What are the implications of the virtual summit held between President Joe Biden and his Chinese counterpart, Xi Jinping? And what does it mean for markets?
The three-and-a-half-hour video call was longer than expected, and warmer than expected. There's no doubt it is a rapprochement. It may hint at a change in economic policy, stressing as Biden did the "unfair trade and economic practices" from China. There's the need to protect American workers, Biden said, presumably from Chinese subsidies that create artificially low prices, and any kind of intellectual-property theft. No mention of tariffs.
The risks raised were political, not economic, with Biden highlighting the mutual challenge presented by North Korea, Afghanistan and Iran, and raising U.S. concern about human rights in Xinjiang, Tibet and Hong Kong. Taiwan, well, yeah that remains Taiwan, the island nation that dare not call itself a nation.
Biden notes the need for "common-sense guardrails" to make sure that "competition does not veer into conflict, and to keep lines of communication open," in the U.S. readout of the chat. The two leaders talked of the urgency of working together on the climate crisis, global energy supply, and health security. It sounds a lot like getting the gears of business and market access to grind more smoothly while making sure the militaries stay in check.
The Chinese version of the call, which happened Tuesday morning Beijing time, is a lot longer. Xi waxed poetic in saying China and the United States are like two ships that should sail alongside each other, breaking waves together, with a firm hand on the tiller to prevent any loss of speed or direction, and certainly any collision. "The right thing to do is to choose mutual benefit over zero-sum game or the I-win-you-lose approach," the Chinese statements says.
The warmth is in stark contrast to the decidedly frosty Alaskan start to relations under the Biden administration in March, when a U.S. team led by Secretary of State Antony Blinken held the first face-to-face meeting with their Chinese equivalents in an Anchorage hotel. Both sides launched into that rancorous meeting with a list of grievances, the haranguing by China's top diplomat, Yang Jiechi, notable by how strident it was.
Xi and Biden, on the other hand, raised issues that are points of pain (Taiwan!) but jointly stressed the need for cooperation. There was no joint statement, just as there was not in Alaska, so we can't say there was joining of minds or clear resolution. But the convivial chat has certainly re-set the tone of the conversation.
Chinese stocks have had a very muted but mildly positive response. In mainland China, the benchmark CSI 300 index closed Wednesday ever so slightly in the black, with a 0.1% gain, having dipped into the red earlier in the day. There was a 0.6% blip higher in mainland markets on Tuesday morning as investors had their first chance to respond to the virtual summit, but that optimism didn't even last throughout the day.
Hong Kong's Hang Seng Index fell 0.4% on Wednesday, slightly less than the decline in Japan, South Korea and Australia. That snapped a week-long streak of gains.
We can certainly say that the Biden-Xi conference call did not hurt markets, or the prospects of either nation. Stocks hit by U.S.-China tensions may get a gradual lift. To date, Biden has not departed from the strong-arm tactics deployed by the Trump administration. But there are indications it soon will.
U.S. Treasury Secretary Janet Yellen said at the start of the month that China must live up to its trade commitments. But she quite rightly noted that high tariffs are paid by U.S. consumers, so lowering tariffs would help to combat inflation. If China lives up to its promise to buy US$200 billion extra in U.S. goods and services, Yellen said the U.S. could consider lowering some freight tariffs on Chinese products.
U.S. Commerce Secretary Gina Raimondo is currently on her first official visit to Asia this week, taking her to Japan, Singapore and Malaysia. She said at a Singapore conference that the United States is likely to launch a formal process to create a "proper economic framework" in Asia. I don't know what that means, either - she said it won't involve joining the new version of the Trans Pacific Partnership, which Trump pulled out of literally on Day 1. It will involve "friendshoring," she said, suggesting a U.S. desire to drive trade and investment to Asian allies.
The Biden-Xi video summit was necessary because Xi has not left China for almost two years, the vast majority of that time spent in Beijing. He has been busy on the home front. Shortly after the Biden summit, the Chinese Communist Party released a historic resolution that is only the third of its kind, placing Xi on a lofty statue pedestal alongside Mao Zedong, the founding father of Communist China, and Deng Xiaoping, who oversaw its opening up and shift toward a market economy.
Xi is preparing to seek his inevitable re-election at a once-in-five-years Communist summit late next year, likely in November. He is poised to do so, having eliminated term limits so he can continue into an unprecedented third five-year term as president. But he still needs to unite enough of the various rival factions within the Chinese Communist Party to win what's always a unanimous vote. The resolution cements Xi Jinping. Thought as the genius centerpiece of the CCP's official doctrine, and identifies Xi as the "core leader" without whom the country's economic, political, social and foreign-policy successes would not have been possible. Mao gave China freedom; Deng gave it prosperity; Xi gives it strength.
Xi is of course projecting strength by getting the "leader of the free world" on the videophone. Talking face-to-face with Biden goes down great with a Chinese public desperate to be taken as a powerful force on the world stage. Job done on that front, when you can kick off the conversation by calling Biden your "lao peng yao," or "old friend."
That particular vocal salvo won't have been so welcome on Biden's end, who flatly denied in June that he and Xi are friends. When asked by a reporter whether he might call Xi up "old friend to old friend," he replied testily "Let's get something straight. We know each other well. We're not old friends. It's just pure business."
Biden has a tough tightrope to walk, given the bilateral "tough on China" mood prevalent throughout Washington. Biden stressed his ties with Xi on the campaign trail, noting that as vice president in the Obama administration he likely spent more time with Xi than any other world leader. It's worth noting that in translation, "lao peng yao" may more closely translate as "long-time associate" or "colleague" rather than denoting any true heart-to-heart kinship.
White House spokesperson Jen Psaki was even forced to re-stress this point after the virtual summit. "I can confirm," Psaki said, "he still does not consider him an 'old friend,' so that remains consistent."
Trump forced the Chinese to the negotiating table through brute-force tariffs. His stated aim to redress the trade deficit with China has failed: it has since increased in size. The main accomplishment, the "Phase One" trade pact, saw China agree to buy more goods from the United States, but China has not lived up to its commitments. That is understandable given the dramatic effects of the COVID-19 pandemic, which have upended trade everywhere and are still jamming up supply chains the world over. But it is also par for the course with China, which signs agreements when it suits their ends and often does not follow through.
See China's commitments on acceding to the WTO in 2001, many of which have yet to be fulfilled two decades later. See China's commitments to maintaining the way of life in Hong Kong, now a shell of its former self, with a "thought police" mainland clampdown on freedom of speech, representation, assembly, you name it. Here in Hong Kong, we have been lied to, and royally let down by the local puppet government and the string pullers in Beijing.
Biden and Xi spoke on the phone in September, a brief chat that was necessary as I outlined at the time because there was literally no communication going on at the ministerial or lower levels. We saw that there has been some progress since, with a joint U.S.-China agreement at the COP26 conference to "enhance ambition" on climate change, and work together to cut emissions. China for the first time committed to reduce methane, and the pact between the world's two biggest polluters, led by climate-change envoys John Kerry and Xie Zhenhua, came as a surprise to those attending in Glasgow.
Expect further progress after this week's virtual summit. U.S.-China relations were at a historic low, so it doesn't take much to raise them. But companies affected by disrupted trade between the two should soon benefit from this thawing.