Across The Border

Beijing highly likely to offer US import concessions — but impact more political rather than economic

China is willing to spend money on key concerns, while Trump still fails to prioritise economic or security priorities, analysts say

PUBLISHED : Wednesday, 12 April, 2017, 5:24pm
UPDATED : Wednesday, 12 April, 2017, 10:26pm

China may have offered the US some trade and investment concessions, to increase its bargaining power over some of its other key concerns, after the highly symbolic meeting between the two countries’ leaders.

But general analyst reaction to last week’s meeting between Chinese President Xi Jinping and US counterpart Donald Trump has been mixed, with one suggesting the latter’s policy towards China, in both the security and economic terms, still remains “confused and directionless”.

“Three conclusions dribbled out from their meeting, said Arthur Kroeber, co-founder of the China-focused research service Dragonomics in Beijing, wrote in a note on Monday.

First, the risk of a damaging trade war between the two countries has evaporated. Second, the urgent North Korea problem has pushed other elements of the strategic rivalry into the background; but fundamentally the US has no new useful ideas on that and the uneasy status quo will likely persist.

And third, Trump’s economic policy toward China remains tangled among conflicting aims which include protectionist deficit-reduction, knocking down China’s barriers to investment, and increase China’s investment in the States, and unable to prioritise any of them, he added.

“From China’s perspective, this is fine: it can offer the US a few concessions on trade and investment that costs it little, and get on with the task of expanding its economic and political influence in Asia,” Kroeber said.

“But all in all, US policy towards China in both security and economic terms remains confused and directionless.

Li Yimin, senior analyst with Shenwan Hongyuan Securities in Shanghai, also considers it “highly possible” that some trade concessions will be made, “particularly on imports, as China is willing to pay for some political and diplomatic room, by spending more money’.

“For China, the core concerns it put on the table were Taiwan, North Korea, its currency rate, and the Belt and Road initiative,” he added.

On his way back from Florida, Chinese president Xi stopped off in Alaska to talk fossil fuel imports with governor Bill Walker.

After the summit, the Financial Times quoted officials attending the leaders’ meeting as saying China has agreed to relax restrictions on imports of US beef, and on the sale of US financial services investments in China, including scrapping the shareholding cap for foreign investors in securities and insurance companies.

“Beef is very straightforward, but shareholding restrictions are something harder. At the end of the day, though, trade should be become easier, compared with opening up the further market,” Li said.

Kroeber agrees: “China is skilled at opening its markets to outside players in ways that maximise the inflows of foreign cash and minimise the profits and market influence of foreign firms.”

Increments in beef and fuel imports by China will scarcely dent the US trade deficit with China, “but the political utility of such deals is obvious.

“They enable Trump to claim a win in his battle to bring down the trade deficit with China, and deliver specific goodies to key constituencies (farmers, the energy industry, and finance),” he wrote in the note.

China’s goods trade surplus with the US stood at US$347 billion last year. Global exports of US beef were just US$6 billion in 2016. Total Chinese purchases of US crude oil are currently running at 100 million barrels a year, worth around US$5 billion at the current price.

With regards near-term trade discussions, we think the US is likely to push for openness in the agriculture, manufacturing, service sectors, fair treatment of US companies, as well as protection for intellectual property rights
JP Morgan analysts led by Zhu Haibin

As a result of the meeting by the two presidents, a “100-day plan” has been created for discussing key trade and investment issues.

US Commerce Secretary Wilbur Ross said that Chinese officials expressed an interest in reducing China’s net trade balance because of the impact on China’s money supply and inflation.

“With regards near-term trade discussions, we think the US is likely to push for openness in the agriculture, manufacturing, service sectors, fair treatment of US companies, as well as protection for intellectual property rights,” JP Morgan analysts led by Zhu Haibin wrote in a note issued Tuesday.

“Meanwhile, China may push for the recognition of market economy status and eases restriction on US high-tech exports to China. Other areas of discussion may include the treatment of SOEs and China’s support for US infrastructure investment.”

But the way China might be able to invest in US infrastructure investment is likely to be very different from the projects it has become involved in Southeast Asia or Africa, said Li from Shenwan Hongyuan.

“Instead of purchasing Chinese projects, it is more likely Trump just wants China’s money for investment,” he said.

Despite the negative connotations of Kroeber’s earlier conclusion, however, he also added: “In many respects, this [confusion and lack of direction] is no bad thing, since it greatly reduces the chance of a pointless economic or military conflict,” he said.

“But for anyone hoping that a tough Trump would reverse the gradual erosion of US influence in Asia and the concomitant rise of China, it should be a cause for worry.”