China: Last Mile of Trade Negotiations

Published on March 18, 2019

Markets have largely shrugged off overnight reports that a potential summit between US President Donald Trump and China’s President Xi Jinping – already pushed back from the end-of-March — may not come now until as late as June. Then again, it may come sooner…

*** The truth of the matter is that between the demands this month of China’s “twin sessions” of the 13th National People’s Congress (NPC) and the second session of the 13th National Committee of the Chinese People’s Consultative Conference (CPPCC), and the challenges in squaring the circle on the already well-postulated differences between the two sides on compliance and verification, negotiations at the most senior level do appear to have slowed down, even as technical discussions plow ahead. ***

*** Beijing has also taken note of President Trump’s comment that he is “in no rush really” to strike a deal with China, worrying about further potential delays and push back from the harder-line elements in White House.  But senior sources in China largely interpret those comments as a “Trumpian” negotiating stance, intended to exert maximum pressure in this last leg of negotiations. ***

*** They point to two calls that were held last week, at 7:00 a.m. local time on Tuesday March 12 and Thursday March 14, between US Treasury Secretary Steven Mnuchin, US Trade Representative Robert Lighthizer, and China’s Vice Premier Liu He, as evidence of continued best efforts by both sides to move the trade negotiations along. ***

In the meantime, Beijing is finalizing plans for a charm offensive – some might call it a wedge maneuver – tour of the European Union by President Xi Jinping and Premier Li Keqiang scheduled for this month and next.

The Slow Final Stage

The read-out from last week’s high-level calls was that “the two sides made further substantive progress on certain provisions [italics added] of the bilateral trade agreement.” And well-placed sources concede the calls, while cordial, did not produce a breakthrough on the most critical [remaining] issues.

They nevertheless point out that after three months of on and off, intensive high-level discussions, both sides have mapped the other’s bottom lines and learned what to expect from each other. And in the meantime, negotiations on the technical level continue to move along.

For example, discussions over agricultural import targets are proceeding at an ever more concrete, granular level. And on the larger, “soft” issues, China pointedly rushed through a revised Foreign Investment Law last Friday, even though American trade organizations and chambers have lodged in their complaints already.

But still scarred from tensions last year with the White House and sensing now some pressure from Congress in these last stages of the trade negotiations, China’s State Council is also preparing for the worst – just in case.

Courting the EU

To that effect, and with an eye in the process to staving off US efforts to enlist the EU in pressuring Chinese telecoms giant Huawei, both Xi and Premier Li Keqiang have scheduled trips to “major European powers” over the next several weeks.

Beginning this Thursday, Xi will visit Italy, Monaco, and France. Xi will celebrate the Italian government’s decision to become the first G7 country to join China’s Belt and Road Initiative (BRI) and invite Prime Minister Giuseppe Conte to the second BRI summit in April 26-27.

Xi will then celebrate the 55th anniversary of the establishment of ties between France and China with the French President, Emmanuel Macron.

In Paris, the Chinese delegation will emphasize that France last year was the second largest importer of its technology, and that China was (not surprisingly) France’s largest trading partner in Asia.

More to the point, Xi will hold out the prospect for another major series of Airbus plane orders. Beijing last week grounded all 96 of China’s Boeing 737 Max 8 aircraft after the Ethiopia air crash, and contractually suspended further delivery of Max 8 planes. And China already locked Boeing out of any new plane deals last year during the height of the trade wars.

Premier Li will also attend the China-EU summit in Brussels on April 9, and from what we understand may schedule a trip to Berlin either before or after that summit. In light of the slowdown in the European economy in general, and of Germany in particular, these visits could not come at a more fortuitous time.

Why exactly Monaco is on Xi’s travel list, we are not sure, but we can venture a guess.

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