China: Trade Deal No Later than June 28-29

Published on April 8, 2019

Chinese officials are optimistic after the latest round of trade negotiations between Vice Premier Liu He and US Trade Representative Robert Lighthizer that concluded in Washington last week.

*** The assessment of senior officials with knowledge of the negotiations is that about 90% of the trade mission has been accomplished, including the challenges of drafting a text and content of a deal that is acceptable to both sides. ***

*** While the critical issue of enforcement remains to be fully resolved, they are now confident a deal will be signed, with the question now being of when and where they believe an official trade signing ceremony will be held, probably no later than at the G20 Osaka Summit on June 28-29. ***

*** Chinese officials cannot, however, help but worry just a bit about last-minute changes or demands from President Trump. In that, they are quietly banking on some help from US soybean farmers, who need to plant in April and May, as well as from over twenty US financial institutions now lined up with applications to expand their business activities in China. ***

As to the specifics, sources in Beijing confirm reports that the discussions by the two sides are well into the process of an agreement on text covering the issues of the forced transfer of technology, protection of intellectual property rights, non-tariff measures, the services industry, agriculture, the trade balance, and, finally, the enforcement mechanism itself.

In the meantime, Premier Li Keqiang today embarked on a five day tour through Europe that will be light on substance, but heavy on style. That, in light of the trade talks, is judicious, as Beijing quietly attempts among other things to push back on US efforts to cut into the global reach of China’s telecoms giant Huawei. 

Political Positioning in Advance

The leadership in Beijing is, of course, under no illusions that a trade deal will mark “the end to all disputes” or “the beginning of triumphant relationships” between the world’s two largest economies.

And so, in the meantime, much of the communication and signaling from Beijing has been tough, and to emphasize how President Xi Jinping would never accede to a trade deal not in line with China’s best interests.

Officials are, for example, quietly dismissive of US demands for “deep structural reform,” pointing to that as a process China has been implementing already for three years “with remarkable results.” 

But we believe this is in no way bad news, but rather represents some last-minute posturing in advance of signing a trade deal with Trump.

A Soft Outreach to the EU

In the meantime, Premier Li Keqiang has embarked on a tour through Europe that is scheduled to last through April 12.

During the trip, Li will attend the 21st China-EU Summit in Brussels, as well as the 8th Leaders’ Meeting of China and Central and Eastern European Countries (CEEC 16+1), in Croatia.

Chinese officials are downplaying expectations for this trip. From what we understand, Li and his EU counterparts may not agree on a joint statement after their summit in Brussels as the two sides are still at odds over China’s market access and industrial policy, the Xinjiang humanitarian question, and the 16+1 cooperation mechanism, which some suspect to be an attempt by Beijing to drive a wedge between Western and Central/Eastern Europe.

But, it is noted, China and the EU did not issue any joint statements in 2017 or 2016 either, even as bilateral relations continued to develop.

More to the point, with US trade negotiations in the final stage, it is perhaps in China’s interests not to press the envelope with the EU too hard either, especially as one of the clear agenda objectives of the outreach to the EU is to quietly counter US efforts to enlist its global allies in their use of Huawei telecoms technology.

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