Who ghosted who?
The trade talks slated for Saturday between China and the United States never took place. They're now delayed indefinitely, with China currently nowhere near the intended level of purchases of U.S. goods and services.
The two sides blamed scheduling conflicts, according to Reuters, and the need for more time. That's so China can follow through on its promise to buy an additional US$200 billion in U.S. manufactured goods, energy, services and agricultural products, above 2017 levels. The Phase 1 deal, which went into effect in February, is supposed to be reviewed by the two sides every six months - which would mean now.
It seems the Chinese side may be busy. A secretive meeting of China's top leadership is possibly happening in Beidaihe, the seaside resort where it traditionally takes place. Both Reuters and the South China Morning Post cite sources saying this forced the postponement of the U.S. call. But we don't really know.
The Chinese Communist Party is incredibly opaque, and this annual gathering occurs with no public statements, press releases, or photo opps for the fans. It's a chance for the various factions within the party to air their views on national policy. The "wolf warrior" form of aggressive diplomacy and the nationalistic stance pushed by Chinese President Xi Jinping have their doubters within the party, and there's always talk Xi's enemies may move to bring him down.
The fact that China's top leaders have been absent in public since the start of the month suggest the annual meeting is likely under way. Security has been tightened around Beidaihe, a resort made famous in the 1950s when Chairman Mao would take a dip under the summer sun.
None of the seven members of the Politburo's standing committee have made public appearances since August 1. The Beidaihe gathering is normally held in early August as an opportunity for retired party elders to advise privately the current leadership on their plans and progress. Former presidents Jiang Zemin, who turns 94 today, and Hu Jintao, 77, are likely to attend. So, too, are former premiers Zhu Rongji, 91, and Wen Jiabao, 77.
How President Xi is handling the relationship with the United States is sure to be a hot topic. Hong Kong and the introduction of the National and Security Law will likely also come up. The treason-and-sedition law has already attracted international derision in its use to arrest a sizable number of dissidents, most prominently media tycoon Jimmy Lai, the democracy advocate who publishes the top-read tabloid Apple Daily and the top glossy magazine, Next.
It seemed the U.S. side was ready to assess the Phase 1 trade deal with a Saturday video call - and leave the status quo as is. White House economic adviser Larry Kudlow said in the run-up to Saturday that the Trump administration is "satisfied with China's progress."
Much like the secret seaside meeting, the Chinese side never confirmed Saturday's check-in, however. When asked about the video call, the Chinese foreign and commerce ministries said they'd release information once they had it confirmed.
There's no new date for the six-month review to happen. But time will help. China is currently not even buying at the rate seen in 2017, letting alone adding to its purchases.
It is likely that the review, when it happens, will merely reaffirm the commitment by both sides to the Phase 1 deal hammered out in January, after almost two years of contentious talks. The last time the U.S. and Chinese side touched sides was on May 8, when Liu He, Lighthizer and Mnuchin all spoke by phone to encourage economic progress, and to cooperate on public health.
The Covid-19 crisis has made it virtually impossible for China to follow through. Even if the world had not plunged into one of its biggest recessions on record, there were doubts in the first place as to whether the Middle Kingdom could follow through on its commitments.
The first-year target for the trade deal called for US$77 billion in increased Chinese purchases over the 2017 baseline. It is well behind, but China recently increased its purchases of U.S. farm goods, particularly soybeans, and commodities traders say China has also ramped up its future purchases of oil.
Trade is one of the few areas where China and the United States cooperate. The Chinese side appear keen to take some of the heat out of the many recent political and commercial fights between the two sides. Donald Trump is thought to be very keen to cling to the Phase 1 deal, one of his few diplomatic achievements to tout heading into the election.
Chinese shares soared on Monday, with the benchmark CSI 300 index of the largest companies in Shanghai and Shenzhen putting on 2.3%. That brings the index to its highest close since July 13.
Brokerages and banks were the biggest gainers, indicating that Beijing has been intervening to drive markets higher again, as it tends to do at contentious times. Investors were encouraged to hear that Shenzhen's Nasdaq-style ChiNext board will begin a revamped system for IPOs, with the first companies debuting under that system on August 24.
China's central bank has also injected more stimulus in the form of 700 billion yuan (US$100.9 billion) in loans to banks. It's likely the central government will continue to pump money into the financial system to stimulate the economy, and having called a bull stock market part of a patriotic mission to get growth back on track.