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"Populist policies adopted by the governments of developed countries are often the instigators of crisis," he wrote.

In the pre-Trump era, Mr. Liu was seen as the kind of Chinese official whom Americans could work with. He advocated China's adjusting its saving and spending to help the United States recover from the 2008 financial crisis.

When President Obama's treasury secretary, Jacob J. Lew, needed to cut through the fog of Chinese economic policy last winter, he called Mr. Liu.

"Liu He was always kind of a must-stop for Treasury because he had a macro view of the Chinese economy and the global economy," said David P. Loevinger, the senior coordinator for China affairs at the Treasury in President Obama's first term.

Mr. Liu was regarded as an insider with a direct line to the top.

Now he is widely expected to become the director of the National Development and Reform Commission, a powerful agency where he is currently a deputy director. That promotion would increase his visibility as well as his prospects of becoming a deputy prime minister in 2018, when a new government is formed for Mr. Xi's second term.

Mr. Liu cannot dictate policy unilaterally, but his proximity to Mr. Xi gives him more sway than his bureaucratic-sounding titles would suggest.

"There's no doubt in my mind that Liu He is extraordinarily powerful," said Christopher K. Johnson, a senior China analyst at the Center for Strategic and International Studies in Washington. "He has shifted from a stance earlier on when he was very careful not to demonstrate the level of influence he had."

Beside pressing for a dose of economic liberalization and more room for markets, he has advocated trimming bloated state-owned industry and sought to curtail China's ever-rising debt.

But even as he has gained influence, his ability to push through changes in these areas has been limited. Mr. Xi still calls the shots, and his pledge to revamp the economy jostles alongside his fiercely conservative agenda to restore party control and protect state companies. Mr. Xi's promises of shaking up industry and reducing debt clash with vows to keep growth ticking.

Mr. Liu "is committed to reform, I have no doubt," said Eswar Prasad, a Cornell University economist who used to be the China section chief at the International Monetary Fund. "Despite his commitment to the reforms, he doesn't have the power to make it happen," at least not without the backing of powerful allies.

The election of Mr. Trump and his selection of a trade team that seems ready to restrict China's exports to the United States have only complicated the task ahead for Mr. Liu. The risk of layoffs in export industries, and even just the uncertainty about what lies ahead, will make it even harder to push through changes and may strengthen the hand of bureaucrats who want banks to keep lending heavily to keep businesses humming, regardless of losses.

Chinese trade experts with government ties have already hinted that if the Trump administration imposes barriers to Chinese goods, they are ready to retaliate through steps like switching aircraft contracts from Boeing to Airbus, diverting food import contracts to rival countries like Brazil and possibly making it more difficult for Apple to sell iPhones in China.

While Mr. Liu and other market-oriented economists may see an argument in principle for lowering some of China's steep trade barriers, doing so amid the nationalistic backlash that could be provoked by American trade restrictions would be political poison.

But Mr. Liu is a savvy player. His response to his agenda's being sidelined in 2015 offers an intriguing window into his political style and the art of waging policy battles at the top levels of the Xi administration.

A set of economic challenges that year - the stock market tumble in June, a currency devaluation two months later and a significant and unexpected slowing of economic growth - dampened the appetite for economic liberalization. Policy tensions opened up over the right balance between shoring up growth and imposing overhauls.

Mr. Liu began a canny lobbying effort aimed squarely at Mr. Xi.

In an apparent bid to win favor, Mr. Liu submitted a long memo in late 2015 praising Mr. Xi's record in office and arguing that he had a historic mission to transform China, including by making bold economic changes, according to four people who have been told about the document by senior officials. All spoke on the condition of anonymity.

While the memo was not made public, Mr. Xi endorsed it by ordering it circulated among the party's upper echelons.

Last May, an article by an anonymous official appeared in People's Daily, the Communist Party's main newspaper, warning of the risks of an overleveraged economy. The official, cited only as an "authoritative person," accused laggard officials of undercutting reforms by trying to spend their way out of economic malaise, implicitly exempting Mr. Xi from any blame.

