Nearly 40 years since starting to liberalise its economy, China's adoption of a fully fledged market economy is still far from complete. But one thing it has picked up from the democratic capitalist west along the way is an ability to spin small changes in policy to placate its international partners.
China showed its prowess in this area by offering some trade liberalisation measures following Xi Jinping's meeting with Donald Trump in the US last week. Beijing is ready to lift a hygiene-related ban on American beef imports, which has been in place since 2003, and remove some restrictions on foreign companies investing in its financial services sector. By giving Mr Trump some impressive-sounding victories to tout at home, China may hope to forestall some of the wilder protectionist acts the US president has been threatening. Yet ironically, one of the outcomes it is keen to avoid — having the administration label China a currency manipulator — is one for which there is no basis and hence it can do little to affect. It is genuinely innocent.
China's decision was designed to make a big noise without necessarily changing very much. The pronouncement on beef involved a highly symbolic American product. The agreement to open its financial services sector, meanwhile, may not make a dramatic difference in reality. Western companies are likely to be chary about plunging into a debt-laden Chinese financial system.
The selective nature of Beijing's policy change underlines the fundamental problem with its trade and regulatory policy. Despite more than 15 years' membership of the World Trade Organization, China's economy remains resistant to foreign investment in many sectors and its trade is distorted by regulatory interference.
This week's offer is not a substitute for substantive liberalisation, particularly in the service sector. Rather than threatening WTO-illegal actions on tariffs, Mr Trump's administration would do better to pick up negotiations with Beijing on a bilateral investment treaty, which were left over from Barack Obama's administration and could deliver considerable access to Chinese service markets.
In the nearer term, Mr Trump faces the decision of whether to follow through with a manifesto promise that will have very little effect in practice, except to inflame diplomatic tensions. On the campaign trail, he promised to designate China as a currency manipulator on day one of his administration. The US Treasury's biennial currency report, due to come out later this week, provides him with an opportunity.
There are, however, two rather substantial problems with doing so. One is that such a designation has no impact whatsoever beyond compelling the US Treasury to negotiate with China, which it is already doing. The second is that China is desperately trying to prop up its currency to prevent financial instability, not hold it down to give it competitive advantage. It is in no one's interest, including the US, if Beijing suddenly stops intervening to defend the renminbi and a destabilising rush of capital flight and sharp devaluation follows.
The US administration is learning that making substantial and constructive gains in trade negotiations is slow incremental work. It is to be hoped that Mr Trump does not get frustrated with the pace of change and unleash the destructive policies he promised before he came to office.
China will not offer him rapid and widescale liberalisation. But accepting what it can get and carefully and continuously pushing for more is America's best course of action.
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