Tuesday, April 4, 2017

What should Xi and Trump talk about?

This first appeared in Asia Times.

Later this week, China’s President Xi will meet U.S. President Trump in Florida at the unofficial White House. In view of Trump’s predilection for unpredictability and brash outbursts, some pundits thought Xi might be taking a risk if the impromptu summit does not turn out well.

I believe the probability of the outcome turning out badly is low. Secretary Tillerson’s visit to Beijing and advanced preparation by officials from both sides must have provided some reassurance before Xi would agree to the visit.

Another reason that the meeting should go well is because having experienced a series of setbacks, Trump will not want to jeopardize the chance for some welcomed good news for a change.

So what could Xi offer in his meeting with Trump that will make Trump look good? A nice opening would be if Xi were to say, “President Trump I am here to offer you a solution to rebuilding America’s infrastructure while creating more American jobs.” These are two sweet spots closely identified with Trump’s presidential campaign.

As a matter of fact, Chinese companies are already winning bids on infrastructure projects in America using American labor. The New Jersey based US affiliate of China Construction, a state-owned company, won the competitive bid to rehabilitate the Alexander Hamilton Bridge over the East River in upper Manhattan. They completed the work ahead of schedule and won a bunch of awards and recognition for a job well done. Since the completion of that project, the company has gone on to win other bridge rehab in metropolitan New York area.

China Railway Rolling Stock Corporation (CRRC), another State-owned enterprise, has signed a number of contracts to build railcars for the metro systems of major cities such as Boston, Chicago, Los Angeles and Philadelphia.

All the deals are structured along similar lines. The exterior of the cars would be manufactured in China and shipped to the U.S. for final assembly. Major components such as propulsion, heating, ventilation and air conditioning, and lighting would be made in the U.S. by CRRC or sourced in the U.S. CRRC would invest and build factories in each metropolitan area to do the necessary manufacturing, employing local American labor.

These deals provide the best outcome for both countries. Through more than a decade of experience, China has become the preeminent experts in knowing how to manage infrastructure projects as well as having the expertise to make necessary components at competitive prices. As they perform projects around the world, Chinese companies have gained valuable experience in managing disparate local work forces.

Thus, Chinese companies can offer to rebuild America’s infrastructure at prices not available from any other source while providing valuable training and employment for American labor.

Trump has been complaining of “unfair” bilateral trade giving China unfair advantage and overwhelming trade imbalance. One effective approach that would bring some of the trade surplus in China back to America is to encourage more Chinese companies to invest and build plants in the U.S.

As I reported in Asia Times earlier, Fuyao, an auto glass windshield company, has made a $450 million investment in Ohio, resulting in employment for 3000 and monthly contribution of $30 million to the local economy. There are others similarly interested in coming to America. Instead of using the threat of CFIUS review to frighten them away, the US needs to overcome xenophobic inclinations and open the door for investments from China.

There is another way to take advantage of the trade surplus China enjoys. Namely, it would be to require China to include financing in the infrastructure project bids that Chinese companies wish to compete. China should be quite willing to do so as China has been actively financing various projects along the Silk Road.

Finally, if Trump were to raise the prospect of having China provide financing for infrastructure projects, I believe Xi would be most receptive because such financing would require government guarantees and therefore closer bilateral cooperation. Xi loves to talk about win-win arrangements and this would most certainly qualify. And Trump would have some real news to tweet about.

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