U.S. Bets on China’s Special Envoy in Trade Talks – The Wall Street Journal

Liu He, Chinese President Xi Jinping’s special envoy, is seen as crucial to ending the trade fight between China and the U.S. Talks picked up again on Thursday in Washington.
Liu He, Chinese President Xi Jinping’s special envoy, is seen as crucial to ending the trade fight between China and the U.S. Talks picked up again on Thursday in Washington. Photo: Associated Press

WASHINGTON—As U.S.-China trade talks reach a pivotal point, the Trump administration is counting on the Chinese leader’s special envoy, Liu He, to get Beijing to accept tough new strictures that are increasingly controversial in Beijing.

High-level negotiations resumed in the executive office building next to the White House on Thursday, with both sides focused on reaching a deal before a March 1 deadline that could see 10% tariffs on $200 billion in Chinese imports rise to 25%.

Mr. Liu—and his boss, President Xi Jinping—face powerful constituencies domestically that could hamper efforts to meet U.S. demands. Deep gaps remain between U.S. and Chinese negotiators over some fundamental issues underlying the current bilateral trade tensions, according to people tracking the talks.

China is facing pressure to stop what the U.S. calls illicit technology transfers and improper subsidies for state-owned firms, the people said.

While Chinese negotiators offered to stop providing government subsidies that distort prices and put Western rivals at a disadvantage, they haven’t so far produced a list of subsidies they would be willing to eliminate, the people said.

Instead, the Chinese side so far has focused its offer on greater purchases of U.S. agricultural and energy products such as soybeans, crude oil and liquefied natural gas, they said.

Whatever deal is struck, the U.S. is also seeking guarantees it will be enforced and a means to resolve disputes.

“It’s one thing to write something on a piece of paper,” said Secretary of State Mike Pompeo on Fox Business Network on Thursday. “It’s another thing to have enforcement mechanisms. And I know our trade team is hard at work, making sure that the American people get that.”

Negotiators for the two nations this week are holding the fourth round of discussions since mid-January to try to resolve the yearlong trade dispute that has rattled global markets and businesses. Although the March 1 deadline looms, President Trumpalso said this week that it was “not a magical date,” indicating it could be extended.

Mr. Liu, one of four Chinese vice premiers, has again been given the title of Mr. Xi’s “special envoy”—a designation he was first given early last year but didn’t have for last month’s trip to Washington. That suggests he has added power to make the compromises necessary to make a deal. To that end, says Hudson Institute China scholar Michael Pillsbury, who consults with the Trump trade team, he has tried to create a bureaucratic consensus in Beijing.

“He cleverly avoids having solo meetings to foster consensus,” Mr. Pillsbury said of the special envoy. “The Chinese meet only as a team and he’s brought all the institutional interests with him.”

Even so, the pledges he has made to his counterparts, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, haven’t been matched by changes in the written text being negotiated between the two sides, said an individual following the talks.

This has prompted U.S. negotiators to debate whether Mr. Liu is trying to lull them as a tactic, or can’t get the Chinese bureaucracy to agree to necessary changes.

A 67-year-old economist, Mr. Liu has known Mr. Xi since middle school. He was the leader’s behind-the-scenes economic steward during his first five-year term that started in late 2012. Going into this second term in late 2017, the Chinese leader put Mr. Liu in charge of a wide swath of the economy—the financial system and the industrial sector—and the trade negotiations with Washington.

Earlier in his career, in the 2000s, Mr. Liu cemented his reputation in the West as a reformer when he met with U.S. economists and told them that Beijing could use the U.S. pressure to force greater opening of the Chinese economy.

But he hasn’t had much success turning that tactic into policy victories. Since early last year, Mr. Liu and some in his team have been trying to sharply accelerate the opening of China’s fast-growing insurance sector to foreign capital, according to people with knowledge of the matter.

Such efforts have encountered strong pushback from state-owned insurance giants including the People’s Insurance Co. and its state regulator.

For now, Beijing has promised to remove caps on foreign ownership of Chinese insurers in three years.

Chinese officials say they have already taken concrete steps toward reform, citing more liberal rules for foreign competitors in sectors such as autos and financial services, and tougher enforcement of intellectual-property protection. Beijing sees these changes as in its interest.

But even here Mr. Liu has had to make compromises. Eliminating foreign-ownership limits in those sectors wouldn’t take effect immediately, as the U.S. wants. China wants to give domestic firms, especially state-owned ones, more time to prepare for the changes.

“No one should expect China to swallow the ‘bitter fruit’ that undermines its own development,” says a senior Chinese official. “That’s the guiding principle set by President Xi to Chinese trade negotiators.”

Mr. Liu also has had problems getting changes to the country’s vast state sector.

Even so, Mr. Trump has bet that building a good relationship with Mr. Liu will help get him the deal he wants. In late January, he invited him to the Oval Office for the second time, while reporters recorded the events.

He lavished praise on the Chinese envoy. After Mr. Liu promised, in English, to boost soybean purchases—an implicit recognition of Mr. Trump’s repeated desire to slash the U.S. trade deficit with China, Mr. Trump thanked him and said “that’s going to make our farmers very happy.”

He called Mr. Liu “a friend of mine” and “one of the most respected men in all of China, and, frankly, one of the most respected men anywhere in the world.” Back home, some Chinese officials frowned on his willingness to talk to the president in English, rather than Chinese.

Mr. Trump is expected to invite Mr. Liu back to the Oval Office on Friday afternoon, when talks are scheduled to conclude.

Appeared in the February 22, 2019, print edition as ‘Washington Bets on China’s Special Envoy in Trade Talks.’

Source: https://www.wsj.com/articles/u-s-bets-on-chinas-special-envoy-in-trade-talks-11550795104