China, US officials engage on trade while Huawei row burns

BEIJING (BLOOMBERG) – Top Chinese and American trade officials spoke by phone on Tuesday (Dec 11), signalling that dialogue between the two nations on trade issues is at least continuing despite a diplomatic row over the arrest of a senior Chinese businesswoman. 

China’s Vice-Premier Liu He, USTreasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer spoke by phone Tuesday morning Beijing time, according to a statement from China’s Ministry of Commerce.

The two sides exchanged views on the timetable and road map of future trade talks, the ministry said, without providing further details. 

At a time when the status of a deal brokered between the two sides in Buenos Aires this month was already in doubt, the arrest of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou – linked to potential sanctions violations – had threatened to torpedo the progress made.

Both sides have signalled that they want to separate the two issues, with an eye on the March 1 deadline for further agreement on trade differences.

“It’s a positive signal that work is in progress” on trade negotiations despite tensions related to the arrest of Meng, said Michelle Lam, a greater China economist at Societe Generale SA in Hong Kong. 

The news of Meng’s arrest in Canada contributed to increasing alarm in financial markets about the lack of specifics in a trade truce announced after US President Donald Trump and Chinese leader Xi Jinping dined together at the Group of 20 meeting.

Under the terms disclosed, Trump agreed to pause increasing tariffs on Chinese imports for 90 days while negotiations got under way. 

S&P 500 E-Mini futures pared losses on news of the phone call and China stocks turned positive. The Shanghai Composite Index rose 0.3 per cent before falling back a little. 

Meanwhile, China has accused Canada of violating a bilateral agreement by failing to speedily inform its consulate of Meng’s arrest – an accusation the Canadian government denies.  Over the weekend, Chinese authorities separately summoned the ambassadors of Canada and the US to protest Meng’s arrest on allegations she committed fraud to sidestep sanctions against Iran.

The case has become a flash-point in ties between the U.S. and China that’s rattled investors and sent stock markets tumbling. 

Since the Buenos Aires agreement, China has acted to meet its side of the bargain. For example, it intends to announce this month the first batch of US soybean purchases where most, if not all, will be destined for state reserves, according to government officials.

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China's vow to curb fentanyl will not end US opioid crisis: Experts

BEIJING (AFP) – The United States-China trade war truce includes a pledge by Beijing to tackle another lucrative – and deadly – export: fentanyl, a potent opioid ravaging US communities.

The US has pressed Beijing to do more to crack down on the drug, as smugglers from China are suspected of being the main suppliers of the narcotic, which is 50 times stronger than heroin.

At the weekend G-20 summit in Argentina, China agreed to designate any type of fentanyl as controlled substances, with the US saying this would expose offenders to the maximum penalty under Chinese law – capital punishment.

US President Donald Trump said on Wednesday (Dec 5) that the move could be a “game changer”.

“If China cracks down on this ‘horror drug’ using the Death Penalty for distributors and pushers, the results will be incredible!” he tweeted.

But experts doubt it will make a major difference.

Fentanyl production has become a “very profitable” business for Chinese traffickers, said Mr Mike Vigil, a former chief of international operations at the US Drug Enforcement Administration.

It is going to be tough for the Chinese government to control the business, he said, “especially given the huge demand that we currently have in the United States”.

China is believed to be one of the main manufacturers of synthetic drugs that have been blamed for public health crises in the US, Canada and Australia, among other countries.

Getting the drug is relatively easy – buyers find fentanyl from suppliers online, pay for it with cryptocurrencies, credit cards or money transfers, and receive their order via international mail services, according to a US congressional report.

It has become a booming business for clandestine chemical labs in China, where 1kg of fentanyl can produce 50kg of “high-grade” heroin, turning a less than US$10,000 (S$13,700) investment into half a million dollars, said Mr Vigil.

According to the US Centers for Disease Control, deaths from drug overdose in the US surged to nearly 72,000 last year – far more than traffic accident deaths, gun-related deaths, or suicide. Fentanyl was linked to the deaths of singers Prince and Tom Petty.

ZERO TOLERANCE

At first glance, China does not seem like an ideal base for manufacturing and shipping fentanyl to the US.

Scarred by its own opium crisis in the 19th century, China has a zero-tolerance policy towards illicit drugs.

But chemical distributors in China have been able to dodge international and domestic law enforcement with fentanyl, which does have legal uses, such as treating extreme pain for cancer patients.

China has previously banned fentanyl variant by variant.

Savvy chemists would simply tweak their chemical formula, creating an analogue or slightly different chemical compound to bypass regulations.

China’s decision to list all fentanyl-like substances could address that issue, but systemic challenges remain.

“It seems to be that China just has a huge chemical and pharmaceutical industry, and it just has too many firms and too few police to manage that industry,” said Dr Bryce Pardo, a drug policy researcher at Rand, a US-based think-tank.

According to a 2015 US State Department report, China had about 400,000 chemical manufacturers and distributors.

China also has an unknown number of underground chemical labs that produce synthetic drugs. In 2015, Chinese authorities destroyed 259 labs and arrested 1,570 suspects, according to a 2017 US State Department report.

