Experts say China has been prepping its economy for Trump-Xi meeting

Experts say China has been prepping its economy for Trump-Xi meeting
Chinese President Xi Jinping
PHOTO: Reuters

It was just last week that details of the first meeting between President Donald Trump and his Chinese counterpart, Xi Jinping, were announced, but China has already been angling to position itself positively ahead of the encounter set for this week in Florida.

With Trump having repeatedly suggested on the campaign trail that China manipulated its currency to the downside, experts are saying the East Asian giant has done its best to prevent the yuan from falling further against the greenback by putting in measures to stem capital flight.

In fact, the renminbi has actually gained against the dollar in 2017 - even as it has fallen against a basket of currencies.

Shen Jianguang, chief economist at Mizuho Securities Asia said keeping the currency stable was a key move by China to present itself more positively, as was opening up the domestic bond market and the fund management sector to foreign companies.

And then there was the move in March this year, when the People's Bank of China (PBOC) raised the interest it charges for loans to banks by 10 basis points.

While many reported the move was a bid to stave off capital outflows and pre-empt CNY selling pressure after US rates were hiked, there may be more than meets the eye, said Tim Condon, head of Asia research at ING Financial Markets.

Read also: China wants a piece of the US infrastructure boom. Trump won't let it come easy

"Ahead of the Trump-Xi summit favourable optics may have been a consideration," he said in a Monday note.

He added that PBOC's daily fix is a more important determinant of CNY moves rather than interest rates.

Indeed, "framing" China's pitch will be key, added Mizuho, where analysts are expecting a conciliatory tone at the meeting - even amid Trump's regular harping on China's large trade surplus with the US

"We think that the compromise could take the form of Chinese investments in the US creating jobs - this is already underway and more about framing," Mizuho said in a note Tuesday.

"What's more, China could open more sectors to US firms and will rehash openness to high-tech US imports as well as services trade as quid pro quo," the note added.

Some shift in trade may also be underway. According to the US Commerce Department, the US trade deficit fell sharply in February as imports from China fell by a record amount and American exports rose for a third straight month, the Associated Press reported on Tuesday.

There's nobody better to sell that pitch than Xi himself, said Kevin Nealer, principal and partner at business advisory The Scowcroft Group.

"President Xi is in a position to say credible, useful things about Chinese investment in the US" he said at a discussion at the Center for Strategic & International Studies in Washington D.C. on Friday.

For instance, the Chinese leader could talk about a voluntary restraint agreement on steel, auto parts and other sectors, he can also "tell a story about a transformed US-China trade relationship," he said.

China could offer something "aspirational with a very big-dollar figure attached to it", Nealer added.

With Beijing possibly eyeing a stake in Trump's US$1 trillion(S$1.3 trillion) infrastructure push, China may already have a proposal tabled, said Christopher Johnson, the Freeman chair in China studies at CSIS at the same Friday event.

Xi looks to burnish domestic credibility

With the meeting taking place at Trump's home, the meeting could be "very fraught" for Xi, said Johnson, but the Chinese president has a bigger point to prove.

With a personality-driven following that many liken to former Chinese leader Mao Zedong, Xi does not appear to lack for self-confidence or vision, said Johnson. After all, he has managed to burnish his international credentials at events like the World Economic Forum in Davos, where his activities and speech generated significant attention.

Xi's meeting with Trump will be a series of public events leading to the 19th National Congress of the Communist Party of China to be held in Beijing this autumn. It will see the country's top leadership ranks decided, and it's the first such meeting since 2012.

As the Communist Party's newly-minted "core leader," Xi will need to prove that he can manage the external environment and China's most important bilateral relationship, according to Johnson.

"One might argue he will seek to control the incoming (US) president because he had a pretty good track record under the previous president of managing the relationship quite well and seemingly outfoxing the previous president on certain issues," said Johnson.

More about

XI JINPING
Purchase this article for republication.

BRANDINSIDER

SPONSORED

Most Read

Your daily good stuff - AsiaOne stories delivered straight to your inbox
By signing up, you agree to our Privacy policy and Terms and Conditions.