Caixin View: China-U.S. Trade Tensions Cool But Still Simmering After Xi Speech

China's President Xi Jinping struck a conciliatory tone on trade at the Boao Forum for Asia earlier this week, a sign that Washington's threat of imposing tariffs on Chinese exports is having an effect. Even so, policymakers gave away little that was new.

Xi promised to lower tariffs on car imports, impose harsher punishments on intellectual property (IP) rights violators and accelerate the opening-up of the financial sector.  Although Ministry of Commerce officials denied these pledges had anything to do with U.S. pressure, Xi's positive tone, given the heightened trade tensions, was likely intended as a placatory gesture.

The following day, central bank Governor Yi Gang fleshed out more details in a panel discussion at the forum. He said most of the proposed policies related to financial-sector opening would be implemented by the end of June, and that others would be put in place by the end of the year. See Caixin's breakdown here. Most of these pledges aren't new, but the clearer timetable set out by Yi adds credibility. Caixin has also learned that Yi was not originally planning to talk about these opening up measures, but the positive reaction to Xi's speech, and a desire to show that China was acting quickly on its promises, changed the governor's position.

Xi didn't refer in his speech to Made in China 2025, the country's high-tech manufacturing strategy, and another source of tension with the U.S. China's aim of dominating strategic industries including robotics, biotech, and new materials is of great concern to the U.S.— the initial tariffs on $50 billion of Chinese imports unveiled last week focused on several industries supported by this industrial policy. White House statements on the proposed additional $100 billion worth of tariffs also mentioned Made in China 2025. Concerns that China is stealing U.S. technology, or forcing it to be transferred to Chinese companies, are a major part of current frictions—hence Xi's reference to improving protection of IPR. Bloomberg reported this week that talks between Beijing and Washington aimed at lowering tensions and avoiding a tariff war broke down over U.S. demands that China stop subsidizing high-tech industries.

Beijing's firm support for Made in China 2025 is unlikely to shift, as the policy is central to the country's long-term development strategy. Although Xi did promise better IPR protection, he wasn't only aiming at placating foreign firms. This will also be crucial for China's own drive to improve innovation by domestic companies.

So despite Trump's tweet that he was “very thankful” for Xi’s promises, the Chinese president's speech at Boao and comments from other Chinese officials only really addressed one aspect of bilateral tensions, and said little that was really new even on those points. But the tone at the forum was encouraging. Even if nothing much was given up at Boao, we still think an agreement will likely be reached before tensions spiral into a real trade war.

Weekly Roundup

Macro & Finance

China saw a monthly trade deficit of nearly $5 billion in March, customs data showed Friday, marking the first monthly deficit since February 2017; the country’s total trade surplus for the first quarter shrank by 19.7% compared to the same period last year, to $48.4 billion.

Consumer inflation slipped to 2.1% in March from an over four-year high in February, while the rate of year-on-year growth of producer price index moderated for the fifth straight month, government data showed Wednesday.

Fallen politician Sun Zhengcai on Thursday pleaded guilty to charges of taking over 170 million yuan ($27 million) in bribes.

The State Administration of Foreign Exchange (SAFE) said Wednesday that it is considering reforming the Qualified Domestic Institutional Investor (QDII) mechanism, in a move to further liberalize the country’s capital market.

SAFE is also considering allowing overseas fund managers to raise more money from Chinese institutions and high net-worth individuals to invest abroad under the Qualified Domestic Limited Partnership (QDLP) program, which would be the first increase since the trial program was launched almost five years ago.

China’s securities regulator announced it would quadruple the daily limits on trading through the stock links that allow mainland investors to buy Hong Kong-listed shares and vice versa.

The State Council is embarking on a major drive to improve the quality of statistics related to the country’s financial sector as policymakers intensify efforts to curb risks in the economy, according to a circular it released on Monday.

Several provinces in China have started to cut government-funded investment projects in response to calls from the country’s top leaders to curb local government debt and rein-in financial risks, with the central province of Hunan latest to take action.

The newly merged banking and insurance watchdog CBIRC unveiled a series of detailed rules to regulate financing guarantee companies on Monday.

Companies

A slew of major Chinese social media platforms have removed content deemed to “violate core socialist values” as authorities tighten their grip on online information. In a related move, four popular Chinese news apps, including top news aggregator Jinri Toutiao, have been removed from major mobile app stores. A joke sharing app run by Jinri Toutiao was also shut down indefinitely.

A unit of debt-ridden Chinese conglomerate HNA Group has finalized terms to acquire Dangdang Inc., in a deal that values the e-commerce firm at 7.5 billion yuan.

Three Chinese education companies listed on overseas bourses in the last three months: Wisdom Education International, China Yuhua Education, and Minsheng Education. At least 25 private education firms from the country have gone public overseas since 2004. Here's Caixin's overview of this trend.

Calendar

April 17: National Bureau of Statistics (NBS) releases GDP and fixed-asset investment data for Q1 2018 and March data for retail sales and industrial production

April 18: NBS releases March data for property prices in 70 major cities