BEIJING (BLOOMBERG) - Trade talks between the world's biggest economies broke down last week after the Trump administration demanded that China take steps to curtail support for high-technology industries, a person familiar with the situation said.
Mr Liu He, a Vice-Premier overseeing economics and finance, told a group of officials last Thursday (April 5) that Beijing had rejected a United States request to stop subsidising industries related to its "Made in China 2025" initiative, the person said.
The US has accused China of using the policy to force companies into transferring technology in areas such as robotics, aerospace and artificial intelligence.
The US demands came after Beijing offered to narrow the trade deficit by US$50 billion (S$65 billion), including by importing more liquefied natural gas, agricultural products, semi-conductors and luxury goods, according to the person.
The plans also included opening the financial sector at a faster rate and giving US companies more access to China's booming e-commerce market, the person added.
Mr Liu said President Xi Jinping was ready to fight back hard if President Donald Trump wanted a trade war, said the person, who asked for anonymity to speak about confidential discussions.
China was open to talks with the US, but would not initiate them under the current conditions, the person said, citing Mr Liu.
Mr Trump expressed optimism on Monday about a deal with China, saying his administration would probably resolve a dispute that has roiled financial markets and raised fears of a major economic conflict between the world's biggest economies.
At a regional economic forum in Boao, Hainan on Tuesday, Mr Xi pledged a "new phase of opening up". He reiterated plans to allow more foreign participation in sectors like automobile manufacturing and banking, and said China would strengthen measures to protect intellectual property rights. His speech lifted stocks in Asia and US equity futures.
Mr Xi also called on countries to export high-technology goods to China, which has been a point of contention with the US. A commentary in the official People's Daily after the speech said Beijing would never open at the expense of its interests - a signal that it would continue supporting "Made in China 2025".
A White House official who watched Mr Xi's speech welcomed his remarks on intellectual property while saying that actions speak louder than words. Mr Trump's administration was unified in the view that US jobs were endangered by what it called China's forced technology transfers and state-directed intellectual property theft, the official said.
The State Council Information Office, which represents China's central government, did not reply to faxed questions on Monday on US trade talks. The White House had no comment on specifics of the discussions, but an administration official said China should change its behaviour and take action to change the trajectory of its trading relationship with the US.
The remarks by Mr Liu - who visited Washington in February and is taking the lead on the government's response to Mr Trump's trade moves - suggest that the dispute would not be resolved easily. The meeting was held before Mr Trump instructed officials to consider tariffs on an additional US$100 billion in Chinese imports, bringing the value of the nation's products set for higher duties to about US$150 billion. The US' bilateral trade deficit was US$375 billion last year.
China vowed a harsh response to Mr Trump's latest threat, helping to spur a selloff that prompted the S&P 500 Index to fall 2.2 per cent last Friday.
Mr Geng Shuang, a Foreign Ministry spokesman, said on Monday that it was "even more impossible" for trade talks to take place under the current environment.
"This trade conflict was initiated by the US alone and it is entirely the one to blame," he said. "The US is wielding the big stick of trade sanctions while keeping saying they are willing to talk. I am not sure who the US is putting on such acts for."
China is considering offering major concessions on trade and investment to the European Union and countries such as Japan and Mexico, the person said. The US is involved in trade spats with those economies.
In his remarks on Tuesday, Mr Xi sought to calm any US fears that China aimed to challenge its supremacy. Mr Trump's administration last year labelled both China and Russia "rival powers".
Said Mr Xi: "Regardless of the extent of development, China will not subvert the current international system, nor will it seek to establish spheres of influence.
"China has always been a builder of world peace, a contributor to global development, and a defender of the international order."