BEIJING -- Chinese and American trade negotiators began talks Monday in Beijing amid mounting optimism that they will find a way to break the impasse in their nine-month dispute.
In a sign that the working-level meeting was off to a strong start, China's economic czar, Vice Premier Liu He, dropped by the talks to spur on the negotiators.
"These talks will have a positive outcome because both sides are trying to deal with the issue in an active and practical manner," said Wei Jianguo, a former vice commerce minister. "I'm not saying there could be positive results; I think there definitely will be."
That optimism was echoed in Washington, where Commerce Secretary Wilbur Ross told CNBC that there is "a very good chance that we'll get a reasonable settlement that China can live with, that we can live with, and that addresses all the key issues."
A deal would likely involve a sharp increase in Chinese purchases of American soybeans and liquefied natural gas. It would also likely spur significant changes in structural aspects of the Chinese economy that disadvantage foreign companies in China, Ross said.
"The Chinese are showing interest by sending a large team and having Liu He show up," said Scott Kennedy, a China expert at the Center for Strategic and International Studies. "But that's far from agreeing to major reforms to their industrial policy system, which should be the measure of genuine progress."
Investors in both countries adopted a wait-and-see approach. China's blue-chip CSI 300 index rose 0.6 percent on Monday. In New York, the Dow Jones industrial average was up 0.4 percent.
An American delegation led by Deputy U.S. Trade Representative Jeffrey Gerrish is in Beijing for two days of negotiations, the first face-to-face talks since President Donald Trump and Chinese President Xi Jinping agreed Dec. 1 to a 90-day truce in the trade dispute.
Trump had vowed to increase tariffs on $200 billion worth of Chinese imports from 10 percent to 25 percent on Jan. 1. But in return for more Chinese purchases of American farm and industrial goods, he said he would give the negotiators until March 1 to reach a deal before raising the tariff rates.
"I really believe they want to make a deal," Trump told reporters at the White House on Sunday. "The tariffs have absolutely hurt China very badly."
Much has changed since Trump and Xi met on the sidelines of the Group of 20 meeting in Argentina last month.
"Trump would probably like something he can point to as a win, even if it's not substantive, amid the wall and government shutdown chaos,"said Ben Cavender, an analyst at China Market Research Group in Shanghai. "And in China, there are definitely feelings of concern about the stability of the economy."
Trump has repeatedly said that China is desperate to strike a deal because its economy is slowing while the United States continues to power ahead. On Friday, the Labor Department said employers added a better-than-expected 312,000 jobs in December, buttressing the president's view.
"The Chinese are very eager to de-escalate the trade war because they're worried about the domestic economic situation," said Trey McArver, co-founder of Trivium China, a Beijing-based consultancy.
Most independent economists expect China's growth rate to fall to about 6 percent this year, which would be the lowest since 1990.
To counteract the slowdown, the People's Bank of China said Friday that it would inject about $117 billion into the economy by reducing the amount of money that financial institutions must hold in reserve.
The government is also pouring more than $125 billion into new rail projects in a bid to spur growth.
But Foreign Ministry spokesman Lu Kang on Monday dismissed concerns about the Chinese economy. "We have adequate resilience and potential, and we have firm confidence in the long-term sound fundamentals of the Chinese economy," he said at a press briefing.
The Global Times, a nationalist state tabloid, said China is not on the brink of surrendering. "It would be unrealistic to expect China to wave the white flag to the U.S.," it wrote in an editorial Monday. "We would have done it already if we had plans to."
Both countries have suffered turmoil in their stock markets. "Both markets are facing downward pressure" that would create additional incentive for both to resolve the dispute, said Wei, the former vice commerce minister who is now vice chairman at the China Center for International Economic Exchanges.
Over the past year, the main Chinese stock gauges have lost about a quarter of their value while the Dow Jones has dropped 7 percent.
ADDRESSING IMBALANCES
Although China has pledged to increase its purchases of American goods to help narrow the $375 billion U.S. trade deficit, such a step will do nothing to address the structural causes for the imbalance. Washington has demanded that Beijing level the playing field for American companies by granting greater access to the Chinese market, protecting U.S. intellectual-property rights and cutting down on unfair government subsidies for Chinese firms.
China has tried in vain to recruit France, Germany, South Korea and other governments as allies against Trump, but they have echoed U.S. complaints about Chinese industrial policy and market barriers.
The European Union in June filed a challenge in the World Trade Organization against Chinese rules that the 28-nation trade bloc said hamper the ability of foreign companies to protect and profit from their own technology.
For their part, Chinese officials are unhappy with U.S. curbs on exports of "dual use" technology with possible military applications. They complain that China's companies are treated unfairly in national security reviews of proposed corporate acquisitions, though most deals are approved unchanged.
Before this week's talks, China made gestures to show it is serious about committing to changes -- unlike in past rounds of negotiations, when it waited until talks ended to take action, said Jake Parker, vice president at the U.S.-China Business Council.
For example, in recent weeks China has released a draft of foreign investment legislation that bans Chinese companies from forcing foreign partners to hand over their technology secrets and prohibits governments from illegally "interfering" with foreign companies' operations, practices that have long riled Western firms. China has also resumed purchases of U.S. rice and soybeans.
"There are positive signals of what we'd like to see on the implementation side," Parker said. "We're cautiously optimistic."
Now, the question is not only whether China and the United States can reach a deal this week but also how to make sure China will keep its promises. "The big sticking point is going to be what does enforcement look like," said Cavender of China Market Research Group.
Since last year, U.S. officials have proposed a framework to hold China accountable, possibly by a quarterly review process, but the details of the mechanism have yet to be worked out.
If there is progress at these talks, U.S. Trade Representative Robert Lighthizer and China's Liu are expected to meet in Washington as soon as next week.
Trump could also get involved by the end of the month. He is expected to travel to the World Economic Forum in Davos, Switzerland, that starts Jan. 21. China's Foreign Ministry confirmed Monday that Vice President Wang Qishan will attend. Analysts say the two could meet to try to inject further momentum into the negotiations.
But Yao Xinchao, a professor of trade at the University of International Business and Economics in Beijing, said that both sides would remain suspicious of each other.
"As long as Trump is in office, nothing is for certain in China-U. S. relations," he said. "He is quick to make promises and even quicker to break them. Americans might doubt the sincerity of the Chinese, but I think the opposite is also true."
Information for this article was contributed by Anna Fifield, Gerry Shih, David J. Lynch, Danielle Paquette, Wang Yuan, Liu Yang and Lyric Li of The Washington Post and by Joe McDonald of The Associated Press.
A Section on 01/08/2019