This week is an important one for US-China relations, with Xi Jinping visiting San Francisco for the Asia-Pacific Economic Cooperation summit and signs of lessened tensions following the Xi-Biden meeting Wednesday near Stanford University. With the aim of sharing information from this eventful week more widely, this edition of Trade War is free to read in its entirety. Enjoy ~
Welcome to the 190th edition of Trade War.
Chinese leader Xi Jinping and US president Joe Biden meet for four hours on sidelines of APEC, agree to resume military exchanges, work together to control fentanyl production, and jump start people-to-people exchanges. Worries over weak economy explains Xi’s conciliatory approach.
Xi sweet talks CEOs at banquet telling them China wants to be their “partner and friend,” in a new Beijing charm offensive. And Biden calls Xi a dictator in response to reporter’s question, ruffling Beijing’s feathers (and causing Secretary of State Antony Blinken to wince.)
China’s economy sends mixed signals adding to likelihood of more stimulus. China to try Singapore-style social housing to rescue its struggling property sector. And Taiwan’s two opposition parties join forces to contest DPP in next January’s presidential election.
Why the Xi-Biden meeting mattered
While some have criticized the outcome of the Xi-Biden meeting as only having achieved “baby steps,” I explain why I think the meeting mattered a lot—even more so given that tensions in the U.S.-China relationship are far from going away—in this appearance on Scripps News “Morning Rush.”
Xi puts on friendly face as economy slumps
“The global economy is recovering, but its momentum remains sluggish,” Xi said just before his meeting with Biden at the APEC Summit.
But it’s not the global economy, China’s leader is losing sleep over. The weak economy that Xi is really worried about is China’s, and that’s driving his conciliatory approach in San Francisco, I write in an analysis for the Atlantic Council.
“Indeed, the fact that Xi met at all with Biden, and the degree to which he has offered concessions (the fentanyl deal and resumption of military-to-military exchanges, to cite two examples), has everything to do with the protracted slump now ongoing in China’s economy.
“A wake-up call signaling just how bad things have gotten was the shocking announcement earlier this month, that foreign direct investment fell in China in the third quarter, the first time in a quarter century that companies have pulled money out of the country.
“As things turn south for its own private firms (whose confidence has fallen to its lowest since 1978, according to one well-placed Chinese financier), Xi knows China needs multinationals to keep investing and creating jobs (particularly important for Chinese youth, more than 20 percent of whom in urban areas were unemployed, according to the last-released figures). And for now, that’s not happening as businesses from around the world, including American ones, have turned sour on the Chinese market.
“Xi’s worries about the parlous state of the Chinese economy are also behind his decision to join a banquet in his honor with corporate chieftains, including Apple’s Tim Cook, BlackRock’s Larry Fink, and Visa’s Ryan McInerney, shortly after his meeting with Biden on Wednesday night. So even as Xi doesn’t seem to be getting much in return—the Trump-era tariffs aren’t going away, and the growing curbs on China’s access to advanced technology, including semiconductors, aren’t being reversed—he’s putting on a friendly face for his first visit to the United States in over six years.”
Xi: China is your ‘partner and friend’
China wants to be “a partner and a friend” of the United States, Xi Jinping told American business leaders at the banquet in San Francisco, in an attempt to begin to win back investment from spooked foreign companies.
“In a speech evoking decades of shared history and laden with symbols of warm U.S.-China ties, Xi told a dinner event on the sidelines of the Asia-Pacific Economic Cooperation (APEC) forum that the most fundamental question shaping bilateral relations is whether they the countries are rivals or partners,” report CNN’s Nectar Gan and Juliana Liu.
“If we regard each other as the biggest rival, the most significant geopolitical challenge and an ever-pressing threat, it will inevitably lead to wrong policies, wrong actions and wrong results,” Xi told the audience at the dinner organized by the National Committee on U.S.-China Relations and U.S.-China Business Council, saying that China was ready to be a “partner and friend of the United States.”
China needs to show its “willingness to open” as its economy struggles, says Liu Dongshu, a professor at the City University of Hong Kong.
“China wants to have a better diplomatic, international environment to boost [business] confidence,” Liu says. “This is why China wants to shift its narrative a little bit and wants to be nicer and have a warmer tone and attitude, to signal that China is still a good place to invest.”
“This isn’t a good time, given the state of the economy, to have hostile relations with American businesses and with the United States,” says Dexter Roberts, director of China affairs at the Mansfield Center at the University of Montana. “When the economy goes south, top Chinese leaders start to say: ‘We want to work with foreign businesses and our own private companies.’”
