Slouching Towards Mar-a-Lago: Xi and Trump Inch Closer to Yes

There have been a flurry of small and medium-sized developments over the last few days as we await the outcome of U.S.-China trade negotiations. On Thursday, the White House confirmed it would suspend President Trump’s March 1 deadline for slapping new tariffs on Chinese imports. On Friday, Trump said in a tweet that he has called on China to lift all levies on U.S. agricultural products as a sign of good faith as negotiations head into the final stretch.

U.S. stocks ended the week at their highest level since November as investors regained confidence that a deal is imminent, overcoming the momentary panic induced by trade representative Robert Lighthizer’s warning to Congress Wednesday that “much still needs to be done.”

In Washington, the punditocracy seems generally agreed that Trump’s decision to “walk away” from a deal with Kim Jong Un in Hanoi earlier in the week gives him greater cover to say yes to a deal with Xi Jinping. The smart money is still betting that the perceived political advantages of closing a big, beautiful China agreement will override any lingering policy objections about the fine print—and that sometime this month Trump and Xi will toast their accord at Mar-a-Lago.

For hard-core trade hawks, that’s a dismaying prospect; critics from both parties are sharpening their spears. In Politico, Zachary Karabell decried Trump’s “phony trade war” as “just disruptive enough to cause consternation and insecurity on both sides of the Pacific and not nearly enough to force anyone to change much at all.” Bloomberg‘s David Fickling paid a backhanded tribute: “If President Trump wants to put his name on a big, splashy agreement that ultimately just returns things to the status quo, let him have it.”

Meanwhile Canada’s Justice Department cleared the way for extradition proceedings for Meng Wanzhou, chief financial officer of Chinese telecommunications equipment manufacturing giant Huawei Technologies, provoking indignant commentary from Chinese diplomats. Meng is unlikely to set foot in a U.S. courtroom anytime soon. The Canadian legal process allows her multiple opportunities for appeal, and Trump has hinted repeatedly that he’d consider offering Meng clemency as part of a trade deal.

Amid the hoopla, Sinocism’s Bill Bishop highlighted a report from the China Internet Network Information Center underscoring one of the reasons Fortune pays so much attention to China in the first place—and illustrating why China will still matter, no matter how the trade talks come out. The report noted that, as of December, the number of Internet users in China reached 829 million, while the number of online shoppers and customers who use online payment topped 600 million. Like it or not, China is a force to be reckoned with. In tech and many other sectors, it’s not just big, it’s yuuuuge.

More China news below.

Economy and Trade

Walk the talk. March 1 came and went without any change to the status of U.S. tariffs on Chinese imports. President Trump announced earlier in the week that he would extend the deadline for the two nations to strike a deal on trade, sending Chinese stocks into bull territory. Trump’s holding off until he can meet President Xi but on Thursday, after “walking away” from negotiations with Kim Jong-un, Trump warned he could walk away from China too if a deal “didn’t work out.” U.S. Trade Representative Robert Lighthizer said China has agreed to a process by which the U.S. can monitor whether Beijing is keeping its end of any future trade deal. CNN

Super heavy. The MSCI will quadruple the weighting of mainland Chinese shares in its global benchmark indices later this year. The MSCI added China’s A-shares to its index last year. Currently Chinese shares have an inclusion factor of 5%. That will increase to 20% in three equal increments, rising 5% in May, August and November. It’s a boon for Beijing’s push to internationalize the renminbi. Caixin

Slowdown continues. China’s manufacturing purchasing mangers index (PMI) fell to its lowest level for three years in February, dropping from 49.5 to 49.2. A mark over 50 indicates expansion; anything below signifies contraction. The PMI has been below the 50 mark for the last three months. It’s another sign of a weakening economy but there are hopes that the economy is bottoming out as trade tensions ease. Wall Street Journal

Innovation and Tech

Bourse on the Bund. China finalized regulations for Shanghai’s new Science and Technology Innovation Board – the country’s latest stock exchange. The board won’t have limits on price or debut gains and will allow unprofitable companies to go public but will not permit same day buying and selling. China hopes the bourse will help stem the flow of tech companies listing overseas. Bloomberg

Getting snappy. Foldable phones were all the rage at the Mobile World Congress in Barcelona this week, including a $2,600 offering from Huawei. The company’s rotating chairman Guo Ping used the product launch as an opportunity to criticize the U.S. for its record on cybersecurity, dropping taunts about the NSA and Edward Snowden. Meanwhile the company ran full page ads in several prominent U.S. newspapers. The ads said the U.S. government had “developed some misunderstandings about us.” Fortune

Minor detail. TikTok, the Chinese short-video app that acquired in 2017, has been fined $5.7 million by the U.S. Federal Trade Commission for gathering data from minors illegally. TikTok collected personal data from children under the age of 13 without securing parental consent, the FTC says. TikTok has over 1 billion downloads but has faced pushback in multiple markets for failing to regulate its content. Fortune

In Case You Missed It

A Video of Kids Singing About How Much They Love Huawei Has Gone Viral on Chinese Social Media TIME

Evergrande sets up new EV firm following botched Faraday Future investment TechNode

A 97-Year-Old Tycoon, His Four Wives and the Push to Revive a Casino Empire Bloomberg

Huawei to Build Saudi Arabia’s 5G Infrastructure Caixin

China's technology challenge is bigger than just Huawei, British spymaster says Reuters

Limiting your digital footprints in a surveillance state NYT

Politics and Policy

Sorry about that. Canada’s justice department confirmed the extradition hearing of Huawei CFO Meng Wanzhou will go ahead but noted that “an extradition hearing is not a trial nor does it render a verdict of guilt or innocence.” Meng will appear in court on March 6 and a date for her extradition hearing will be set. Meng’s defense team said they are “disappointed” with the decision. BBC

DNA codes. Beijing has drafted regulations for gene editing practices in response to revelations last year that scientist He Jiankui edited the genes of more than one fetus. Under the new rules, labs will need permission from a central authority. That’s the same arrangement as in the U.S., where scientists need federal approval before practicing gene editing. Previously, hospitals in China could green light DNA-editing procedures themselves. Yet a recent report alleges the Chinese government might have funded He’s controversial research. Wall Street Journal

Ein spy. Berlin is negotiating a deal with Beijing, reportedly, under which both sides agree not to spy on each other so that Germany doesn’t have to exclude Huawei from its 5G networks on principle. Sounds simple. Reuters

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