China: Xi’s G-20 Proposals to Trump

Published on November 30, 2018

President Xi Jinping presided over a meeting of the Political Bureau of the Communist Party of China on November 26, before embarking on state visits to Spain, Argentina, Panama, and Portugal, to elaborate his position to fellow Politburo members going into the G-20 meeting with President Donald Trump in Buenos Aires this weekend.

The topics Xi will bring to the table include broader Sino-US relations, Taiwan, and the South China Seas, but the real focus will be on trade, and we will cut to those all-important to markets discussions first:

*** Xi’s top priority is to reach a trade agreement with the US this weekend, or more accurately stated, a “temporary trade war truce.” Beijing remains cautiously optimistic that can be achieved, and still believes a probability of a truce is much higher than of no agreement at all. ***

*** Specifically, Beijing believes a truce would mean that the US would not impose more tariffs on Chinese goods after the $250 billion of imports already identified, and that China will not add to the $110 billion it has already retaliated with against the US. ***

*** There is on the other hand no expectation that existing tariffs would be lifted, at least for now, and it remains unclear whether a truce could be accompanied with the step-up of the rate on the last $200 billion tranche as threatened by Trump from 10% to 25% in January. We do, nevertheless, suspect Beijing continues to hope a truce would include at least a three month or so reprieve on the latter. ***

*** With regards to the thorny issue of protection of intellectual property rights (IPR), Xi will assure Trump that China will uphold existing international rules on IPR and adopt stricter domestic IPR protections to give impetus to its plan to further open-up its domestic markets (see SGH 11/27/18, “China: Trump Threats on Summit Eve”) on revisions to China’s “negative list” and the further opening of markets). ***

*** As to the issue of forced technology transfers, however, Xi will try and make the case that this is not a government policy, but a commercial issue between companies doing business in China. They are, he will say, part of “market share for technology transfer” deals that are struck with Chinese enterprises in setting up joint ventures. ***

*** With regards to China’s subsidies to its State-Owned Enterprises (SOEs), Xi will point out that over half of SOEs are already implementing mixed private-public ownership but push back that Beijing will continue to support these as needed – pointedly reminding the US government of its support to America’s farmers. ***

*** Xi will also try and push back on the new, tighter US export control regime for “emerging and foundational technologies,” making the case that tighter controls by Washington on hi-tech exports to China will only exacerbate the trade imbalance between the two. This argument, we are sure, will fall on deaf ears on the Trump administration, but it is an evergreen thorn in the side of Beijing. ***

Geopolitical Concerns as an Afterthought

On a broad level, Xi will attempt to set a conciliatory tone with the US right from the start.

He will, as he has in the past, cite the need to avoid a “Thucydides Trap” between the existing power US and China the rising power, and espouse the benefits of mutual cooperation and win-win results to both.

The bilateral relations, he will stress, should be directed towards the policy and principles of “non-conflict, non-confrontation, mutual respect, enhanced mutual trust, deepened cooperation, and efforts to manage and control differences in a constructive way.”

On the geopolitical front, Xi will bring up Taiwan, and remind Trump of China’s absolute policy to “staunchly safeguard” its sovereignty and territorial integrity, “resolutely curb” any form of “Taiwan independence secessionist activity,” and continue to strive for the peaceful reunification of the country.

The US, he will stress, should abide by the One-China policy and principles stipulated in three previous Sino-US communiques (these, of course, were penned by administrations before Trump), and maintain the peaceful development of cross-strait relations and cooperation on practical matters.

While there will be no such agreement on Taiwan, neither side also has any interest in picking a fight over this issue in Buenos Aires. Indeed, on the geopolitical side, Xi will also attempt to strike a somewhat softer tone on the South China Seas dispute – in part, we suspect, because Beijing’s expansion into those islands and region is already pretty much a fait accompli.

Xi will tell Trump that China will complete negotiations with all ten ASEAN Treaty nations on a code of conduct treaty for the South China Sea region within three years. He will add that while China will continue to insist on settling disputes “through peaceful consultations and negotiations” only directly with nations involved, it hopes the US can play a constructive role in maintaining peace and stability in the South China Seas.

That said, neither Beijing nor Washington has any particular agenda in mind on the geopolitical front for the summit in Buenos Aires. The focus, front and foremost, remains on trade.

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