On the eve of China’s 70th National Day Anniversary celebrations, Premier Li Keqiang convened a symposium of top leaders that included four current Vice Premiers, as well as four recently retired luminaries; former Vice Premier Ma Kai, former PBoC Governor Zhou Xiaochuan, former Finance Minister Lou Jiwei, and former Minister of Industry and Information Technology Li Yizhong.
*** The singular purpose of that meeting was to discuss contingency planning should China enter a protracted, full-blown trade war with the United States or, as is phrased in Beijing, a full “de-coupling” of the two economies. And regarding the negotiations that kicked off this week, China’s lead negotiator Vice Premier Liu He reiterated to his colleagues that China would continue to reject the text of the trade agreement that was proposed by the US in May. ***
*** But the prospects for a narrow, “skinny” truce are still alive, barely – even with the latest sanctions from the US on 28 Chinese technology firms over human rights, the salvo from China’s beloved US National Basketball Association on Hong Kong, and, most importantly, indications that some internal deliberations over elements of the “Equitable Act” restrictions on investments from and into China are, despite “denials” by the White House, very much alive (see SGH 9/30/19, “China: A ‘Mini-Truce,’ with Major Tensions”). ***
*** If the mini-truce that was lubricated by increased Chinese purchases of US soybeans before this week’s talks does indeed materialize, the most likely result, sources say, will be for Beijing to make a limited commitment to purchase major US agricultural products that are not below last year’s modest numbers. While it may not be much, Beijing could also point to a revised “Investment Law” that kicks in on January 2020 as a gesture towards the protection of intellectual property rights. In return, the US must agree not to hike tariffs on $250 billion of Chinese goods, and the two sides could then agree, if all goes well, to sign an interim bilateral trade agreement in November. ***
*** And on a separate, but perhaps politically significant note, Chinese officials also maintain in private they will not answer President Trump’s calls to investigate the family of former Vice President Joe Biden. While that “non-response” may end up, in the impeachment whirlwind, a non-sequitur of sorts, it could also arouse suspicions in the White House that President Xi Jinping may, as suspected, be playing out the clock until the 2020 US Presidential elections. And that might not go over well with President Trump. ***
At the symposium convened by Premier Li, the participants, from what we understand, agreed that the only way to force the Trump administration to a negotiated deal was to resolutely stick to China’s existing bargaining positions, to be fully prepared to walk away from a deal, and to singularly keep the focus on maintaining China’s “long-term and stable” economic – and technological – development in case of a protracted trade war.
With an eye for any modest signs of de-escalation in the upcoming threatened US tariff escalation on October 15, the participants also agreed that should the US refuse to pull back from those tariff hikes, Beijing would adopt all or a combination of the various retaliatory measures that have been threatened on various occasions in the past.
Those include an increase in tariffs on $110 billion of US imports, the release of an expanded “unreliable entities list,” the targeting of specific US companies, the restriction of exports of certain Chinese goods including, presumably, rare earths exports, a continued freeze on agricultural and energy purchases from the US, and a significant reduction in China’s holdings of US treasuries.
Still scarred by the incident in 2018 where the Trump administration brought the Chinese technology crown jewel, ZTE, to its knees, China’s leadership agreed to proceed in the meantime full bore in encouraging domestic enterprises to diversify towards Europe, ASEAN, Latin America, the Middle East, and Africa, and to specifically strengthen technological cooperation with European, Russian, Israeli, Japanese and Korean companies.
At the same time, the participants agreed, Beijing will welcome more non-US companies to enter China.
Impeachment and the 2020 Elections
Finally, on a side, but highly politically sensitive, issue, senior sources also indicate that Beijing will “never” respond to Trump’s public calls to investigate the dealings of the family of former Vice-President Joe Biden in China.
Beijing has not received a formal request from Trump or his administration on this matter, and if they did, sources state that President Xi Jinping would flatly refuse on the grounds of “non-interference in other countries’ internal affairs.”
This “non-response” from Beijing, even if Trump’s request was not serious, could still inflame suspicions in the White House that Xi is deliberately dragging talks out to wait out the 2020 US Presidential elections and to avoid an assist to Trump’s re-election prospects.
By the same token, China’s central government will reiterate its unanimous support of the anti-mask law that was introduced in Hong Kong to flush out the doggedly resilient demonstrators.
Hong Kong, sources repeat, is purely an internal affair of China, and if the US were to add it to the negotiation table, China would immediately reject those efforts.