Trade War

Newsletter 225 - September 1, 2024

Welcome to the 225th edition of Trade War.

Xi Jinping makes nice with talk of “traditional friendship” between Beijing and Washington during Jake Sullivan’s visit, but will it last? While stressing that the two sides must avoid “confrontation or conflict,” the US national security advisor doubles down on tech restrictions on China.

Factories experience fourth month of contraction in August. Investment banks predict China will miss its annual target of 5 percent GDP growth. And cash-strapped localities tout plans to “smash iron pots, sell the steel,” to pay down swelling debt.

China is far from decoupling with world, as growing trade with other markets displaces that with US. And Chinese EV owners worry their connected vehicles could go offline amidst brutal price war.

Notable/In depth ~

• China’s SME banks are “weakest link” in financial sector

• Protests by workers, homeowners, and other disgruntled Chinese grow 18% in second quarter

• “It is time for multinationals to flip the paradigm,” and seek out opportunities in the China market, argues Harvard visiting fellow Mitch Presnick.

Sino-US warming continues but for how long

In a meeting on Thursday with visiting U.S. National Security Advisor Jake Sullivan, Chinese leader Xi Jinping signaled a desire to further improve relations, referring to the “traditional friendship” between the two countries, saying Beijing wants to “maintain the stability of China-U.S. relations . . . [and] improve and take forward the relationship.”

“Xi’s tone suggests an effort by Beijing to try to slow the slide in U.S.-China relations,” reports Politico.

But make-nice efforts are unlikely to lead to longtime amity. While stressing that the two side must ensure “competition doesn’t veer into confrontation or conflict,” the U.S. national security advisor also reiterated the importance of tech restrictions on China, something sure to have infuriated Xi and other senior Chinese officials.

“The United States will continue to take necessary action to prevent advanced U.S. technologies from being used to undermine our national security,” Sullivan said in a press conference at the conclusion of his visit to China’s capital where he also met with Chinese Foreign Minister Wang Yi and General Zhang Youxia, Vice Chair of the Central Military Commission. The U.S. is presently negotiating with Japan and the Netherlands to strengthen controls that would further limit China’s ability to produce advanced semiconductors.

And in a sign of continuing tensions over one of the biggest flashpoints between the two countries, CMC Vice Chair Zhang accused the U.S. of “military collusion” with Taiwan, referring to the island’s future as “the first insurmountable red line in Sino-US relations,” according to a Chinese Defense Ministry statement (Chinese.)

Xi: “Stability and coordination, not division and confrontation”

“President Xi pointed out that in this changing and turbulent world, countries need solidarity and coordination, not division or confrontation. People want openness and progress, not exclusion or regress. As two major countries, China and the United States should be responsible for history, for the people and for the world, and should be a source of stability for world peace and a propeller for common development,” China’s Ministry of Foreign Affairs said in a statement after Xi and Sullivan met in the Great Hall of the People on August 29.

“China’s commitment to the goal of a stable, healthy and sustainable China-U.S. relationship remains unchanged, its principle in handling the relationship based on mutual respect, peaceful coexistence and win-win cooperation remains unchanged, its position of firmly safeguarding the country’s sovereignty, security and development interests remains unchanged, and its efforts to carry forward the traditional friendship between the Chinese and American people remain unchanged.”

Xi also asked Sullivan to “pass on his regards to President Biden,” expressing his willingness to “stay in touch with President Biden to guide and steer the development of China-U.S. relations.” Check out the full MOFA readout on the meeting.

Sullivan: “Competition doesn’t veer into confrontation or conflict”

“The United States will continue to take necessary action to prevent advanced U.S. technologies from being used to undermine our national security without unduly limiting trade or investment,” Jake Sullivan said in a press briefing in Beijing, characterizing the U.S. approach as “de-risking, not decoupling.”

“I also raised our concerns [while in Beijing] about steps that the PRC has taken with respect to the intersection of economics and national security and the impact that that has had on Western businesses and on supply chains,” Sullivan said.

“The most important thing . . . is overall responsible management of this relationship so the competition doesn’t veer into confrontation or conflict. That is ongoing work,” Sullivan added.

In the presser, Sullivan also commented on topics ranging from China’s support for Russia’s defense industrial base, tensions in the South China Sea, including between China and the Philippines, Canadian tariffs on Chinese EVs, and Vice President Kamala Harris’ previous record of dealing with China. Check out the full transcript.