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China Woos U.S. Companies Again, Curbs Trade Threats

Lingling Wei
Chinese Vice Premier Liu He waits to shake hands with European Commission Vice President Jyrki Katainen ahead of the EU-China High-level Economic Dialogue at Diaoyutai State Guesthouse in Beijing, China, June 25, 2018. REUTERS/Jason Lee

BEIJING—Chinese leaders are stepping up a charm offensive with U.S. multinationals and dropping earlier threats of retaliation as Beijing changes tack to keep the trade fight with Washington from scaring off foreign investors.

Beijing is offering a reassuring message in its outreach to American companies. At a meeting last month, Liu He, President Xi Jinping’s economic-policy chief, told visiting American business executives that U.S. companies’ China operations won’t be targeted in Beijing’s trade counterattacks.

“We won’t allow retribution against foreign companies,” Mr. Liu said, said people briefed on the event.

Exxon Mobil Corp.’s plans for a $10 billion project in southern China earned Chief Executive Darren Woods an audience with Premier Li Keqiang on Friday in a show of Beijing’s support that was broadcast on national television.

China has pledged to retaliate against U.S. tariffs in “equal scale and equal strength.” In addition to tariffs, here are three ways Beijing could hit back at Washington. Photo composite: Adele Morgan/The Wall Street Journal Related Video

If completed, the petrochemical complex would be one of the largest single foreign investments in China—and mark a step in opening up a strategically important sector.

More wooing is likely this coming weekend. Vice President Wang Qishan is set to meet with a group of senior Wall Street executives from JPMorgan Chase & Co., Citigroup Inc. and Blackstone Group. His message, according to a Chinese official, will be it’s business as usual.

The tone is a marked shift from a few months ago when the Trump administration began ratcheting up threats of tariffs on tens of billions of dollars of Chinese products, and Beijing vowed to retaliate dollar for dollar. Back then, Mr. Wang warned U.S. business chieftains there would be corporate casualties. Mr. Xi told others that Beijing would “punch back” at the U.S.

Now Chinese leaders are turning the cheek out of deepening concern that the spiraling trade battle could batter the economy and investment seen as critical to China’s future, according to other officials and government advisers.

It is “logical that they wouldn’t kill the goose that lays the golden egg,” said William Zarit, a business consultant and chairman of the American Chamber of Commerce in China.

While U.S. companies account for around 2% of foreign direct investments into China annually, many deals are in landmark sectors—Intel Corp. in semiconductors and General Electric Co. in aviation—that help Chinese companies improve their technology and management know-how. Punishing marquee American firms could dent the confidence of other foreign investors in China.

Beijing isn’t abandoning retaliation. It has promised to impose tariffs on $60 billion in American goods if the Trump administration moves ahead in the coming weeks with penalties on $200 billion in Chinese goods on top of the $50 billion already being hit with 25% levies. China’s plans would bring the total amount of U.S. imports potentially subject to Chinese tariffs to $110 billion—or 85% of U.S. goods entering China last year.

Last week, President Trump increased the pressure on China by threatening tariffs on $267 billion of its imports, practically the remainder of Chinese goods imported by the U.S.

The two sides have also floated the idea of resuming high-level talks at some point in the near future, including another Trump-Xi meeting before the end of the year, perhaps on the sidelines of one of the upcoming global summits they’ll both attend.

But there’s no sign of imminent compromise, and Mr. Trump continues to suggest that he’ll pursue a hard line against Beijing, even as he pursues trade truces with Europe, Canada and Mexico.

“We’re dealing with China, as you know,” Mr. Trump told reporters in the Oval Office Tuesday. “We’ve taken a very tough stand on China, I would say, to put it mildly.”

Because China imports so much less from the U.S. than the U.S. does from China, that has forced Beijing to threaten “qualitative” steps to retaliate.

Chinese officials effectively squelched Qualcomm Inc.’s bid to buy the Dutch firm NXP Semiconductors NV in July. Other American companies could see license approvals delayed or tighter regulatory scrutiny by officials responding to the strained relations between Washington and Beijing.

“It doesn’t take a central government directive for a local official to sense which way the political winds are blowing,” said Jacob Parker, vice president of China operations at the U.S.-China Business Council.

China’s tit-for-tat strategy, originally devised to force Trump officials back to the negotiating table, so far has failed to pay off for the leadership. Beijing is looking to U.S. companies to help it lobby the Trump administration for a negotiated settlement.

If the U.S. or other foreign businesses shelve plans for expansion or move production to other countries, that could compound Beijing’s efforts to arrest a slowdown in the world’s second-largest economy. It would also set back goals of moving the economy up the value chain and portraying itself as an upholder of global trading rules, said the government advisers and some Chinese corporate executives.

“China can’t keep talking about reform and opening-up without opening up to the U.S.,” said one of the advisers.

In recent conversations with officials at China’s Commerce Ministry, some big U.S. technology companies warned that they would be forced to shift manufacturing away from the mainland if the tensions last late into this year.

Chinese officials sought to reassure the U.S. companies by offering to help lessen the effects of tariffs, according to some officials and an industry expert with knowledge of the matter, though the Chinese side offered few details about how they would do so.

China also finds itself in greater need of foreign capital especially in sectors where domestic companies are lacking both the money and the know-how. For instance, not only has Beijing taken aircraft off its original list of products targeted for retaliatory tariffs, it is increasing purchases of airplanes from companies such as Boeing Co.

Boeing said Tuesday that Chinese airlines are likely to buy 7,690 planes valued at $1.2 trillion over the next 20 years, up from 7,240 planes estimated by the company last year.

Similarly, China’s energy demands are swelling beyond the capacities of domestic companies to keep up. That helps explain why Beijing is showing willingness to allow wholly owned foreign projects in the sector instead of requiring foreign companies to partner with Chinese oil and gas producers.

Since early last year, Exxon Mobil has been talking with Chinese authorities about building the petrochemical complex in Guangdong province, according to people with knowledge of the matter. The project, which would be wholly owned by Exxon Mobil, would put the U.S. company in direct competition with giant Chinese state-owned oil refiners that have been resisting plans to open the industry to wider foreign competition

“They obviously want to gain time as it takes years for multinationals to negotiate with state-owned enterprises,” said an energy industry executive. “They don’t care anymore about who owns the equity, as long as the supply chain is in China.”

Jacob Schlesinger in Washington contributed to this article.

Write to Lingling Wei at lingling.wei@wsj.com and Yoko Kubota at yoko.kubota@wsj.com



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