China heads into trade talks bracing for more U.S. demands

By Bloomberg News on 12/27/2018

BEIJING (Bloomberg) -- China enters trade talks said to begin early next month in Beijing having made concerted efforts to end the standoff with the U.S., and also unsure it’s done enough.

Since Presidents Xi Jinping and Donald Trump came to a temporary truce almost a month ago, China’s removed a retaliatory duty on U.S. automobiles and is drafting a law to prevent forced technology transfers. It’s also slashed import tariffs on more than 700 products and began buying U.S. crude oil, liquefied natural gas and soybeans again.

Officials have been in constant contact with the U.S. to try to determine what else is needed to move things forward in January, according to people familiar with the talks. It appears to Chinese officials that the U.S. itself isn’t clear on what it wants, said the people, who asked not to be named because the negotiations are private.

China wants the U.S. to remove the punitive tariffs that have been imposed and not add new ones, but suspects the U.S. will ask for more before it agrees to do that, the people said. Officials are working on alternative retaliatory measures in case the talks collapse, they said.

“After the meeting in Argentina, the incentive for China to speed up opening up and reform has increased,” said Lu Xiang, an expert in bilateral ties at the state-run Chinese Academy of Social Sciences in Beijing. “The key obstacle to a deal is whether the U.S. demands are a bottomless pit.”

The newly announced measures are a response to the “appropriate U.S. concerns,” he said, using the term in the Chinese truce statement which referred to some of the issues the U.S. has raised.

China’s flurry of policy announcements since the Argentina meeting between Trump and Xi happened despite Canada’s arrest of a top Huawei Technologies executive at the U.S.’s request, and despite Xi delivering a defiant speech declaring China wouldn’t be dictated to by anybody. China underscored its determination to implement the agreement by including it as a key goal in an important annual policy statement published last week.

Deputy U.S. Trade Representative Jeffrey Gerrish will lead the Trump administration’s team heading to Beijing in the week of Jan. 7, people familiar told Bloomberg News on Wednesday. The group will also include Treasury Undersecretary for International Affairs David Malpass, the people said.

Talks confirmed

Chinese Ministry of Commerce spokesman Gao Feng confirmed in a regular briefing Thursday in Beijing that the two sides planned to sit down for talks next month. Gao provided no date and said both countries continue to maintain close communication.

News of the talks was followed by a potential source of renewed strain: a Reuters report saying Trump might declare a national emergency next month that would ban U.S. companies from using telecommunications equipment made by Huawei and ZTE Corp. Asked about the report Thursday, Chinese Foreign Ministry spokesman Hua Chunying said a “certain country” needed to address cybersecurity concerns with facts and stop politicizing national security issues.

China is eager to seal a deal while at the same time is intent on preserving its economic system, said Jonathan Fenby, chairman of China research at TS Lombard in London. It aims to give Trump enough to be able to claim victory by March, enabling it to get on with the business of modernizing its economy, he said.

Tariffs on hold

Trump has agreed to put on hold a scheduled increase in tariffs on $200 billion in annual imports from China while the negotiations take place. He is pushing the Asian nation to reduce trade barriers and stop the alleged theft of intellectual property. The delay in tariffs is through the start of March. In response, China temporarily lowered tariffs on U.S. car imports for the same period.

China’s significant recent efforts to unveil policies that address Trump’s concerns have been underappreciated in the U.S., said Wang Huiyao, an adviser to the State Council, or cabinet. China has shown it wants to make a deal, but it can’t meet all the U.S.’s demands, he said.

After the recent U.S. stock market’s plunge, the U.S. should quit the trade row “while it’s still ahead,” said Wang, founder of the Center for China and Globalization, a Beijing-based think tank.

But there’s still skepticism about the prospects for an agreement. China thought it had a deal in May, only for Trump to back out, and some in Beijing warn the same could happen again.

If there is an agreement, it would just be a framework deal, according to Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation affiliated with the Ministry of Commerce. "Trump showed no spirit of respecting contracts in the past, and I suspect he will do so again time. Will he backtrack even after a deal is inked?"

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