China: Xi Responds to Huawei

Published on December 10, 2018
SGH Insight
President Xi Jinping presided over a crucial meeting last Friday, December 7, in Zhongnanhai to discuss China’s global relations, the Buenos Aires trade summit with President Donald Trump, and the detention of the CFO of Huawei Technologies in Vancouver. At the meeting in Zhongnanhai, Xi nevertheless reinforced that China is still willing to reach a trade agreement with the US, and willing to import more American goods. Despite the negative impact of the Huawei incident, China will not suspend trade talks with the United States.
Market Validation
(Bloomberg 12/11/18)
U.S. equity futures and European stocks rallied while Asian shares slipped as investors weighed the prospects for success in American-Chinese trade talks. The pound rebounded.

Futures on the Dow Jones, S&P 500 and Nasdaq indexes all jumped, shrugging off losses in the Asian benchmark after China was said to move toward cutting tariffs on American-manufactured cars. Miners and carmakers advanced, helping the Stoxx Europe 600 Index extend gains. The pound rallied, trimming some of its tumble from a day earlier. The dollar weakened while Treasuries and European sovereign bonds fell.

The news on car tariffs followed reports that Chinese Vice Premier Liu He discussed a timetable for trade talks with Treasury Secretary Steven Mnuchin, which also helped to bolster sentiment.

By holding the phone call, both sides are suggesting a willingness to keep the negotiations from getting derailed by Chinese anger at the arrest of a senior executive at China’s Huawei Technologies Co.

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President Xi Jinping presided over a crucial meeting last Friday, December 7, in Zhongnanhai to discuss China’s global relations, the Buenos Aires trade summit with President Donald Trump, and the detention of the CFO of Huawei Technologies in Vancouver.

Neither Trump nor Canada’s Prime Minister Justin Trudeau had informed Xi of the Huawei arrest in advance, and he was furious with both for being caught blindsided by what Beijing considers to be a pre-mediated provocation and act.

*** In light of the arrest of Huawei Deputy Chair and CFO Meng Wangzhou, the Ministry of Foreign Affairs will advise Chinese scientists, technology experts, and business people to take risk prevention measures, and for relevant departments, to reduce or even cancel some visits to the “Five Eyes” intelligence alliance countries, comprised of the US, UK, Canada, Australia, and New Zealand. Canada’s “lawless, unreasonable, and callous misdeeds,” Xi said, have already caused serious damage to its relations with China. ***

*** At the meeting in Zhongnanhai, Xi nevertheless reinforced that China is still willing to reach a trade agreement with the US, and willing to import more American goods. Despite the negative impact of the Huawei incident, China will not suspend trade talks with the United States. ***

*** But Xi nevertheless stressed that China must not abandon its core interests nor its high tech development plans. China-US relations are seen to be at a major crossroads, and after the 90-day truce period, it will be up to the Trump Administration to decide whether to resume the trade war or not, in which case China will be forced to fight back. ***

For now, Xi is also reported to have said that China would not reciprocate to the Huawei incident by detaining American executives visiting or conducting business in China.

If however, he added, the US were to extradite or arrest additional Chinese citizens with its allies, in what Beijing considers to be a “long arm” extension of America’s own domestic laws, Beijing would have no choice but to detain Americans unfriendly to China, and it could target both US companies and individuals who sell weapons to Taiwan.

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