If rising debt is not restrained, "it will trigger a systemic financial crisis and lead to negative growth and even the evaporation of ordinary people's savings," the article said. "That would be fatal."

Officials, economists and even reports in the Chinese news media have said the article came from Mr. Liu's office, and the article echoes phrases and ideas Mr. Liu has used.

Still, the results of his campaign have been limited. Beijing disclosed on Thursday that bank loans and other credit rose again last month by more than Western economists had expected, a trend that has continued largely unabated in the eight months since the anonymous article appeared.

In nearly any room of senior Chinese officials, Mr. Liu stands out. While most other bureaucrats in their 50s and 60s dye their hair black, Mr. Liu, 64, has gray hair.

He also stands out for his American education, a rare qualification among senior Chinese officials. He received a master's degree in public administration from the John F. Kennedy School of Government at Harvard University, and before that he studied business at Seton Hall University in New Jersey.

Returning to Beijing, he rose quickly from writing studies of industrial policy as a government researcher to leading the party group that steers economic policy. In 2013, he became a deputy director of the National Development and Reform Commission, which steers industrial policy.

"He was seen as influential under the previous presidency, and his influence has increased further under Xi Jinping," Charles Collyns, a former assistant Treasury secretary, said. "He had a well-informed, shrewd, balanced assessment of China's structure and priorities. He didn't come across as a firebrand."

While his response to American trade restrictions is unknown, there is little doubt that a trade war with the United States would amplify the voices of economic nationalism.

As Global Times, a nationalistic Chinese newspaper controlled by the Communist Party, put it in an editorial this month: "There are flowers in front of the China Commerce Ministry gate, but sticks as well, hidden behind the door. Both are waiting for the Americans."

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national development and reform commission (china)

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U.S.-Trained Official May Shape China's Response to Trump on Trade

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"Populist policies adopted by the governments of developed countries are often the instigators of crisis," he wrote. In the pre-Trump era, Mr. Liu was seen as the kind of Chinese official whom Americans could work with. He advocated China's adjusting its saving and spending to help the United States recover from the 2008 financial crisis.

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China has several ways to retaliate. It could bar state-owned companies from doing business with American businesses. It could limit access to essential commodities, as it did in response to a fishing dispute with Japan by stopping exports of so-called rare earth minerals essential to the electronics industry. It could soft-pedal efforts to combat the piracy of American patents and copyrights.

Some of the United States' most successful companies would be in for a rough ride. Most of Apple's iPhones, for example, are assembled in China. The assembly costs, though, account for less than 4 percent of the value added of the device. That means China could force a halt in iPhone production at little cost to itself, while Apple would face a deeply disruptive, expensive effort to shift production elsewhere. Building it from scratch in the United States is nearly impossible.

How long could American resolve hold? An analysis by the pro-trade Peterson Institute for International Economics concluded that a full-blown trade war with China and Mexico would push unemployment in the United States to nearly 9 percent in 2020, from 4.9 percent today. That would not improve the economic outlook for millions of working-class Americans in whose name Mr. Trump proposed this fight.

And that may not even be the worst part. Circling the wagons around the American border plays directly into China's hands in other ways.

Washington would be cast as the villain in the fight. No matter how many tricks the Chinese government might deploy against American interests, it would remain the victim in the eyes of many nations, a champion for the cause of open rules-based trade.

Even if Mr. Trump is just bluffing, as many of his allies say, to gain leverage in some future negotiation, much of the damage has been done. His bluster has changed the perception of the role the United States will play in the world.

In the face of a turn toward populist nationalism in other rich countries - like Britain and France - China has emerged in the unlikely role of defender of globalized capitalism.

"China is the one major power still talking about increased integration," said Nicholas Lardy, a China specialist at the Peterson Institute. "China is the only major country in the world projecting the idea that globalization brings benefits." And that is the United States' loss.

A great many countries in the developing world still believe prosperity depends on their successful integration into the supply chains that traverse the global economy. By turning inward - a move already reinforced by the rejection of the Trans-Pacific Partnership - the United States appears to have little to offer.

