Next China: Back on Track

(Bloomberg) --

The outlook for a potential trade deal got a tad more rosy this week.

President Donald Trump spoke with tech executives about the ban on selling products to Huawei and potentially easing that prohibition. China signaled readiness to buy U.S. agricultural goods. American and Chinese negotiators also began preparations for their first face-to-face meetings since talks broke down in May.

All of these are positive signs for Beijing and Washington’s efforts to strike a deal, especially compared with the more hawkish rhetoric from last week. That said, it’s also worth remembering that there have been plenty of hopeful signals before.

Back in May 2018, U.S. Treasury Secretary Steven Mnuchin proclaimed the trade war was “on hold,” only to see tariffs implemented not long after. And an agreement between Trump and Chinese President Xi Jinping in December to try and negotiate a deal ended in acrimony.

Trade is also not the only issue of contention between the world’s largest economies. There’s technology, Taiwan, Southeast Asia and Hong Kong, to name a few. And the more troublesome these other facets become, the more difficult it will be to keep trade segregated from them.

An example is Huawei. The ability of the Chinese tech giant to supply global communications networks began as a national security concern for Washington. It now seems to be an increasingly crucial element for any potential trade deal.

There’s nothing easy about what lies ahead for Chinese and American negotiators, but at least they're talking.

National Security

One aspect of U.S.-China relations that got a bit noisier was on the military front. China this week published its first defense whitepaper since 2015, and used the opportunity to accuse the U.S. of undermining global stability. Beijing also denied it had plans for a military base in Cambodia. The U.S., meanwhile, sailed a warship through the Taiwan Strait, adding to tensions that had already flared as a result of a potential sale of American arms to the self-governed island.

Hong Kong

The situation in Hong Kong doesn’t appear to be getting better. There was more violence last weekend as police fired tear gas to disperse groups of more-aggressive protesters, some of whom defaced the national emblem at the Chinese government’s representative office in the city. In another part of Hong Kong, groups of masked men carrying sticks attacked protesters. Chief Executive Carrie Lam has condemned both acts and police have said that some of the men arrested for attacking protesters had links to local organized crime syndicates known as the Triads.

Tech Board

Shanghai this week celebrated the launch of the city’s new venue for listing shares of start-ups, dubbed the Star market. There was no shortage of enthusiasm. Shares of all 25 companies initially listed on the board rose, gaining by an average of 140% on their first day of trading. Authorities have envisioned the Star market as a way to encourage technological innovation and to also test regulatory changes for the country’s stock market. It’s also helped create wealth, with the board’s launch minting three billionaires on its first day.

German Cars

Daimler seems to have plenty of fans in China. It was revealed this week that Beijing Automotive Group, which has worked with the German industrial icon to produce cars in China, acquired a 5% stake in the maker of Mercedes-Benz vehicles. Together with Daimler’s top shareholder – Geely’s billionaire owner Li Shufu – that takes Chinese ownership to almost 15%. Whether stronger ties to the world's biggest car market will bolster the company's earnings remains unclear.

Drinking Wine

And finally, the trade war is creating winners and losers in industries around the world, including in wine. Australia this week reported a 7% increase in the value of wine exported to China in the 12 months to June 30, hitting a record $845 million. By contrast, the value of American wine exports to China fell 25% last year. That’s because China’s combined tax rate on a bottle of U.S. wine, thanks to retaliatory tariffs, is now 93%.

To contact the editor responsible for this story: Jeff Black at jblack25@bloomberg.net

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With assistance from Bloomberg