Location China China

China, U.S. Officials Meeting to Discuss Ending Trade War

With the 90-day countdown clock on the U.S.-China trade war “truce” winding down, negotiators for both countries sat down today for renewed talks aimed at ending the dispute between Washington and Beijing.

Although the talks so far have involved mid-level government officials from both sides, China sent Vice Premier Liu He, President Xi Jinping’s top economic adviser, to attend the first day’s meeting. This development strongly suggests Beijing is putting a high degree of importance on the talks.

These meetings, being held at China’s Ministry of Commerce, are the first face-to-face talks between the two sides since Xi and President Donald Trump met in Argentina at the G20 summit and agreed to the current de-escalation of the trade war. It has been previously reported that Chinese Vice President Wang Qishan may meet with Trump on the sidelines of the World Economic Forum in Davos, Switzerland, later this month.

Late last week, the People’s Bank of China announced a 1-percent decrease in the required reserve ratio—the amount of money Chinese banks must hold in reserve rather than lend out or invest—to improve liquidity. While the announcement was expected, it was seen by market observers as a very positive development.

However, in late December, the Central Economic Work Conference—the Chinese body responsible for managing the growth of the country’s economy—changed the official monetary policy from “prudent and neutral” to “prudent with appropriate looseness and tightness.” The new language mirrored Beijing’s policy ahead of the 2016 Shanghai Accord.

That coordinated response by the G7 countries and China was believed to have been responsible for avoiding a potentially catastrophic “bear” market, but featured substantial “easing”—which many analysts say have contributed to the current economic downturn. It is believed this move was made as a backstop should the talks that began today fail to result in the desired outcome for both sides, which they agree would be far more painful for China than the U.S.

Those sentiments were echoed by Commerce Secretary Wilbur Ross this morning when he told CNBC:

“[The trade war] certainly has hurt the Chinese economy. Look at this morning’s paper. Rate of growth in GDP heading down. Rate of growth in retail sales heading down. Rate of growth in capital investment heading down.”

Ross said this was expected before the tariffs regime began, adding that for China, the biggest problem is the need to quickly create millions of jobs for Chinese workers who are coming out of the rural villages to look for work. They aren’t finding those jobs and are returning home, creating a “very disgruntled group of people.”

This, he said, would give the U.S. the leverage it needs to get concessions from Beijing.

All but assuring the outcome of the current talks will be less than spectacular, however, the Pentagon announced today that it conducted yet another “freedom of navigation” exercise involving the guided missile destroyer USS McCampbell. The American vessel sailed within 12 nautical miles of the Paracel Island chain—signaling Washington’s rejection of Chinese claims of sovereignty over the islands.

In response, Chinese Foreign Ministry spokesman Lu Kang said:

“We urge the United States to immediately cease this kind of provocation. We have already made a presentation to the American side in this regard.”

Lu said the American warship entered the area without Beijing’s permission and that China sent a ship of its own to warn it away from the island. He demanded the U.S. stop the provocations, noting his country reserved the right to “take all necessary measures” to protect its “security and sovereignty.”

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