Steven Ciobo, Australia's trade minister, conveyed that point only a few days after the American election by saying that his nation would work to conclude the Regional Comprehensive Economic Partnership - a Chinese initiative among 16 Asian and Pacific countries that excludes the United States - and would support Beijing's proposed Free Trade Area of the Asia Pacific. Ditto for Peru and Chile, which, according to a senior Chinese official in Lima, are also now seeking to join the Chinese trade initiative.

"Almost certainly every economy in the Asian region sees its future lying more closely linked with China," Mr. Prasad, the former I.M.F. official, told me. "With Trump talking about withdrawing from trade deals and making allies pay for protection, it will be tough for Asian countries to resist China's embrace."

And if Washington's actions against China start to disrupt Asia's supply chains, the United States could quickly become the region's economic pariah.

The question is, to what purpose? It can't simply be about stopping currency manipulation. That's an outdated fear. Instead of working to lower the value of its currency to improve its exports, China has spent about $1 trillion lately to prop up the value of the renminbi in the face of capital flight. If it stopped, the currency would drop like a stone, enhancing China's trade competitiveness.

Moreover, slapping trade barriers against China would do little to narrow the American trade deficit. American companies building things in China wouldn't bring much manufacturing home; in most cases they would go to some other country with cheap labor. And to the extent they did "reshore" production, most of it would be highly automated, employing few additional Americans.

"It does not make economic sense for Trump to want to balance trade with China," said Derek Scissors, a China specialist at the conservative American Enterprise Institute. "Balanced trade doesn't bring back jobs."

Initially, Mr. Trump might look like a winner, resolute in his defense of the working class. But any increase in popularity would be unlikely to last as the consequences started to become apparent.

Washington has already been playing a relatively weak hand trying to contain China's influence. China has skillfully deployed investments to win over countries from Africa to Latin America, broadening its network of influence. Its proposed Asian infrastructure bank proceeded, despite opposition from the Obama administration, after Britain and other American allies jumped on board.

"China is becoming a leading member of the international community," Mr. Prasad wrote in his new book "Gaining Currency," but not, "as the West prefers, by being co-opted into existing institutions under the current rules of the game." Instead, China is "co-opting other countries into the system of rules it wants to dictate."

Mr. Trump just gave China's alternative system of rules a big push forward.

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A Trade War Against China Might Be a Fight Trump Couldn't Win

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China has several ways to retaliate. It could bar state-owned companies from doing business with American businesses. It could limit access to essential commodities, as it did in response to a fishing dispute with Japan by stopping exports of so-called rare earth minerals essential to the electronics industry.

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Donald Trump may be looking to pick a fight with China over trade. Beijing says it just wants to talk.

"In the China-U.S. economic and trade relationship, cooperation brings about benefits and confrontation brings about damage," Sun Jiwen, a spokesman for China's Ministry of Commerce, told reporters on Thursday, seemingly seeking to defuse a growing verbal spat between the two countries.

"I believe that China and the U.S. will resolve problems through dialogue and consultation," he added.

His comments come a day before Trump is sworn in as U.S. president, and a day after Wilbur Ross, Trump's pick for commerce secretary, slammed China as "the most protectionist country of very large countries."

Ross pointed to accusations of China dumping excess steel and aluminum and Beijing's support for unprofitable state-owned enterprises.

Trump has also criticized China's trade policies, accusing the government of devaluing its currency and taxing U.S. products too heavily.

Related: 8 reasons why starting a trade war with China is a bad idea

China appears to be trying to avoid a confrontation.

"We are willing to work with the new U.S. administration to continue promoting the healthy and stable development of bilateral economic and trade relations to benefit peoples of both nations," said Sun.

China's President Xi Jinping defended free trade in his speech at the World Economic Forum in Davos on Tuesday, saying "no one will emerge as a winner" in an international trade war.

"Whether you like it or not, the global economy is the big ocean you cannot escape from," Xi said.

Related: U.S. business cries foul on Xi's free trade talk

Not all Chinese voices are as measured. An editorial on Wednesday in the state-run, often provocative newspaper Global Times said China would not back down if a trade war with the U.S. did break out.

