Deals galore for US firms from Trump’s China trip, but are the real trade problems being glossed over?
Analysts note that many of the deals in the US$253 billion package lack detail or are simply agreements to talk further, and they do not address the deep-rooted structural issues behind the two countries’ trade imbalance
China handed visiting US President Donald Trump a business deal package worth an eye-popping US$253 billion on Thursday, the biggest in the history of relations between the two countries as Beijing sought to demonstrate its seriousness in soothing Washington’s complaints over a trade imbalance.
The deals, signed in Beijing’s Great Hall of the People as Trump and his Chinese counterpart Xi Jinping looked on, are the biggest achievement of Trump’s three-day “state visit plus”, with traditional topics for US presidents in China, such as human rights, being put on the back burner.
The package includes cooperation deals, purchase agreements and memorandums of understanding. It is mainly about China agreeing to buy more US products, from natural gas to soy beans, in an attempt to defuse tension over what the US has estimated as its US$347 billion trade deficit with China.
“Some of the deals are expected to take years to be completed and some still need more detailed work or are dependent on government reviews,” said Cui Fan, a professor at the University of International Business and Economics in Beijing.
At the same time, other concerns of US businesses such as limited access to China’s markets and intellectual property disputes remained largely unresolved.
“No one should make the mistake of believing that the US will now stop raising concerns about market access and other elements of the Chinese economic system that seriously impact the competitive environment,” said Timothy P. Stratford, a former US assistant trade representative.
Trump had criticised China’s trade practises and its yuan currency exchange rate repeatedly during his election campaign, but has backtracked since he started his presidency. In Beijing, Trump said he did not blame China for the trade situation.
“The US really has to change its policy because we have got so far behind in trade with China, and frankly, with other countries,” Trump said in his opening remarks at the bilateral talks on Thursday morning. “We’ll make it fair.”
American businesses in China reacted cautiously to the package, noting that goodwill could not replace efforts to address the deep-rooted problems behind the trade imbalance.
“There were a lot of deals … but the question remains: what is being done about these structural issues?” said William Zarit, chairman of the American Chamber of Commerce in China.
For his part, Xi said China was willing to import more energy and agriculture products, and hoped that the US would expand its exports of civilian-use technology, according to the official Xinhua news agency.
“We will continue to encourage Chinese enterprises to proactively invest in the US, and we welcome US companies and financial institutions to take part in projects under the Belt and Road Initiative,” Xi told official and business delegations from both countries, referring to his signature plan to link continents through trade and infrastructure projects.
In addition to the business deals, Beijing also reiterated its commitment to opening its financial services sector wider to foreign competition.
China will “significantly” lower the thresholds for foreign institutions to enter China’s banking, securities and fund management markets, but will do it according to its “own road map and timetable”, a statement from the Ministry of Foreign Affairs said.
In return, China demanded the US relax curbs on hi-tech exports to China and treat Chinese investments in the US “fairly”.
And China, with its deep pockets, is very keen to invest in the US. Among the deals signed on Thursday, China Investment Corp, the country’s sovereign wealth fund, agreed with Goldman Sachs to set up a joint fund to invest in US businesses with China operations. The fund plans to raise US$5 billion.
Another of the deals signed was between Alaska state and China Petrochemical Corp for gas liquefaction facilities and a pipeline that would facilitate the export of liquefied natural gas (LNG) to Asia. The US$43 billion project would be financed by China Investment Corp and the Bank of China.
Kerry-Anne Shanks, a specialist with energy and commodities consultancy Wood Mackenzie, said the Alaska project was at an early stage of development and “the commercial structure and marketing plan are not yet clear”.
Shanks said China Petrochemical may find cheaper gas elsewhere, given the high development cost of the Alaska project, even though Alaska has a cost advantage by being geographically closer to China than alternative supplies in Texas.
Hugo Brennan, an analyst with risk consultancy Verisk Maplecroft, said a statement of commercial intent like the Alaska LNG project “allows Trump to portray himself as a master deal maker, while distracting from a lack of progress on structural reforms to the bilateral trade relationship.”
“The deal is politically expedient, yet its non-binding nature gives [the Chinese firm] the flexibility to quietly back away from the deal down the line. Beijing is mindful of the need to maintain varied commodity import routes,” said Brennan.
In another gas deal, China National Petroleum Corp signed an initial agreement with Texas-based Cheniere Energy for the long-term supply of LNG.
Lu Xiang, a US specialist with the Chinese Academy of Social Sciences, said that if Trump’s visit were likened to a banquet, then the LNG deals were “the main course.” But the key to whether they would help narrow the trade deficit was whether US supply of LNG could match China’s demand for the clean fuel.
Nevertheless, he said the overall trade package was positive for relations between the US and China.
“The massive package of commercial contracts, which marked the biggest outcome of Trump’s visit, indicates bilateral trade cooperation is sustainable,” he said.
Additional reporting by Eric Ng