China: “HK Act” and Phase-One Deal Timing

Published on November 25, 2019

From what we understand, Jared Kushner, President Donald Trump’s trusted son-in-law and advisor, delivered a back-channel message to Beijing following the passage last week of the “Hong Kong Human Rights and Democracy Act” by Congress.

** According to sources in Beijing, Kushner is said to have assured his counterparts that President Trump does not intend to “take the initiative” to sign the Hong Kong bill, despite its near unanimous passage in both the House of Representatives and Senate. We believe that could mean either sitting on the bill without a signature, or a “reluctant” and low-key signing affair, with the former appearing to us now as perhaps more likely.

** Indeed, “in order to maintain the stability of Sino-US relations,” the Chinese side were told that Trump was even “considering” a veto of the bill, even if it were then met with an overwhelming, bi-partisan override in Congress. Despite that alleged exchange, we still see the odds of a politically explosive outright veto as extremely unlikely, if not altogether negligible.

** What is clear and more important, and was, we are told, reiterated by Kushner, is that Trump wants to keep the Hong Kong bill and the US-China trade negotiations on separate tracks (see also SGH 11/22/19, “China: ‘Equivalent Retaliation’ for US Hong Kong Act”).

** Furthermore, and equally important, from what we understand Vice-Premier Liu He also separately assured US dignitaries visiting Beijing that as long as Trump does not order the implementation of the enforcement measures, trade negotiations will continue. Note that the provision of the HK Act with the most immediate potential embarrassment to Beijing, and which would force retaliation, would be the imposition of sanctions or asset freezes on individuals seen to be responsible for human rights violations in Hong Kong (see again SGH 11/22/19. “China: ‘Equivalent Retaliation…’”).

** As to the negotiations themselves, Liu has been reported to have said he is “cautiously optimistic” a deal will be reached.

** Our understanding is that Liu believes that furthermore a deal could come in late December or January. In light of the relief provided by positive financial markets, a tight holiday schedule, and the ongoing and important differences still between the two sides over tariff rollbacks, we continue to expect the prospects for a deal to have slipped into early next year.

Back to the call allegedly placed by Jared Kushner, Chinese sources say Trump is said to have relayed hopes that the two countries will sign a trade deal as soon as feasible, reiterating his close friendship with China’s President Xi Jinping, and concluding with the hope that the two leaders might meet at some point again — “in the next few months.”

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