Sep 6, 2019

A Trade Deal Before November 2020 May Suit Beijing Just Fine

Bloomberg News, Bloomberg News

Shipping containers sit stacked at the Yangshan Deepwater Port, operated by Shanghai International Port Group Co. (SIPG), in this aerial photograph taken in Shanghai, China, on Friday, May 10, 2019. The U.S. hiked tariffs on more than $200 billion in goods from China on Friday in the most dramatic step yet of President Donald Trump's push to extract trade concessions, deepening a conflict that has roiled financial markets and cast a shadow over the global economy. , Bloomberg

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Timetables can be fascinating, especially when those used by the leaders of the world’s most-powerful countries appear to be vastly different.

President Donald Trump tweeted this week that any trade deal China might secure from America would get “much tougher” upon his re-election. The insinuation being of course that Beijing should really work something out before November 2020.

That same day, Xi Jinping told a gathering of Communist Party officials in Beijing that the challenges facing China will only get more complicated and that these struggles may persist through at least 2049.

Based on those two data points, it would seem the gap between Trump and Xi is about 30 years wide. Though maybe it’s smaller.

Political continuity and long-term planning are often cited as being among China’s strengths. It’s also led many to suspect Beijing’s ultimate strategy is to wait Trump out and look to deal with a new administration.

But just as Trump has an election looming, Xi too has other considerations he must balance. The economy is an obvious one.

Chinese growth rates are slowing and the outlook is for them to slow even more. A number of economists cut their forecasts for 2020 this week after new tariffs took effect on September 1.

Not only would a trade deal buttress growth, it would also give Beijing the breathing room it needs to deal with the country’s myriad other economic headaches. Dangerous levels of debt, strains in the banking system and a bubbly housing market are a few of them.

And even if China waits out Trump, there’s no guarantee a new administration would be any easier to deal with. Ultimately, there are plenty of reasons why a deal before November 2020 would suit Beijing just fine.

Hong Kong

Chief Executive Carrie Lam made her biggest concession yet to protesters who’ve rocked the city with sometimes violent demonstrations for the past three months. She announced this week that proposed legislation allowing extradition to China, the issue that sparked the unrest, was being formally withdrawn. Hong Kong’s stock market reacted to the news with its biggest surge since 2011, but it didn't satisfy many protesters, who called Lam’s move too little, too late. With more demonstrations called for this weekend, we should have a better grasp by Monday on how much ⁠— if at all ⁠— closer the situation has moved toward resolution.

Huawei Counters

The Chinese tech giant struck back against Washington this week by levying a litany of allegations against the U.S. government. Huawei’s claims included assertions that federal agents have been sent to its employees’ homes and even impersonated staff to try to entrap those working for the company. The stakes are high for Huawei, which said last month its mobile phone unit might lose $10 billion of business because of restrictions on what American technology it can buy. Its lead in 5G wireless equipment is also under threat as the U.S. pushes allies to ban its gear.

Pork Prices

In a sign of how much havoc African swine fever is beginning to wreak in China, the city of Nanning began limiting not only the price at which pork can be sold, but also how much each customer can buy. Because it is a staple of most Chinese dinner tables, the price and availability of pork can be a sensitive issue. That can help explain why it now appears that local governments may have been keeping Beijing in the dark about how serious the problem was. Vice Premier Hu Chunhua, who’s also a member of the 25-member Politburo, late last week called the situation “much grimmer than we have been informed.”

Home Ownership

Also sensitive are home prices. One of the issues fueling Hong Kong’s unrest is that its property market is the world’s least affordable. That’s left many with no hope of owning a home. It’s a problem that’s not lost on policy makers in Beijing, with the Politburo saying as recently as July that China won’t loosen its reins on real estate even if economic growth stumbles. To get a sense of the risks that a further surge in property might engender, take a look at Xiamen. Home prices in this so-called second-tier Chinese city have more than tripled in the past decade. A 1,000-square-foot apartment in Xiamen now costs about the same as it would in London, though local wages are just a quarter of what they are in the U.K. capital.

What We’re Reading

And finally, a few other things that caught our eye: