China's top negotiator cautiously optimistic about phase one deal with US

Bloomberg Beijing | Updated on November 21, 2019

China’s chief trade negotiator said at a dinner on Wednesday night that he was “cautiously optimistic” about reaching a phase one deal with the US, even as talks continue to stretch out amid tensions over Hong Kong and other issues.

Vice Premier Liu He made the comments in a speech in Beijing, according to people who attended the dinner and asked not to be identified. He also explained China’s plans for reforming state enterprises, opening up the financial sector, and enforcing intellectual property rights -- issues at the core of US demands for change in China’s economic system.

Separately from the speech, he told one of the attendees that he was “confused” about the US demands, but was confident the first phase of an agreement could be completed nevertheless.

Since President Donald Trump announced the phase one deal a month ago, markets have been whipsawed by comments from both sides, first indicating progress, and then the opposite. Just on Wednesday, Trump said China wasn’t “stepping up to the level that I want.”

The MSCI Asia Pacific Index is heading for its biggest fall in almost three months and S&P 500 futures slid, though moves eased after Bloomberg published news of Liu’s comments. Bond yields pared declines and the yen trimmed gains.

If efforts to reach a phase one deal fail before December 15, Trump has threatened to impose 15% tariffs on some $160 billion in imports from China.

Hong Kong protest

Liu’s comments on Wednesday came before the House voted 417-1 for legislation supporting Hong Kong protesters that has already been unanimously approved by the Senate. It could go to Trump as soon as Thursday and he plans to sign the bill, a person familiar with the matter said.

Liu was speaking at a dinner before the New Economy Forum. The Forum is being organised by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News.

While the Hong Kong bill is a negative factor for the phase one deal, China still may be able to reach an agreement with the U.S. this year, said Zhang Yansheng, who previously worked at the National Development and Reform Commission, the country’s top economic planner.

“The optimistic view is that the phase-one deal can be reached within this year, and a more pessimistic one is that the first phase will be dragged to some point next year,” said Zhang, who is now chief researcher at the China Center for International Economic Exchanges. “I think if there are no disruptions such as uncalled-for tweets or remarks, there is the probability of the phase-one deal being reached this year.”

Policy changes

Speaking at the forum Thursday, Vice President Wang Qishan said China would follow through on policy changes despite facing serious challenges at home and aboard. He said the country would continue to let the market play a “decisive role” in the allocation for resources and stick to the path of peaceful development.

“Between war and peace, the Chinese people firmly choose peace. Humanity cherishes peace,” Wang said in the keynote address. “We should abandon the zero-sum thinking and cold war mentality.”

While the phase one deal remains uncertain, trade experts say frictions between the world’s two biggest economies will continue regardless of that outcome.

“Tactical shifts may de-escalate tensions in the short term but will not resolve fundamental differences which can no longer be papered over,” said Charlene Barshefsky, who negotiated China’s entry into the World Trade Organization under President Bill Clinton. “We are at an inflection point. No outcome is inevitable but two decades of careful management of the relations between China and the West have run its course.”

Published on November 21, 2019

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