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February 16, 2019

“U.S. Stocks End Week Higher Boosted by Trade Talk” blared the headline on Bloomberg’s Friday market wrap. The story, typical of many in the global financial press this past week, noted that U.S. equities have surged to a 10-week high, and that the S&P has posted its third straight weekly gain “on reports that the U.S. and China have reached consensus in principle on the main topics in their trade negotiations.”

The key words in that last sentence, of course, are “in principle.” But never mind. Investors, according to many accounts, are newly chuffed by Donald Trump’s declaration—the second in a week—that he’s willing to suspend his March 1 deadline for slapping higher tariffs on $200 billion in U.S. imports from China if trade negotiators from the two countries move closer to a deal.

“It’s going extremely well,” Trump told reporters at the White House yesterday. “Who knows what (that) means because it only matters if we get it done. But we’re very much working very closely with China and President Xi, who I respect a lot, very good relationship that we have, and we’re a lot closer than we ever were in this country with having a real trade deal.” (A few more keywords: “Who knows what that means.”)

China’s state-controlled Peoples’ Daily chortled that a U.S. trade delegation, led by Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, has “made important progress” during two days of meetings with Chinese counterparts in Beijing this week—and that, as Chinese negotiators head to Washington next week for a round of follow-up discussions, the two sides are making a “final sprint” towards the finish line.

And yet there is scant detail about how and where all that “progress” is being made. The Wall Street Journal reported Thursday that China has floated a proposal to increase sales of U.S. semiconductors to China over six years to a total of $200 billion. That proposal comes on top of earlier Chinese promises to ramp up Chinese purchases of American soy beans and natural gas.

U.S. chip makers are pouring cold water on China’s offer. “This semiconductor purchase pledge is a distraction and too clever by a half,” U.S. Semiconductor Industry Association chief executive John Neuffer told the Journal, who dismissed the proposal as an “accounting gimmick designed to help China achieve its Made-in-China 2025 goals.”

Evidence to date suggests that, after months of haggling, China hasn’t budged an inch on U.S. calls for structural reforms that would eliminate subsidies to China’s state-owned enterprises. Nor has Being agreed to concrete actions to curb rampant theft of American technologies. Trump has vowed that he’ll reject any deal that lacks significant Chinese concessions on both points.

Even so, White House officials already are discussing a mid-March meeting between Trump and Chinese president Xi Jinping at Trump’s Mar-a-Lago resort where the two leaders would announce a final deal.

Meanwhile, the South China Morning Post reports that Chinese officials are pressing for a “parallel dialogue” to secure the release of Huawei Technology CFO Meng Wanzhou, detained in Vancouver pending extradition to the U.S. on fraud charges.

More China news below.

Clay Chandler
@claychandler
clay.chandler@timeinc.com
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Economy and Trade

New Year, new low. Consumer spending from February 4 to February 10, the week over Chinese New Year, topped Rmb1 trillion ($149 billion) for the first time, growing 8.5% over the year before. However, that was the slowest growth rate since 2011. The number of trips tourists made during the same period - 415 million - also grew at the slowest rate since 2008. More signs of a Chinese slowdown. Caixin Global

Default danger. China's state planner, the National Development and Reform Commission, is investigating corporate bond issuers' ability to cover their debt. Bond defaults reached their highest levels so far last year but a slew of corporate debt is due to mature in 2019. Financial Times

HMS Brexit. The Sun, a British tabloid, reports China Vice Premier Hu Chunhua cancelled a scheduled meeting with U.K. Finance Minister Philip Hammond in protest of threats made by Defense Secretary Gavin Williamson. In a speech Monday, Williamson threatened to send a warship to check Beijing's naval expansion. Hammond and Hu were due to discuss Britain's post-Brexit trade with China. Straits Times

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Innovation and Tech

Made in the U.S.A. Senator Marco Rubio proposed legislation to counter Made in China 2025, Beijing's plan to boost high tech manufacturing and accelerate China's dominance in cutting edge technology. Rubio's proposal came with a report released by the Senate Committee on Small Business and Entrepreneurship called Made in China 2025 and the Future of American Industry. The proposal would restrict and tax Chinese investment in the U.S. South China Morning Post

A.I. in action. President Trump signed the Executive Order on Maintaining American Leadership in Artificial Intelligence on Monday. Although it didn't say so, the order is a bid to prevent China gaining the upper hand in A.I. development. But unlike China's plan for achieving supremacy in A.I., Trump's initiative lacks any real details. Fortune

Share a Coke. You Xiaorong, a Chinese-born scientist, was arrested and accused of stealing trade secrets from Coca-Cola. The naturalized U.S. citizen allegedly tried to pass knowledge about chemical coatings - for drinks cans - to a Chinese venture. An indictment against You claimed she sought backing from China's "Thousand Talents" recruitment scheme, which a member of the Justice Department describes as a ploy to "solicit and reward the theft of our nation's trade secrets."  Wall Street Journal

Social-ist media. An app called xuexi qiangguo, or Study the Great Nation, has become the most downloaded app on China's App Store. The app was developed by Beijing's Publicity Department - otherwise known as the Propaganda Bureau. Users can study Xi Jinping Thought, review state media reports and chat with friends through an Alibaba-powered messaging service. Completing certain in-app activities earn users points. Reportedly, Party cadres are required to accrue a set number of points per day. New York Times

Ants on the march. Alibaba-affiliate Ant Financial paid $700 million to acquire British payments group WorldFirst. It is the Chinese fintech company's first major U.K. deal. Ant Financial, which operates Alipay, attempted to buy U.S.-based MoneyGram International last year but was blocked by Washington. To avoid a repeat prohibition, WorldFirst closed its American unit last month. Financial Times

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In Case You Missed It

China tries to stop academics from taking its constitution literally The Economist

With eyes on China, EU agrees investment screening rules Reuters 

China talks with Venezuela opposition to protect investments WSJ

New high-tech board stirs hype concern among local regulators Caixin

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Politics and Policy

The flightless Kiwi. A flight from Auckland turned around half way to its destination in Shanghai after learning it had been denied permission to land. New Zealand Prime Minister Jacinda Arden said the issue was technical rather than political but, days later, China backed out of a New Zealand tourism campaign the two countries were due to launch together. Meanwhile Party mouthpiece the Global Times reported tourists are turning away from New Zealand following the island nation's decision to block Huawei. New York Times

Stockholm calls. Sweden has recalled its ambassador to China, Anna Lindstedt, following her "incorrect" handling of unauthorized negotiations regarding Gui Minhai, the Hong Kong-based bookseller who has been held by mainland authorities since 2015. Gui is a Swedish citizen. Gui's daughter, Anglea Gui, wrote in a Medium post that Lindstedt once brought two "businessmen" to meet with her. The men allegedly tried to persuade Gui to keep quiet about her father's detention. Reuters

Turkey speaks up. Ankara called on Beijing to close the "re-education camps" in China's western Xinjiang region, where millions of Uighur Muslims have been forcibly detained since last year. Turkey condemned China's detention of the Uighurs as a "great shame for humanity." Turkey's condemnation came after Ankara received news that a popular Uighur singer, who was detained two years ago, died in Chinese custody. Beijing has since released a video it claims shows the singer Abdurehim Heyit alive and well. Financial Times

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