China Weekly Letter - A roller coaster week should end with interim deal
|- An interim deal between US and China is still on the table despite US blacklisting of more Chinese companies. Trump announced he will meet the vice Premier on Friday, which bodes well for the result of trade talks.
- Another area of tension has opened up in the US-China confrontation with the suspension of NBA pre-season broadcast in China.
- Brace for another 'lowest growth in 30 years' headline when Q3 GDP is released next week. The headline can be made every year, though, as growth is slowing on a structural basis.
Trump to meet Chinese vice premier is a positive sign
It has truly been a bit of a roller coaster up to the US-China trade talks starting today in Washington. The latest news has been US President Donald Trump's tweet that he will meet China's top negotiator Liu He on Friday, which he has only done when talks have gone well. So this is fairly good news.
Earlier this week, though, US blackliste d another 8 Chinese companies including some of China's top AI companies and suppliers of surveillance equipment in the Xinjiang province. The US also imposed visa restrictions on Chinese officials linked to the detention of Muslims in the Chinese province. China strongly condemned the actions and warned of retaliation. Some sources say China plans tighter visa restrictions for US nationals with ties to anti-China groups. The Chinese foreign ministry spokesman said "stay tuned " when asked if China would retaliate to the US blacklisting of more companies. As if this wasn't enough, another story broke that the White House is considering a limit on Chinese stocks in US government funds. The range of negative news threw cold water on expectations for an interim deal.
However, on Wednesday China signalled that an interim deal was still on the table and FT reported that China would offer to buy 10 million tonnes of US soybeans in exchange for US taking tariff hikes off the table.
Today Bloomberg reported that the US looks to add a currency pact into the interim deal . Supposedly such a pact had been agreed to before the talks broke down and including it in an interim deal might remove one (of many) stones on the way to a broader deal eventually.
Comment: We stick to our view that there is a 60% probability of an interim trade deal. As a minimum, such a deal would include China buying agricultural goods and the US taking tariff hikes off the table again. As we've argued in past weeks, both sides would have an interest in that, see for example US-China Trade - 60% probability of an interim deal , 2 October 2019. The two sides will try to get other things into a deal but it remains to be seen if they can agree on this. The developments have shown again that China separates the trade war track from the confrontations in all the other areas like tech, Hong Kong, NBA etc. The ceasefire between Trump and Xi in December 2018 was also made only a couple of days after the Huawei CFO was arrested in Canada on request by the US.
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