Xi was given a standing ovation by the executives who paid $2,000 to join the dinner, with some shelling out $40,000 for a seat at the table with China’s leader.
‘Galvanizing our peoples into a strong force’
During his address to the CEO dinner, Xi also mentioned that he and Biden earlier in the day had reached an “important consensus” on the goal of promoting “people-to-people exchanges,” in part by increasing direct passenger flights, and welcoming 50,000 Americans to come on study or exchange programs in China over the next five years.
Overall, Xi’s message was that the two countries must work together, and to do that, each one had to respect the others system, despite their differences.
“We, the largest developing country and the largest developed country, must handle our relations well. In a world of changes and chaos, it is ever more important for us to have the mind, assume the vision, shoulder the responsibility, and play the role that come along with our status as major countries,” Xi said.
“I have always had one question on my mind: How to steer the giant ship of China-U.S. relations clear of hidden rocks and shoals, navigate it through storms and waves without getting disoriented, losing speed or even having a collision?”
“Our paths are different, but both are the choice by our peoples, and both lead to the realization of the common values of humanity. They should be both respected.”
In his speech, Xi also seemed to promise to continue sending Chinese pandas to the U.S., noting that “pandas have long been envoys of friendship between the Chinese and American peoples. We are ready to continue our cooperation.” Here is a link from China’s foreign ministry to the full translation of Xi’s speech titled “Galvanizing Our Peoples into a Strong Force For the Cause of China-U.S. Friendship.”
Biden calls Xi ‘a dictator;’ Secr. Blinken winces
When asked by a reporter whether he still sees Xi as a dictator (he described the Chinese leader as one earlier this year in June), Biden lived up to his reputation for occasionally making undiplomatic comments.
"Well, look, he is. He's a dictator in the sense that he's a guy who runs a country that is a communist country, that is based on a form of government that is totally different than ours," Biden said in the press conference immediately following the two leaders’ four-hour meeting.
Biden’s comments were “extremely incorrect and irresponsible political manipulation,” responded Mao Ning, a spokesperson for China foreign ministry. “There are always some careless individuals attempting to sow discord and damage China-U.S. relations, but their attempts will not succeed.”
Check out Secretary of State Antony Blinken’s pained reaction to Biden’s description of Xi as a dictator, in this short video. from CNN.
Mixed economic signals lead to calls for stimulus
China’s economy is delivering mixed signals, with many saying more stimulus is needed, reports Bloomberg News.
While strong growth in retail sales (up 7.6 percent in October) and industrial output (up 4.6 percent in the first ten months of year) both beat estimates, fixed asset investment only grew 2.9 percent, below expectations, pulled down by the struggling property sector.
“This year’s growth target [of around 5 percent] seems to be in the bag already, but it doesn’t look like the government is being too complacent about next year,” says Adam Wolfe, emerging markets economist at Absolute Strategy Research. “It looks like they’re willing to add additional stimulus.”
“China’s headline activity data for October look rosier than the reality. Production and retail sales beat expectations on a year-on-year basis, but this was largely due to comparison with depressed figures from 2022, when the economy was struggling through the end of Covid Zero,” note Bloomberg economists Chang Shu and David Qu. “Overall, the data suggest more policy support is needed and is probably coming.”
According to Bloomberg calculations, the two-year average growth rate of retail sales dropped from 4 percent in September to 3.5 percent last month, less than half the pre-pandemic average of 8 percent.
Retail sales are showing “quite substantial decline. The job market outlook is quite a big challenge,” said Jacqueline Rong, chief China economist at BNP Paribas SA, speaking on Bloomberg TV. “Poor consumer sentiment, as well as the negative wealth effect coming from the property market” are also big factors, Rong added.
China to tap Singapore housing model
As its property sector slump continues, China is moving towards emulating Singapore’s social housing model in hopes of reviving growth.
“Beijing has in recent weeks named two ‘big projects’ as the center of its housing policy: building social housing and renovating run-down inner city districts. The projects have top-level political backing and could soon have 1 trillion yuan ($138 billion) or more of central government support behind them,” reports Bloomberg News.
Beijing is aiming for a “new model” for its real estate sector, with 35 cities participating in a test program, says “Document 14,” a classified plan issued by the State Council, Chinese media has reported. Municipalities with “a large inventory” of private housing, should convert the apartments into public housing, the document says.
“The plan is more of a longer-term structural adjustment in the property sector toward a Singaporean model,” says Betty Wang, senior economist at Australia & New Zealand Banking Group in Hong Kong. “I don’t think it’s just a short-term effort to boost property investment—instead, it’s about China’s 2035 common prosperity goals.”
