In the U.S. presidential election, how will China vote?

Officials from the U.S. and China are expected to meet virtually this weekend to review the progress of the “phase one” trade deal the two countries signed in January. It promises to be an interesting encounter.

Beijing and Washington are at loggerheads on issues across the board, including technology, investment rules, Hong Kong autonomy, and China’s treatment of ethnic Muslims in the northwestern province of Xinjiang. As Geoff Colvin notes in the cover story of the latest issue of Fortune, the world’s two largest economies are hammering at each other like a pair of exhausted professional wrestlers, expelling each other’s media, shuttering each other’s consulates, barring each other’s companies from doing business, and slapping sanctions on each other’s leaders.

In the past week, President Donald Trump has upped the ante by vowing to ban TikTok, the wildly popular Chinese-owned short video app, unless it is sold to an American buyer. He also outlawed WeChat, the messaging platform that is a lifeline for millions of Chinese living in America.

As former Obama White House security adviser Evan Medeiros told the Financial Times: “We’re entering the Twilight Zone of U.S.-China relations.”

On Monday, Trump suggested he doesn’t care about the trade deal anymore, scoffing that it “means very little” in light of America’s more recent beefs with China.

That’s contrary to the account of Trump’s former national security adviser John Bolton, who asserted in a recent memoir that the trade deal was the only aspect of the China relationship Trump does care about because he believes that Chinese purchases of American agricultural products will help him claim victory in crucial farm states in November’s presidential election.

By Wednesday, White House economic adviser Larry Kudlow was dialing it back, reassuring reporters in Washington that the trade deal is “fine,” and dismissing suggestions that the agreement might come apart amid escalating U.S.-China conflict on other issues. “The one area where we are engaging is trade,” Kudlow said.

That may be so. But the fate of the “phase one” deal is suddenly fraught. China has fallen far behind on its pledge to expand purchases of U.S. goods and services in 2020 and 2021 by a combined $200 billion above to 2017 purchasing levels. Through June, China’s 2020 imports from the U.S. were about $40 billion, or less than a quarter of the targeted full-year amount agreed to under the deal, according to calculations by the Peterson Institute for International Economics.

With the U.S. presidential election less than three months away, Chinese President Xi Jinping faces a tricky decision. Does he try to ramp up purchases to put China’s imports back on schedule? Or should he dither, blame the pandemic for the lag, and promise to close the gap next year?

Either choice will influence electoral outcomes—though by how much is hard to parse. And which is in China’s interest?

The conventional wisdom is that a dramatic increase in Chinese purchases of U.S. soy beans would send grateful farmers in key states like Wisconsin and Iowa rushing to the polls to vote for Trump. If the purchases don’t materialize, in theory, that enables Democratic rival Joe Biden to claim that Trump got played.

But those assumptions may be flawed. A thoughtful essay by Dan Kaufman in the latest New Yorker suggests smaller farmers are disillusioned with Trump and unlikely to vote for him in any case.

If Xi really can influence the outcome of the U.S. election, which candidate would he prefer? To hear Trump tell it, Xi is rooting for Biden who’s so soft on China that he’s practically The Manchurian Candidate. “If I’m defeated, China will own the United States,” Trump told conservative radio host Hugh Hewitt this week. “You will have to learn to speak Chinese!“

An assessment released by American intelligence officials last week concluded that while Russia is actively meddling in the U.S. election in an effort to benefit President Trump, China wants Trump out. But the assessment, according to the New York Times, found that Beijing was “weighing whether to take more aggressive action in the election.”

Even so, many foreign affairs analysts concur with former Singapore diplomat Kishore Mahbubani, who argued in a recent Eastworld Spotlight that Trump, for all his anti-China bluster, is the devil Beijing knows—and has diminished U.S. leverage over China by picking fights with virtually all of America’s traditional allies.

Several recent reports suggest Xi, while not quite reverting to Deng Xiaoping’s old maxim of “hiding China’s brightness,” is trying to keep the conflict with the U.S. from escalating further by, among other things, muzzling some of the nation’s more belligerent “Wolf Warrior” diplomats. On Monday, Foreign Ministry spokesperson Zhao Lijian, who has been a harsh critic of U.S. policies in the past, struck a conciliatory tone. “China is always ready to work with the United States,” he said. “We are prepared for a tough slog, through thick and thin, to pass this crisis in U.S.-China ties.”

Wall Street Journal correspondent Lingling Wei argues that, no matter which candidate wins in November, Xi is bracing for a protracted standoff with the United States. She notes that, in a series of speeches to government audiences since May, he has floated an idea called “domestic circulation,” laying the rhetorical groundwork for a major policy shift aimed at lessening China’s dependence on foreign markets, investment, and technology.

This week’s Eastworld Spotlight is a conversation with Anthony Tan, co-founder and CEO of Grab, one of Southeast Asia’s most dynamic tech players. Grab began as a ride-hailing venture and, since acquiring Uber’s operations in Southeast Asia, has blossomed into an “everyday super-app” offering consumers a wide array of different services on a single platform. While American counterparts like Uber and Lyft have been staggered by the pandemic, Grab reports unusual success in reassuring riders that its cars and motorbikes are clean and safe. In recent months, the group has rapidly expanded its food delivery, financial services businesses, and other businesses and has seen a quantum leap to cashless. Anthony also has a vivid account in the Commentary section about how the pandemic has accelerated innovation among Southeast Asia’s small and medium-sized businesses.

