriculture and food security by improving resilience of global supply chains on the basis of food security, constructing a more sustainable, resilient, fair and inclusive global agricultural trade system, and by strengthening dialogue and consultation to stimulate new momentum in agricultural trade growth and to promote future-oriented re-globalization.

China's "opening up" policy initiated in the 1970s was to engage with the global trading system to "modernize" its backward companies. The idea was that Chinese companies could become internationally competitive by bringing in foreign technology and capital, by teaching Chinese companies how to operate under international rules and standards and by encouraging Chinese companies to invest abroad. In short China took advantage of the global international trading system--the set of reliable rules, standards, and dispute settlement mechanisms set up mid-20th century--to rescue the economy from disastrous socialist policies pursued after 1949.

After 5 decades of "opening up," Chinese leaders feel their companies still need help competing on the world stage. A December 2024 Peoples Daily article highlighted institutional reforms that include streamlining approvals of shipments entering China, digitizing trade, setting new product standards, and opening up experimental free trade zones and ports. The strategy calls for China to actively participate in the WTO and international rule-making bodies, engage in regional free trade agreements with innovative provisions, and expand use of insurance, futures, options and other financial products. It also includes setting up Chinese industrial chains and exporting goods with greater value-added. 

You probably missed Chinese Premier Li Qiang's call for expanding "high-level opening up" (扩大高水平对外开放) in his government work report last month. This was a reference to a pledge to improve the "institutional mechanisms" for foreign trade and investment, to alter the regional network of international trade and investment, and to improve China's Belt and Roal mechanism issued as part of a resolution to "deepen reform" at last July's communist party congress.

While expanding its engagement with the global system China now finds fault with the trading system that modernized and enriched the country. Its pledges to create a more "fair" and "win-win" system imply that the current trading system is unfair and benefits only the United States. 

Peoples Daily stressed that China's opening up constitutes "Chinese style" modernization. Behind this is the notion that all principles, standards, and policy measures must be adapted to China's unique features...which are never defined.

Part of China's strategy is to physically redraw trade routes with China as the hub using Belt and Road, by winning friends in the developing world through foreign aid, trade and international organizations, through regional initiatives with ASEAN, Eastern Europe, Central Asia and others, and by setting up overseas aid projects and industrial parks. China highlights its rail routes from western China to Europe and other experiments such as exporting wheat from Kazakhstan to southeast Asia via Chinese railroads, logistics parks and a seaport in China's Jiangsu Province.

China's credibility as a trade liberalizer is undermined by its leaders' obsessions with national security and stability. When imports threaten China's "food security" or "industry security," shipments are restricted through nontariff barriers, antidumping duties or other measures. Chinese officials turn imports on and off to manage domestic market supply and boost domestic producers. When there are gluts of domestic supplies, commodities are stored in secretive stockpiles or processed into value-added products and dumped abroad. Flows of capital, technology and labor can be rerouted or interrupted if they threaten China's extremely broad notion of national security. China wants these "food security" practices to be adopted as part of the global agricultural trading system.

Rules and standards must serve China's national interests. For example, China revamped standards for infant formula based on a pseudo-scientific finding that Chinese infants have differing nutritional needs than infants in other countries. This forced overseas suppliers to recalibrate formulations which they had to submit to Chinese authorities for approval. 

The high level opening initiative promises to expedite imports of products by simplifying the approval process and expediting inspections at the border. Yet there have been numerous reports of weeks-long delays of inspections for imported soybeans in China over the last two years. Despite improvements in the import clearance process there are still a blizzard of approvals and forms. The majority of rejections of food imports filed by customs officials continue to cite problems with documentation of shipments; only a small number of rejections are due to failure of actual inspections or testing.

China calls for exchanging data and digitizing trade information, yet the quality and reliability of China's customs data appears to have degraded. China's reported volumes of soybean and corn imports now deviate significantly from volumes of exports reported by trading partners, so no one has precise knowledge about the global supply and demand for soybeans now. 

Access to China's customs data is through a crude online data query that is difficult to use, hasn't been improved in the years since it was first introduced, and is frequently inaccessible. Analysts and traders have to rely on the UN Comtrade database or private companies to gain access to detailed Chinese customs data.

While China is eager to gather data from other countries, Chinese officials are careful to prevent Chinese data from escaping to other countries. For example, a foreign farm equipment manufacturer was forced to disable data transmission capabilities in equipment sold to China because it violated China's security law, but you can bet that China is selling its own farm equipment abroad with similar data collection and transmission capabilities. Foreigners who want to tour China's crop producing areas to gain insight about grain supplies are at risk of arrest for violating China's statistical law. 

Similarly, China is eager to obtain and stockpile germplasm and genetic resources from abroad, but sharing its own plant and animal material is a nonstarter. One of China's priorities is to build world-beating seed and animal breeding companies to compete with foreign suppliers of seeds and breeding stock, so that means keeping a tight grip on all genetic material that might be useful. 

All countries should be careful when signing on to follow China. While China has learned to use the jargon of seminar rooms and international conferences, beware the deep contradictions that can bring unexpected turbulence and unpleasant surprises.