This is not a new proposal. Former premier Li Keqiang was already talking about shantytown reform at least a decade ago. "Reforming shantytowns is not only an important public welfare project, but also a significant development drive," the State Council said in a 2013 meeting presided over by Li.
Taiwan opposition parties unite for presidency
Taiwan’s two opposition parties are joining forces in a bid to beat the DPP candidate in the upcoming January presidential elections, a move that could have a major impact on Taipei’s relations with Beijing and Washington.
“Taiwan’s main opposition Nationalist Party, which favors closer relations with Beijing, said it would work with a third party founded by a former Taipei mayor to run jointly for the 2024 elections. The long-anticipated deal is expected to bolster the opposition’s chances against Vice President Lai Ching-te, a leading candidate of the ruling Democratic Progressive Party, which has forged tighter ties with the U.S., and is currently leading in the polls,” reports the Wall Street Journal’s Joyu Wang.
“It’s definitely going to be a serious challenge to Lai,” and could create “a big spike in support” for the opposition parties, says Lev Nachman, a political scientist at Taiwan’s National Chengchi University.
“Today, perhaps, is a historic moment,” Ko Wen-je, chairman of Taiwan People’s Party told reporters, referring to the joint ticket with the Nationalist Party or Kuomintang (KMT). “As for the result, we will need everyone’s effort,” he said.
“No matter who is going to take the main position or who will be his deputy, let’s work together hand in hand,” said Hou Yu-ih, the KMT candidate and mayor of New Taipei City.
A poll released Friday by Taiwan’s United Daily News shows DPP candidate Lai’s support falling but still in the lead at 31.1 percent, with 28.7 percent supporting Ko and 22.4 percent behind Hou, in a three-way race.
It is unclear how power will be divided up between the two opposition parties and how far each is willing to go in taking steps to improve relations between Taiwan and China.
“Even if they cooperate, I don’t think we’ve heard the last of the squabbles between them,” Nachman says, citing differences in the candidates personalities.
The two opposition parties failed to agree on Saturday who would lead the ticket in their joint presidential bid, reported AFP.
Notable/In depth
“Digital fentanyl”
“For years, Republicans in Congress have sounded alarms over TikTok, often citing concerns about the platform's Chinese ownership and its access to data. But now, they're arguing that TikTok has put its thumb on the scale for content surrounding the war in Gaza,” while GOP Representative Mike Gallagher who chairs the Select Committee on the Chinese Communist Party, has called the platform “digital fentanyl,” reports WNYC’s “On the Media.”
Listen to this podcast where Drew Harwell, tech reporter for the Washington Post who's written multiple articles about TikTok, expresses skepticism towards the GOP argument that the Chinese company has played a crucial role influencing opinion about the war.
Xi shows off his football skills to Thai PM
Xi shows off his football kicking skills to Thai prime minister Srettha Thavisin, telling him “we won against you due to luck. I really don’t have confidence in our football team.” (China just beat Thailand, 2-1, in a World Cup qualifying round.)
Two things: Xi clearly continues to be disappointed with China’s football prowess, despite the win, and he really likes football. Check out Xi’s moves and his smile in this video.
‘Kicking China while it is down’ not strategic
“Rather than volunteer to take the blame for China’s malaise by announcing unnecessary decoupling policies, Washington should downplay its own role and demonstrate that it is not responsible for China’s present stagnation. Instead of kicking China while it is down, U.S. leaders should hold Beijing accountable for the predictable consequences of its policies and make good-faith efforts to give the Chinese leadership economic advice and opportunities for cooperation,” write Rhodium Group’s Daniel Rosen and Logan Wright in Foreign Affairs.
“Washington must strive to convince the world that China’s current economic challenges are of its own making—the product of excess state intervention and insufficient marketization—rather than inadvertently promote the notion that the United States is responsible. China’s leaders need to understand this, too: the prosperity of 1.4 billion people depends on it. Moreover, nations of the global South contemplating the introduction of some elements of the Chinese development model urgently need to realize why China’s economy is slowing and what the consequences of following its example would be.”
Podcast: What’s next after Xi-Biden meeting?
Bloomberg Economics Chief Economist Tom Orlik and Dexter Roberts, Director of China Affairs at the University of Montana and senior fellow at the Atlantic Council, discuss what comes next after President Biden’s meeting with President Xi Jinping of China, in this Bloomberg Businessweek Radio podcast, with hosts Carol Massar and Tim Stenovec.
The conversation on China starts at 11:00.
Montana picture
November sunset over Missoula, Montana