Did Beijing just blink? 

China is not completely tone-deaf after all. According to the Wall Street Journal, Beijing is revising “Made in China 2025,” its plan to dominate the all-important global high-tech sector, among others, sparking international anxiety. Reportedly, the new plan will seek to level the playing field for state-owned, private and foreign firms. Without details, it is impossible to assess the significance of this move, but it is a step in the right direction.

If you are at the Office of the U.S. Trade Representative, you might be tempted to take credit for China’s apparent change of heart. You might think the tariff war, the recent arrest of Huawei’s Chief Financial Officer, and everything in-between that the Trump administration has done unilaterally to pressure China is finally producing results.

Not so fast.{mosads}

President Trump has China’s attention. His willingness to escalate tariffs and confront Beijing, across-the-board, has rattled the Chinese. But if these were the only pressures driving Beijing, why did it not act sooner? China has known since 2017 that “Made in China 2025” concerned Trump officials. Yet, despite the escalating trade standoff, China was prepared to wage a war of attrition with the United States.

The Trump shock and awe campaign likely contributed to other pressures on Beijing to act. For starters, the United States, the European Union, and Japan are united in their concern about Chinese state capitalism undermining fair global competition and in their opposition to technology transfer as the price of doing business. China is also coping with a growing international backlash against Chinese technology and tech investment abroad, then there is the deepening economic downturn at home.

Most important of all, however, is that President Trump has been weakened domestically. Mid-term elections resulted in an unprecedented 40 Democratic wins, shifting the House of Representatives to Democratic control; Democrats are standing up against the border wall with Mexico, a key Trump campaign pledge; and the noose of the Russia investigation is tightening, while the incoming Attorney General of New York has promised a new probe into the Trump family empire. Worse yet, a potential economic slowdown looms ahead of the 2020 presidential race.

China has waited to see if multiplying domestic challenges open the President to compromise on trade. That could sideline administration hardliners pushing a protracted trade war to pressure a fundamental restructuring of China’s economy and its interdependence with the United States. Beijing can also see that bipartisan attitudes towards China have hardened among Washington political elites and will not improve post-Trump without serious effort on China’s part.

Beijing’s acknowledgment that “Made in China 2025” creates, at the very least, a serious image problem, provides an opportunity to shape its re-write of the plan. 

The fundamental problem for the global economy is China’s powerful state-owned enterprises (SOEs), linked to central, regional, and local governments, and the Communist party. It is not just that SOEs may be subsidized and enjoy protections and preferential access to credit, but many have opaque governance structures and are focused on advancing public over strictly commercial interests. Because they are not accountable to shareholders for profits, they can absorb losses in the interest of achieving national goals. All Chinese SOEs do not fit this profile. Some do, however, and in global markets they put private firms at a substantial competitive disadvantage.

Washington should launch a broad-based multilateral campaign to ensure the re-write of “Made in China 2025” addresses these issues and clarifies the relationship between the state and the market. Working with likeminded governments and the U.S. and foreign business communities would increase the odds Beijing would pay attention and spread the risk of Chinese retaliation. {mossecondads}

The administration should also continue working with allies in the World Trade Organization to develop new rules addressing the challenges SOEs present to global fair trade, which are not unique to China. More than one in ten of the world’s largest firms are state-owned, according to a European study.

So did Beijing just blink? Not exactly.

China has determined that the “period of strategic opportunity” to grow its power without serious challenge will continue through 2020. The leadership likely realized “Made in China 2025” risks that opportunity. 

Sometime this century, China may become a global power. Choices Beijing makes today, to eliminate the competitive disparities between SOEs and private firms and to grant foreign firms the same treatment as Chinese entities in trade and investment, will influence whether the rest of the world is comfortable with Chinese power or resists it. If China’s leaders have come to that realization, that is good for all of us. Let’s press them collectively and find out.

Ferial Ara Saeed is a consultant at Telegraph Strategies LLC, and a former senior American diplomat with expertise on North Asia and the Middle East, trade, foreign policy, and national security. She was a Visiting Research Fellow at the National Defense University and is the author of What will North Korea negotiations mean for the U.S.-China balance-of-power?