China casts doubt on report of S$268 billion trade deficit offer

BEIJING/WASHINGTON - China on Friday (May 18) cast doubt on reports that it had offered to reduce its annual trade surplus with the US by US$200 billion (S$268.44 billion) through increased imports of American products.

The offer was made during talks in Washington this week as Vice Premier Liu He visited to try to resolve a trade dispute, according to a Trump administration official who spoke on condition of anonymity. On Friday, two posts on Chinese state social media disputed the report, and a foreign ministry official said no such offer had been made to his knowledge.

South China Morning Post cited an article published on the social media account of People’s Daily, the Communist Party mouthpiece, which said China will not enter into negotiations on the issue as long as the US sets preconditions for the talks.

Reports by Reuters and Bloomberg citing unnamed sources as saying Beijing had made such an offer, were “pure fantasy and rumours”, the article said.

“Some people are worried that China will make major unilateral concessions. Such worries are unfounded,” the People’s Daily article said, citing people familiar with the talks.

“Neither side gave much away and the negotiations were still deadlocked a few hours before the meeting between Trump and Liu,” it said.

The negotiations are ongoing, and the talk is tough, it said.

In a sign that the Chinese government is seeking a conciliatory stance, on Friday it announced that it would end its anti-dumping and anti-subsidy investigation into imports of US sorghum, citing “public interest.” That move comes days after the restarting of a review of Qualcomm Inc’s application to acquire NXP Semiconductors NV.

“If Trump can cut a deal with China for a $200 billion reduction in the bilateral trade deficit, then he’ll have won the trade deal of the century," said Mr Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore. "The devil will be in the details, with key factors being the timeframe over which China is offering to achieve this reduction."

A US$200 billion reduction in the US trade gap with China by 2020 was on a list of demands the Trump administration made earlier this month as Treasury Secretary Steven Mnuchin led a delegation to Beijing. The US merchandise trade deficit with China hit a record US$375 billion last year.

The US had earlier made additional demands, including a halt to subsidies and other government support for the Made in China 2025 plan that targets strategic industries from robotics to new-energy vehicles. China had made its own demands, including giving equal treatment to its investment, and warned US companies may be excluded from measures to open its economy.

The Trump administration has threatened to impose tariffs on as much as US$150 billion of Chinese imports to the US as tensions over trade have escalated. Mr Trump expressed doubt before his meeting with Mr Liu that China and the US would come to an agreement to avoid a damaging trade war.

“Will that be successful? I tend to doubt it,” Mr Trump said during a press briefing on Thursday with NATO Secretary-General Jens Stoltenberg. “The reason I doubt it is because China’s become very spoiled.”

Mr Shane Oliver, head of investment strategy at AMP Capital Investors Ltd in Sydney, said the Chinese proposal is “a positive sign that a full on trade war may be averted.”

“By making a significant offer to the US it indicates that China is taking the negotiations very seriously,” Mr Oliver said. “Much will depend on the details and time period and later in terms of the implementation.”

Reuters reported China’s trade deficit reduction offer earlier.

The US and China were expected to exchange new trade proposals during the Washington talks, Mr Trump economic adviser Larry Kudlow said earlier Thursday. Mr Mnuchin is leading the talks with Mr Liu, along with Commerce Secretary Wilbur Ross and US Trade Representative Robert Lighthizer, according to the White House.

Professor Victor Shih from the University of California in San Diego who studies China’s politics and finance, said he finds an agreement to cut the US deficit by US$200 billion "difficult to contemplate."

"Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favor of the US, the bilateral trade deficit may reduce by US$100 billion," he said. "A US$200 billion reduction would mean a drastic reduction in Chinese exports to the US and a dramatic restructuring of the supply chain."

Mr Kudlow said the US focus is on China opening market access to American companies by lowering their trading barriers and addressing US concerns over the theft of intellectual property.

“American ownership of its own companies in China must be permitted,” Mr Kudlow said. “We are going to have serious talks dealing with a difficult trade situation that needs to be fixed.”

Mr Trump also said on Thursday that his decision to order a review of US penalties on China’s ZTE Corp. came directly at the request of Chinese President Xi Jinping.

“The president of China, President Xi, asked me to look at it. I said I would look at it,” Mr Trump said, adding “But anything we do with ZTE is always - it’s just a small component of the overall deal.

In a surprise move, Mr Trump on Sunday said that the US was considering ways to help get ZTE ‘’back in business fast,” fueling speculation of a softening of his get-tough position on China.

The Commerce Department blocked ZTE’s access to US suppliers last month, saying the company had violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations. AGENCIES