China wants a US trade deal – but will fight back if necessary, says President Xi Jinping

China wants a US trade deal – but will fight back if necessary, says President Xi Jinping

Chinese leader says his country is working for an agreement on the basis of ‘mutual respect and equality’ in first public comment on prospects for phase one agreement. Xi tells Bloomberg New Economy Forum in Beijing ‘Chinese dream’ is nothing to fear but country wants to avoid repeating past ‘humiliations’

China wants to reach an interim trade deal with the United States but it will not shy away from retaliation if necessary and will never let its “humiliating” history repeat itself, President Xi Jinping said on Friday.

It was the Chinese leader’s first public comment on the prospects of an interim – or “phase one” – deal between the two sides.

Speaking to a group of delegates and invited journalists at the Bloomberg New Economy Forum in Beijing on Friday, Xi said: “We want to work for a phase one agreement on the basis of mutual respect and equality.

“When necessary we will fight back, but we have been working actively to try not to have a trade war. We did not initiate this trade war and this is not something we want,” he said, according to a pool report.

State media also reported that Xi had told the delegates that the pursuit of the Chinese Dream – a term he has promoted since 2013 – does not mean the country is seeking hegemony or wants to replace other nations.

But he added that the move was intended to “restore China’s dignity and status” and ensure the history of China being invaded and ruled by colonial powers would “never be repeated again”, according to state news agency Xinhua.

He said China was not complacent about its achievements and would continue the process of reform despite the difficulties.

“The more resistance there is, the more obstacles people set up, the more we have to overcome difficulties and further expand the [process of] opening up,” he continued.

The report also said Xi had discussed “innovation co-operation” with the US – an apparent reference to repeated US complaints of forced technology transfers and intellectual property theft.

“The result of innovation should benefit the whole world, instead of burying it in caves hidden in the mountain,” he said. “China and the US have some disputes over innovation cooperation, but the key is to form a consensus through dialogue to continue cooperation instead of being suspicious.”

Xinhua also reported that in a one-on-one meeting with former US secretary of state Henry Kissinger, Xi said the relationship between China and the US was at a crossroads and faced some difficulties.

“China and the United States should step up communication on strategic concerns to avoid misjudgment and enhance mutual understanding,” Xi told Kissinger, a key player in the normalisation of diplomatic relations between Washington and Beijing in 1970s.

Speculation has been mounting that the process of ironing out the details of an interim agreement has proved slower than expected as Beijing and Washington struggle to agree on how to roll back tariffs on each other’s goods.

The two sides also remain at odds over thornier issues such as technology transfers and intellectual property protection.

US President Donald Trump said earlier this week that China was not “stepping up to the level that I want” in the negotiation.

However Liu He, Xi’s key economic adviser and China’s chief trade negotiator, insisted on Wednesday that he remained “cautiously optimistic” about reaching an interim deal.

But the US Congress vote to pass the Hong Kong Human Rights and Democracy Act has since triggered a furious response from China and the issue now threatens to overshadow the trade talks.

On Thursday The Wall Street Journal reported that China had invited US trade negotiators to a new round of talks in Beijing, citing unidentified sources.

It also said Beijing hoped the talks could take place before next Thursday’s Thanksgiving holiday in the US.

US officials had indicated they would be willing to meet in person but had not committed to a date, the report said, and they would be reluctant to travel for the discussions unless China made it clear it would make commitments on intellectual property protection, forced technology transfers and agricultural purchases.

Taiya Smith, who advised former US treasury secretary Henry Paulson on China matters, said there was great potential for a short-term deal but that would not solve the “very fundamental and ideological divide” between the two countries.

She said the problem was that a phase one deal “was announced before the two sides knew what ought to be in it”.

“They have had some challenges in defining how deep those changes need to be, how much has to be offered,” she said.

“Certainly on the US side it needs to be a pay-off – not just that China has bought a load of soybeans [a major concern for the US in the talks] and is done – it’s got to be substantial enough that it really feels like it is a trade deal phase one as opposed to just a delaying tactic.”

Charlene Barshefsky, a former US trade representative, told the forum that ultimately only Trump could sign off on a deal, adding: “What I can safely say is that his eye is on the 2020 election and many of his decisions should be looked at in that light.”

Barshefsky also pointed out that the US administration is divided on what the focus of their demands should be.

“Trump is interested in agricultural purchases. Period. Full stop. [US Trade Representative] Bob Lighthizer is interested in structural change in China, which is badly needed,” she said.

Barshefsky referred to a report jointly produced by the World Bank and the Chinese State Council’s Development Research Centre in 2012 when Liu was the head of the think tank.

The report laid out a new development strategy for China to rebalance the role of government and market, and to conduct market-oriented reforms aimed at creating “a modern, harmonious and creative high-income society”.

But in recent years China has frequently been criticised for the slow pace of reform, and Barshefsky said: “Had China implemented the reforms outlined in that report, its economy today would be far stronger than it is. “It would be a less fragile economy and China’s debt load wouldn’t be what it is today. But that's water under the bridge from the point of the view of Chinese policymakers.

“From Lighthizer’s point of view, structural changes are all important. From Trump’s point of view, agricultural purchases, with his eyes on farmers in the Mid West which are swing states for his re-election, is critical”.

Ian Bremmer, president and founder of the Eurasia Group political consultancy, predicted that the Hong Kong issue would not have any impact on the deal “as long as it doesn’t further escalate”.

“I was with Liu He two nights ago, it was very clear to me in his level of, not confidence but certainly hopefulness, and cautious optimism that we will move to a phase one deal and that Hong Kong was not going to play into that,” Bremmer said.

“President Trump has made it clear that he is not going to talk about Hong Kong, and not allow it to interfere as long as they are discussing trade.”

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