Thread by @Brad_Setser

Latest from @Lingling_Wei and @bobdavis187.

With the trial balloon outlining possible Chinese concessions on China 2025, think China's basic offer is now taking shape.

wsj.com/articles/china…

As I understand it, China has offered:

a) big purchases of soybeans, LNG and oil (that's an easy offer tho, as China has to import soy and energy no matter what)
b) A reduction in China's previously high tariffs on autos (25% to 15%) & additional tariff cuts on consumer goods

c) adjustments to the equity caps limiting foreign investment in some sectors, which would allow US and other foreign firms to take majority stakes in JVs (financial firms can take a 51% share, BMW has gotten approval for a 75% stake I think)

and d) playing down/ eliminating the domestic content requirements in China 2025, which were particularly egregious.

And allowing foreign firms that invest in China more opportunities to participate in China 2025.

Not quite sure tho what " be[ing] more open to participation by foreign companies" in China 2025 means. Foreign firms can count toward the (now gone?) Chinese content requirements if they produce in China/ transfer tech to their Chinese sub? Get equal access to subsidies?

Overall offer feels real. and very Chinese. Incremental progress that creates somewhat more opportunity for foreign firms that invest in China to compete inside China, w-o changing the basic structure of Chinese policy.

The reported offer on "Made in China 2025" has some parallels with China's concessions on its 2010 indigenous innovation policy (which gave preferences to "indigenous" Chinese production and technology. Overt discrimination/ formal targets get rolled back ...

But given the structure of the Chinese system -- and China's freedom to continue to subsidize indigenous firms in semiconductors and civil aviation and the like -- it isn't clear that the informal pressure to buy Chinese ever really goes away.

And similarly the pressure on foreign firms to localize production and technology if they want to succeed remains (even if China commits to allow more opportunities for foreign firms).

See, for example, Honeywell's avionics JV ...

usa.chinadaily.com.cn/a/201812/12/WS…

reality is that it is a lot easier to negotiate win-wins for US companies (who get profits from China's market in a range of ways) than win-wins for US workers (China isn't importing the avionics for the C919 it seems ... )

All this said, it looks like a real offer (even if it leaves aside the issues around Huawei and cyber). The Trump Administration ideally would outline (perhaps privately) what additional concrete steps it wants from China ...