Keyu Jin sees Trump’s trade war with China as a blessing in disguise, because Xi Jinping sees the urgency to open the Chinese market to foreign investors in the service sector: banking, securities, insurance, payments, and ratings services. Reforming the banking sector would eliminate restrictions on foreign participation. Structural reforms would allow the economy to move from trade and manufacturing toward domestic consumption.

The problem is that China has a debt-fuelled economy. While local governments are addicted to government loans to boost growth and meet their targets, Chinese households tend to save more than their spendthrift peers in the West. Potentially tax cuts and higher interest rates would boost incomes and encourage consumer spending. It remains to be seen whether ordinary Chinese will be persuaded to loosen their purse strings.

The author says, the trade war with the US would trigger a shift from export-led growth to a “trade-neutral” model. Yet, China’s phenomenal export success relies on government subsidies. Beijing has been accused of using WTO-prohibited tax breaks to encourage Chinese companies to boost exports, while imposing tax and tariff penalties to limit purchases of foreign products in China. Would the new model be able to generate as much revenues?

China's $34 trillion pile of public and private debt is a time bomb for the global economy. The leadership is seeking to limit its debt growth and rein in the lending boom. Meanwhile, China is looking “increasingly inward” – seeing its citizens and businesses as resources. Its strategy for future growth is “to adopt and advance new technologies. Many companies have already redoubled their efforts to increase their value-added and innovation capacity.”

The author says, “whether Trump’s trade war is about containing China or just about punishing it for its trade practices, the unintended consequence is that China is now fortifying itself for a new era of political and economic challenges.” It is nothing new that the two countries are fierce rivals – China seeks to dominate the high-tech industries of the future. Trade disputes may be one of the many schemes to impede one’s competitors, before they thrive and pose a threat. As Industry 4.0 unfolds, China wants move faster than the others, when computers are connected and communicate with one another to ultimately make decisions without human involvement.

Although China’s long-term strategy is to reduce “its reliance on foreign trade and imported technologies,” which will allow China to be “stronger, more resilient, and possibly less willing to acquiesce to US-designed rules,” it will still depend on US core technology for some time.

Many doubt whether China would beat America and take the lead in semiconductor manufacturing, which is the dividend from over 50 years of research and development. China is investing heavily in R&D itself, but the huge gap in technology would require generations of arduous efforts to overcome. Besides the US is a market-driven economy, while China’s is more state-driven, which does not necessarily inspire innovation and creativity.