"If the Trump administration imposes punitive tariffs on Chinese goods, China will not hesitate to take revenge," the editorial said. "The arrogant Trump team has underestimated China's ability to retaliate."

-- Steven Jiang contributed reporting from Beijing

CNNMoney (New Delhi) First published January 19, 2017: 7:41 AM ET

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China to the U.S.: Let's talk about trade

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"In the China-U.S. economic and trade relationship, cooperation brings about benefits and confrontation brings about damage," Sun Jiwen, a spokesman for China's Ministry of Commerce, told reporters on Thursday, seemingly seeking to defuse a growing verbal spat between the two countries. "I believe that China and the U.S.

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China talks about the decision that Mr. Trump made

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China talks about the decision that Mr. Trump made

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"There is real cause for concern as the president-elect has named economist Peter Navarro, known for his anti-China alarmism, as his trade adviser," said the China Daily, which is aimed at foreign readers.

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Chinese newspaper criticizes Trump's choice of UC Irvine professor Peter Navarro as new trade advisor

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"There is real cause for concern as the president-elect has named economist Peter Navarro, known for his anti-China alarmism, as his trade adviser," said the China Daily, which is aimed at foreign readers.

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Tensions are already high between the U.S. and China when it comes to trade.

The immediate concern is that a trade war -- where both countries hit each other with tariffs -- would erupt between the world's two biggest trade partners. Major U.S. industries, and lots of jobs, could get caught in the crossfire.

The U.S. exported $125.3 billion in goods to China in the 12 months ending in November, according to Panjiva, a firm that tracks global trade data. Top of the export list: airplanes, soybeans and cars.

China exports far more to the U.S., shipping $484 billion of goods in 2015, the most recent year for which data is available from the Commerce Department.

This week, China showed no interest in a trade war. President Xi Jinping said in Davos, "no one will emerge as a winner in a trade war." And China's commerce ministry emphasized the point on Thursday.

"In the China-U.S. economic and trade relationship, cooperation brings about benefits and confrontation brings about damage," Sun Jiwen, a spokesman for China's Ministry of Commerce, told reporters.

Related: China is still dumping U.S. debt -- and so is Japan

But Trump's team isn't toning down its language. On Wednesday, commerce secretary nominee Wilbur Ross called China "the most protectionist country of very large countries" and warned he would "severely" punish countries that don't play fair on trade.

Trump has threatened to hit China with a 45% tariff as a way to bring jobs back to the U.S. and stop China's unfair trade practices. The U.S. has used tariffs against China in the past. And each time, China has responded with tariffs on U.S. goods.

The U.S. airplane industry could be particularly vulnerable to Chinese tariffs. The U.S. sent $13.2 billion of airplanes and aircraft parts to China in the 12 months ending in November, according to Panjiva.

Next on the list is the $12.8 billion in soybeans that U.S. farmers sent to China during that time frame. Third is cars: the U.S. sent $9.6 billion worth of automobiles to the People's Republic.

Related: China to the U.S.: Let's talk about trade

American trade experts have repeatedly cautioned that China will almost certainly retaliate if Trump uses tariffs.

"Trump will come to recognize very clearly that if he engages in protectionism, it's going to hurt the U.S. economy," says Dan Ikenson, director of the Cato Institute's Steifel Center for trade policy studies.

Trump's economic advisers argue that they're using the threat of a tariff to get China to cut out the cheating on trade, and that tariffs won't cost U.S. jobs.

In any case, here are the top five U.S. exports to China in the 12 months ending in November, according to Panjiva.

1. Airplanes and other aircraft: $13.2 billion

2. Soybeans: $12.8 billion

3. Cars: $9.6 billion

4. Electronic parts: $8.4 billion

5. Nuclear reactors & boilers: $2.6 billion

CNNMoney (New York) First published January 19, 2017: 7:39 PM ET

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What's at stake for U.S. in a trade war with China

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The immediate concern is that a trade war -- where both countries hit each other with tariffs -- would erupt between the world's two biggest trade partners. Major U.S. industries, and lots of jobs, could get caught in the crossfire. The U.S.