“There are promising signs in Apec, but it is walking a tightrope amid downside risks,” he said on the second day of the informal, non-binding economic forum’s meeting in San Francisco’s Bay Area.

However, much of the focus is on Wednesday’s expected meeting between Presidents Xi Jinping and Joe Biden, amid dismal bilateral relations. It will be their second in-person encounter since Biden’s election in 2020 and Xi’s first visit to the US since 2017.

Protocol gurus for Xi-Biden meeting face logistical nightmares, other hurdles

Separately on Sunday, US Treasury Secretary Janet Yellen held an introductory meeting with Chinese Finance Minister Lan Foan, where she spoke about her meeting last week with Vice-Premier He Lifeng, according to a short US readout.

Yellen “conveyed the continued importance of maintaining resilient communication channels with China”, it said.

While Kuriyama identified some regional bright spots for Apec countries, including tourism, domestic consumption and targeted fiscal support, these were overshadowed by a number of factors.

Among them are the after-effects of the pandemic, as well as inflation, higher debt, climate change, trade protectionism, and geopolitical tensions, including those between the US and China, he said.

The report noted a decline in foreign direct investment in North Asia recently in favour of Southeast Asia.

But it is too early to tell whether this is a result of decoupling and “friendshoring” pressure – companies relocating out of China to more favourable venues as US-China relations deteriorate – or whether it is driven by rising production costs and other macroeconomic factors, Kuriyama said.

For all its protestations, the US is set on decoupling from China

“A stable relationship within US and China is a win-win situation for everyone,” he added. “The two largest economies in the world, it makes a lot of sense for them to work together.”

A case in point are the trade flows in goods and services between the US and China, which have reached US$758 billion, the largest in their bilateral trading history, “despite the political rhetoric”, he said. “So it show us how important it is to re-engage.”

Inflationary pressures and the higher cost of trade finance, compounded by global uncertainties, have resulted in sluggish trade in the region. And shifting demographics pose a challenge as birth rates fall and the population ages, with fewer workers to support more elderly.

Timeline of decline. How has China’s demographic crisis emerged?

The 21 Pacific Rim members – the group is unusual because it allows Hong Kong and Taiwan to participate as separate economies – collectively represent 40 per cent of global population and nearly half of all global trade.

Apec has seen a dramatic turnaround since its formation in 1989 in Australia, a move pushed by Washington, which was keen to be part of a multilateral trade liberalisation group.

Despite its non-binding charter, Apec was seen as a step in that direction by the US, which at the time was fearful it would be excluded from emerging Asian trade blocs.

US economic approach to China must be ‘serious, clear-eyed’: Yellen

Fast forward, and many nations in the region are now entreating the US to join a binding Asian trade grouping after it walked away from the Trans-Pacific Partnership in 2017.

But the US is no longer interested, fearful of strong domestic political opposition from the leftover labour concerns and the right over national security.

“My, how times have changed,” said Nicholas Szechenyi, senior fellow at the Centre for Strategic and International Studies. “Partners want market access and they want trade liberalisation. But the US is not in that game any more.”

“That could be the biggest takeaway from this Apec summit – the US being very far removed from the original objective, which was to be a leader on regional trade,” he added.