US gives ground on China's industrial subsidies to state companies

Business | 15 Apr 2019 9:58 am

U.S. negotiators have tempered demands that China limit industrial subsidies as a condition for a trade deal after strong resistance from Beijing, according to two sources briefed on discussions, marking a retreat on a core U.S. objective for the trade talks, Reuters reports in an exclusive despatch.

The issue of industrial subsidies is thorny because they are intertwined with the Chinese government’s industrial policy. Beijing grants subsidies and tax breaks to state-owned firms and to sectors seen as strategic for long-term development. Chinese President Xi Jinping has strengthened the state’s role in parts of the economy.

In the push to secure a deal in the next month or so, U.S. negotiators have become resigned to securing less than they would like on limits those subsidies and are focused instead on other areas where they consider demands are more achievable, the sources said.

Those include ending forced technology transfers, improving intellectual property protection and widening access to China’s markets, the sources said. China has already given ground on those issues.

“It’s not that there won’t be some language on it, but it is not going to be very detailed or specific,” one source familiar with the talks said in reference to the subsidies issue.

A representative for the White House referred Reuters to the U.S. Trade Representative’s Office, which did not respond to a request for comment.

“If U.S. negotiators define success as changing the way China’s economy operates, that will never happen,” said the other source with knowledge of the trade talks.

“A deal that makes Xi look weak is not a worthwhile deal for Xi. Whatever deal we get, it’s going to be better than what we’ve had, and it’s not going to be sufficient for some people. But that’s politics,” that source said.

China pledged earlier this year to end market-distorting subsidies for its domestic industries but offered no details on how it would achieve that goal, three people familiar with the trade talks told Reuters in February.

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