China: Keeping US Trade Talks on Track

Published on January 23, 2019

Over the weekend, sources from China’s Commerce Ministry confirmed that Vice-Premier Liu He, China’s lead negotiator in trade talks with the United States, will be visiting Washington on January 30 and 31 to continue high level trade talks with his US counterparts, Treasury Secretary Steve Mnuchin and US Trade Representative Robert Lighthizer.

This was also confirmed yesterday by US National Economic Director Larry Kudlow, in a direct attempt to push back against press reports that a lower level vice-ministerial meeting between Chinese and US negotiators had been cancelled by the Trump White House.

** First, to clarify the reported cancellation then emphatically denied by Kudlow, we understand that at least from the Chinese side, there was a tentative but not finalized agreement to send the technical negotiating team led by Vice-Minister of Finance Liao Min and Vice-Minister of Commerce Wang Shouwen to Washington this week. The intent was to follow up on the discussions held in Beijing on January 8 as a last preparation before the January 30-31 Principals meeting. So technically, as Kudlow stated, there was no cancellation, per se.  

** But even the “non-cancellation” of the “non-meeting” is not, as initially hyped by reports, bad news for markets. That is the broader point Kudlow appeared to be stumbling through: the cancellation is a message from Washington to Beijing that the crucial January 30-31 meeting needs to show greater progress on the two “intractable” issues of forced technology transfers and intellectual property rights theft in addition to concessions already offered on the significantly increased import of goods from the United States.

** And on those two issues, the bigger problem really lies in addressing the forced technology transfers. China is insisting the issue is one that needs to be resolved at the corporate, not state level, even while making attempts from what we understand to give the Trump administration some assurances on this front. 

** On the IPR issue, China has slowly been instituting measures both on the legal and administrative fronts since December that, even if tentative in scale, can still be taken to show some goodwill to the Trump administration. The issue, however, is likely to remain a long-term and major bone of contention between the two sides. 

** On a parallel track, despite the heated rhetoric and tensions over the arrest and efforts to extradite Huawei CFO Meng Wanzhou from Vancouver to the US, we understand that security sources in Beijing believe the chances of her extradition to the United States for prosecution are slim. They may be proven wrong on this – the US has demanded Ottawa turn her over and Canadian officials are ruing that their citizens are bearing the brunt of retaliation from China for their enforcement of US laws. 

** But perhaps more telling and important for markets on the state of trade negotiations between US and China, our understanding is that the State Council has decided to separate the China-US trade negotiations from the Meng case. In other words, Liu’s visit to Washington will not be connected to the Meng case, and will go ahead as scheduled unless he is ordered directly by President Xi Jinping to cancel the meeting.

Once here, Liu will attempt to set the first round of negotiations with Mnuchin and try and schedule the more granular — and perhaps contentious — talks with Lighthizer for a second round.

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