More Eastworld news below!

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com. 

Eastworld news

King of the chips

Taiwan Semiconductor Manufacturing Company (TSMC), the Taiwanese chipmaker, controls half of the world’s contract chip manufacturing; its chips are in a vast array of devices, from Chinese Xiaomi phones to American missiles. The company is currently trying to navigate an escalating feud between its two largest markets, the U.S. and China. The company, however, is benefitting from a recent stumble from one of its main competitors, Intel, and is hoping that its highly-effective and secretive processes for developing chips will allow it to maintain its dominance. Fortune

We (can't) chat

For many of WeChat’s 19 million users in the U.S., Trump’s proposed WeChat ban threatens their only connection to friends and family in China. In China, WeChat is nearly ubiquitous and most social networks like Facebook, Twitter, and Instagram are blocked. “[WeChat is] the only app that we can download and [family in China] can download,” one New York City resident told Fortune’s Naomi Xu-Elegant this week. “How else are we going to communicate with them?” Fortune

The rise of the e-yuan

This week, Fortune's Robert Hackett documents China's efforts to create an e-yuan, a digital currency that the government has already rolled out in pilot projects and plans to launch across the country by 2022. Though inspired by decentralized, blockchain efforts like Bitcoin, China's government will have full control over the currency that offers benefits like lower transaction costs and greater financial inclusion. Most important, its rollout may put China years ahead of any other country in the potentially transformative technology. “China is sprinting ahead in a race that few others realize they’re running,” Hackett writes. Fortune

In plain sight

Jio Platforms, India's largest telecommunications firm, has ambitions to become India’s first tech giant, and has raised over $20 billion in the last few months thanks to funding from Silicon Valley heavyweights like Facebook and Google. One investor, Egon Durban, co-CEO of technology investment firm Silver Lake, tells Fortune's Vivienne Walt that Jio is “the world’s greatest private tech company hidden in plain sight.” In Walt’s profile of Jio this week, she dives into the company’s plans for expansion and why American firms have been so eager to grab a foothold in the company. Fortune

A note from Chengdu

In the 1990s and 2000s, Peter Hessler's books on China helped provide the world with a more nuanced window into the large and often misunderstood country. This week, Hessler turns his eye towards China’s experience with COVID-19, providing a textured portrait of how the country has navigated the pandemic. From his vantage point as a professor in Chengdu, a city in southwestern China, Hessler documents students' struggles in navigating lockdowns, the country's complicated efforts to track its citizens amid the pandemic, and how the U.S.'s struggles with the pandemic are viewed in China. The New Yorker

The great floods

On the heels of a pandemic outbreak, China experienced its worst flooding in decades this summer. Torrential rains led to flood waters that submerged entire villages, broke through levees, and even raised concerns over the integrity of the country's famous Three Gorges Dam. Yet experts don't expect the Yangtze River flooding to make a significant dent in the country's economy this year. That's due in large part to the Chinese government's carefully calibrated policies that direct flood waters away from cities and industrial areas and toward farmland and less populated regions. Fortune

Coronavirus by country

New Zealand went 102 days without recording a single locally-transmitted case of COVID-19, giving it one of the world’s most successful pandemic responses. Its streak ended on Wednesday, with the country now recording nearly 20 new cases in Auckland, where authorities have imposed a three-day lockdown. The aggressive measure reflects the country's successful spring efforts, which involved implementing early travel restrictions, lockdowns, and widespread testing and contact tracing efforts. The government suspects the new outbreak may have originated in a refrigerated shipping container that came from abroad, a similar claim to one the Chinese government made in June that linked a Beijing outbreak to salmon imports. Fortune

Markets and movers

Tencent – The Chinese tech giant beat expectations and posted $4.8 billion in second quarter profits on Wednesday, less than a week after the U.S. announced a ban on the company’s flagship super-app WeChat. Tencent said it expects the ban to have a small impact on the company’s bottom line. Reuters

Carlyle Group – The American private equity firm will invest $9.4 billion into Japan in the next three to five years, anticipating that pandemic-inflicted reforms will create new investment opportunities. Nikkei Asian Review

Shell – The Dutch oil major is in talks to purchase a 50% stake in the Indian petrochemical firm Nayara Energy for up to $9 billion, a deal that would provide Shell with a major foothold in the world’s largest growth market. Reuters

Shake Shack – The American burger chain opened its first outlet in Beijing on Wednesday, pushing full steam ahead in expanding in the mainland market amid worsening relations between the U.S. and China. Shake Shack has one outlet in Shanghai and several in Hong Kong. New York Times

Final figure

$51 million

Relatives of three of the top four members of the Chinese Communist Party have purchased homes worth a combined $51 million in Hong Kong over the last few years, according to a new investigation from the New York Times. In particular, the report looks into Li Qianxin, daughter of the third highest ranking official in China’s government Li Zhanshu. She recently purchased a $15 million Hong Kong home. This year, Li Zhanshu oversaw China’s passage of the new national security law for Hong Kong, which has quashed the city’s protest movement. The Times investigation alleges that “as the party now takes a stronger hand in running Hong Kong, the top leadership in Beijing has a vested interest, politically and personally” in the city's fate. New York Times