In Data Sheet last month, I predicted Donald Trump and Xi Jinping would agree on a trade deal this year—and that it would do little to ease long-term tensions in the US-China relationship. In the wake of Trump’s White House meeting Thursday with Chinese vice-premier Liu He, that seems like a pretty safe bet.
In the brief encounter (the full transcript is here), Trump telegraphed so clearly his eagerness to get to yes that he all but offered Liu the Resolute desk. He touted the “biggest deal ever made”; suggested he’s willing to waive his own March 1 deadline for getting a deal done; gushed repeatedly over the prospect of headline-grabbing Chinese purchases of US soybeans and other farm products to narrow the bilateral trade deficit (“That’s a lot of soybeans. That’s really nice.”); and said next-to-nothing about hard-to-enforce commitments to widen market access for or protect the intellectual property rights of American companies. Trump also hinted he’s open to cutting a side deal involving Huawei Technology as part of a grand trade bargain.
Earlier in the day, Trump tweeted that he wants to close the deal personally. The Wall Street Journal reports Trump responded enthusiastically to a Chinese proposal that he meet with Xi “in the Chinese resort island of Hainan following his planned summit with North Korean leader, Kim Jong Un, in late February.” It’s almost impossible to imagine Trump would travel all the way to Hainan without signing some kind of agreement.
But what kind? Former Reagan economic adviser Martin Feldstein, in a recent essay entitled “There is no Sino-American Trade War,” argues fixating on the trade balance only plays into China’s hands, making it easier for Beijing to buy its way out of concessions on issues that really matter: US access to China’s market and Chinese theft of American technology. “The basic economic fact,” Feldstein observes, is “that the overall US global trade imbalance is the result of economic conditions in the US – the excess of investment over savings. If the Chinese bought enough US goods to eliminate the bilateral imbalance, the US imbalance would merely shift to other countries, without reducing the overall imbalance.”
Later in the day, the White House released a statement listing seven negotiating points with China, including technology transfer, intellectual property, obstacles to American business in China, commercial cyber theft, subsidies for state-owned enterprises, obstacles for American trade to China and currency concerns. The statement stresses: “The purchase of United States products by China from our farmers, ranchers, manufacturers, and businesses is a critical part of the negotiations.”
More China news below.
Economy and Trade
China’s slowdown shows. On Wednesday 373 Chinese firms, of which 86% were profitable last year, warned they will post losses for 2018. The notice was given a day before the deadline to do so and state media reports 320 companies will file losses over $15 million. Bloomberg
Trade War skirmish. The WTO launched an investigation into President Trump’s tariffs against Chinese goods Monday, to determine whether the levies breach WTO requirements that member states provide each other with equal tariff treatment. The inquiry was initiated at China’s request. Hitting back, the U.S. sent 70 questions to the WTO regarding China’s use of subsidies to promote domestic industry. Bloomberg
This train has been cancelled. Reports last week said Jakarta has finally cancelled the $20 billion rail project former Prime Minister Najib Rasak inked with China contract. Prime Minister Mahathir Mohamad says Malaysia cannot afford it. The rail link was a flagship project of China’s Belt and Road Initiative (BRI), which critics call a debt trap and a tool of economic colonialism. China has allegedly offered to halve construction costs of the rail line. South China Morning Post
Innovation and Tech
Didi lite. Didi Chuxing, China’s leading ride-hailing service, is considering massive layoffs, The Information reports. The cuts will be made mostly in support services such as human resources and marketing, and some departments might be reduced by as much as 20%. Didi lost $596 million in the first half of 2018. The Information
ByteDance buckles down. ByteDance, the $75 billion start-up behind short video app Tik Tok, slashed staff bonuses and warned of a tough year ahead as China’s tech sector was battered last year by a capital winter and a slowing economy. Channel News Asia
Alibaba outshines the rest. Alibaba’s quarterly earnings were a rare bright spot in China. Net income for the fourth quarter was Rmb33.1 billion ($4.9 billion), Rmb11 billion over estimates. The boost came in part from Alibaba revaluing its lifestyle services app Koubei and strong growth in its cloud computing unit. Cloud revenues rose 84% in the quarter. Bloomberg
Gamers, rejoice. A nine-month freeze on game approvals came to an end in January. Now China wants to recognize video gaming as a profession. China’s Occupation Skill Testing Authority (OSTA), which is provides guidance for employment and vocational gaming, released a list of new job titles last week that included “professional gamers.” According to guidelines, would-be pro gamers need to provide data analysis for the industry, design new games and compete in tournaments. TechNode
In Case You Missed It
Politics and Policy
Number one threat. U.S. intelligence agencies labelled China the top cyber security threat in their annual Worldwide Threat Assessment briefing. The report warned that China had the ability to cause localized, temporary disruption to critical infrastructure through cyber warfare. The report was issued shortly after the U.S. indicted Chinese telecom manufacturer Huawei Technologies on several charges of corporate espionage. CNBC
Huawei update. The Department of Justice indicted Huawei and its CFO Meng Wanzhou collectively on over two dozen charges this week, ranging from corporate espionage to bank fraud. Huawei said it is “disappointed” by the charges, most of which relate to a civil suit that was settled in 2017. The indictments against Meng Wanzhou will add weight to the Department of Justice’s request for her extradition from Canada, submitted Monday. Fortune