After riding out trade war with Trump, Xi strikes optimistic tone

Problems and challenges remain for Chinese President Xi Jinping, but the Phase One deal China and the US plan to sign on Jan 15 gives him reason to accentuate the positive.
Problems and challenges remain for Chinese President Xi Jinping, but the Phase One deal China and the US plan to sign on Jan 15 gives him reason to accentuate the positive.PHOTO: AP

BEIJING (BLOOMBERG) - With China on the verge of signing a deal with United States President Donald Trump to at least temporarily defuse a nearly two-year trade war, Chinese President Xi Jinping is projecting confidence.

After he warned last year about threats to the Communist Party's rule and "changes unseen in 100 years", Mr Xi began 2020 touting "extraordinary Chinese splendour and Chinese strength".

"In the face of severe and complex domestic and foreign situations and various risks and challenges, we have been able to move forward firmly," the Chinese president told party leaders last week.

Problems and challenges remain for Mr Xi, but the Phase One deal that the world's biggest economies plan to sign on Wednesday (Jan 15) in Washington gives him reason to accentuate the positive.

While party leaders still face a slowing economy, surging debt and new challenges in Hong Kong and Taiwan, the trade agreement has at least given them some certainty that Mr Xi can manage Mr Trump's penchant for diplomatic brinkmanship.

"China's leaders are just happy to have a deal instead of wasting so much energy on arguments and publicity," said Mr Charles Liu, a former economic negotiator with China's United Nations delegation and founder of Hao Capital, a private-equity fund. "They are more confident than ever in how to handle President Trump because his behaviour is almost becoming a known quantity.

"Now you can pretty much see that whatever bluster there may be, it doesn't necessarily come with a bite," he said.

The deal will reportedly commit China to buying some US$200 billion (S$269 billion) of US goods, as well as respecting intellectual property rights and not manipulating its currency. The agreement puts off more sensitive discussions such as the state subsidies and market protections that China has relied on to nurture a growing club of global corporate champions.

YUAN STRENGTHENS

The US will consider additional cuts on tariffs affecting US$360 billion of imports based on China's compliance with the Phase One deal after the election later this year, people familiar with the matter told Bloomberg.

Treasury Secretary Steven Mnuchin, speaking to reporters on Tuesday evening, denied any connection between tariff relief and the election, and said any reduction in duties would depend on a deal in phase two of trade talks.

 
 
 
 

Although repeated setbacks in talks between the two sides have fuelled scepticism about the longevity of the truce, investors are also optimistic: The yuan has strengthened to a five-month high against the dollar.

The country's flagship English-language newspaper, the China Daily, even hailed a new "spirit of modus vivendi", or peaceful coexistence with the US.

Communist Party leaders have other reasons to smile as 2020 begins. The economic slowdown has showed signs of stabilising - economists upgraded their 2020 growth forecasts to 5.9 per cent - while the historic pro-democracy protests in Hong Kong that erupted last year have decreased in both frequency and violence.

"The list of challenges Xi faces in 2020 is undoubtedly long, but from his perspective, so too are the opportunities stemming from declining global leadership and influence of the US, whether real or perceived," said Mr Jude Blanchette, Freeman chair of China Studies at the Centre for Strategic and International Studies.

'ALL TACTICAL'

The trade deal gives China confidence that it can weather Mr Trump's pressure campaigns by carefully calibrating retaliation and avoiding direct criticism of the US leader. Meanwhile, much of Mr Trump's attention in the new year has gone towards a looming impeachment trial in the Senate and a deadly tit-for-tat with Iran.

"The Iranian situation is a very good indication of how Trump does his business," said Mr Charles Liu of Hao Capital. "You can pretty much read into President Trump's principal objectives. They're pretty much all tactical. He's not an ideologue."

While Mr Trump faces a tough re-election battle after becoming the third US president to get impeached, Mr Xi's domestic position appears as strong as ever.

The Communist Party's elite Politburo last month dubbed Mr Xi the "people's leader" - a term once used to describe Mao Zedong - after previously agreeing to remove presidential term limits and enshrine his name in the Constitution.

PROTRACTED STRUGGLE

The trade detente can only help as Mr Xi prepares for the party's next twice-a-decade congress in 2022, which will determine whether he will continue to lead the country for the foreseeable future.

 

This year, Mr Xi is likely to "step up his campaign to hold on to the leadership of the ruling party", according to a report by Mr Tom Rafferty, principal China economist for the Economist Intelligence Unit.

The recent pause in tensions is all the more welcome, given the growing consensus in both Beijing and Washington that the two powers are headed for a long-term period of strategic struggle. While celebrating a small victory, Chinese policymakers are girding for a protracted conflict.

"China is now faced with lots of challenges and many of these challenges have their origins in Washington," said Mr Gao Zhikai, a former Chinese diplomat and interpreter for former Chinese leader Deng Xiaoping.

"Whether it's Xinjiang, Hong Kong, Tibet or the South China Sea - you name it, you always see the increasing fingerprint of the United States."