China: Xi-Trump summit delayed, Q1data a mixed bag

Xi-Trump summit in April at the earliest, according to sources.
Data for Jan/Feb was mixed but leading indicators still point to recovery.
Stock markets take a breather as regulator sends warning.

Xi-Trump summit delayed to at least April

Sources close to the trade negotiations said on Thursday that a summit between Donald Trump and Xi Jinping would take place in April at the earliest. According to the article, Xi's staff is no longer planning for a flight to Florida after a planned visit to France and Italy at the end of this month.

Speaking on the trade negotiations on Wednesday, US President Donald Trump told reporters that "things are going along very well" and "I think the deal is going to be made... but we'll see what happens". However, he also stressed that he is in no hurry to make a deal, referring to those accusing him of rushing a deal, see Reuters 13 March. Trump also told reporters that he preferred to finish the deal at a summit with Xi but was also open to competing the deal beforehand and instead meet for signing the trade deal. Former economic adviser Gary Cohn said in an interview that Trump is ‘desperate' to sign a deal with China.

On Friday, the National People's Congress approved a new foreign investment law aimed at levelling the playing field for foreign companies and increasing protection of intellectual property rights, see SCMP, 15 March. This would come into effect on 1 January 2020. The law was first introduced as a draft in 2015 but in the past three months, it has been rushed through to accommodate US demands in the trade talks.

Comment: As we wrote last week, things are bound to get trickier at the end of such negotiations with so much at stake. It seems the US wants an enforcement mechanism in which they can re-impose tariffs on China if they believe China is not honouring the deal, without China being allowed to retaliate. No Chinese president could sell such a deal domestically. China prefers an independent body such as the WTO to be the judge of any breach, which is a no-go for the US. A compromise needs to be found.

Xi will not agree to a summit unless a deal is more or less completed. Trump's comments that he could walk from a deal if it is not good enough has created anxiety on the Chinese side. Xi cannot risk giving Trump the honour of hosting a summit in his own resort and then come home without a signed agreement. We probably have to wait for trade talks to be more or less finished before a summit would be announced. This may take some time. Ultimately, we still firmly believe a deal will be made, though, as Trump needs a deal for his campaign for the 2020 Presidential elections, which kick off soon. Failure to reach a deal would lead to sharp declines in equities and China would stop buying soy beans, etc., which would hurt voters in important swing states. In our view, it is unlikely that Trump would choose that path.

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