The interests of provincial and central government authorities are also misaligned, Dr Pardo told AFP.

Beijing sets the rules, but turns enforcement over to local authorities, “who are incentivised to export as much product as possible”.

The Chinese foreign ministry said before the G-20 talks last week that it had taken measures to control 25 fentanyl analogues, increased intelligence sharing with other countries and strengthened checks of suspicious parcels.

“The US government surely has a bigger role to play in reducing the demand,” ministry spokesman Geng Shuang told reporters.

“The US has time and again accused China of being a key source of the fentanyl-like substances at home, but never submitted any accurate statistics or effective evidence to the Chinese side,” he said.

LAST BULWARK

Even if China successfully cracks down on fentanyl, it is likely that another hub of synthetic opioid production will pop up elsewhere, experts said.

Fentanyl production could move to India, which has an enormous pharmaceutical industry and labour supply with “the technical know-how to synthesise these chemicals”, said Dr Pardo.

Production of illicit drugs will not stop at fentanyl either.

According to China’s narcotics control commission, domestic seizures of methamphetamine, ketamine and other synthetic drugs climbed by 106 percent year-on-year in 2016, and synthetic drug production was rising.

Enforcing harsher punishments will not necessarily address the growing global drug demand, said Professor Michelle Miao, an expert on China’s legal system at the Chinese University of Hong Kong.

The US “has launched the war on drugs in the past century, but what you can see now is it is a total failure”, she added.

“Criminal law should be the last bulwark when things are out of control,” she added. “The last measure we can do is mete out punishment, because it does not really solve the root issues.”

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Chinese media cautiously welcomes US trade truce

BEIJING/SHANGHAI (REUTERS) – The trade war truce agreed by China and the United States at the weekend could help them resolve their differences amicably, but lasting improvements in relations will depend on US “sincerity”, Chinese state media said on Monday (Dec 3).

China and the US agreed to halt new tariffs during talks between Chinese President Xi Jinping and US President Donald Trump in Argentina last Saturday, following months of escalating tensions on trade and other issues.

In a meeting lasting 2½ hours, the US agreed not to raise tariffs further on Jan 1, while China agreed to purchase agricultural products from US farmers immediately.

The two sides also agreed to begin discussions on how to resolve issues of concern, including intellectual property protection, non-tariff trade barriers and cyber theft.

But in an editorial, the official China Daily warned that while the new “consensus” was a welcome development and gave both sides “breathing space” to resolve their differences, there was no “magic wand” that would allow the grievances to disappear immediately.

“Given the complexity of interactions between the two economies, the rest of the world will still be holding its collective breath,” it said.

In a separate editorial published late on Sunday, China’s state news agency Xinhua said the new consensus “demonstrates that as long as the two sides have sincerity, there is a way out”.

It called on both sides to “take immediate steps” to address concerns and bring trade and economic relations back to normal but warned that there was still “a long way ahead before anything of substance can be achieved”.

The widely read Global Times, published by the ruling Communist Party’s official People’s Daily, warned that people had to have realistic expectations.

“The Chinese public needs to keep in mind that China-US trade negotiations fluctuate. China’s reform and opening-up’s broad perspective recognises that the rest of the world does things differently,” it said in its editorial.

There are also differences in the Chinese and US accounts of what was agreed.

The White House said China was “open to approving the previously unapproved” deal for US company Qualcomm Inc to acquire Netherlands-based NXP Semiconductors “should it again be presented”.

Chinese state media has made only scant mention of the Qualcomm issue, which was not addressed by the Chinese government’s top diplomat at a news conference in Buenos Aires last Saturday night.

In July, Qualcomm – the world’s biggest smartphone-chip maker – walked away from a US$44 billion (S$60 billion) deal to buy NXP after failing to secure Chinese regulatory approval, becoming a high-profile victim of the China-US trade dispute.

There was also caution from the US business community.

Mr William Zarit, chairman of the American Chamber of Commerce in China, said the outcome of the meeting was “as good as we could have expected”, considering the complex issues involved.

“But probably the most challenging area to resolve – China’s discriminatory economic policies based on state support and domestic market protectionism – needs to be addressed in order to level the playing field and have a sustainable commercial relationship based on fairness and reciprocal treatment.”

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Tariff truce is light at the end of the tunnel for US farmers

WASHINGTON – Markets are bound to be relieved that China and the US have paused their trade war, opening a 90-day window for negotiations as their two leaders met over dinner in Argentina on the sidelines of the Group of 20 summit on Saturday (Dec 1).

For American farmers, who have suffered since President Donald Trump unleashed tariffs on China, and Beijing hit back with its own tariffs, mostly on American agricultural products, the truce is light at the end of a tunnel of falling profits.

And that is important for President Trump as Chinese tariffs were affecting his power base, the rural heartlands of the Midwest which export commodities like soya beans and sorghum to China.

American farm income is expected to drop 13 per cent this year, according to the Department of Agriculture. If negotiations are successful, next year could bring relief in time for the President’s 2020 re-election campaign.

The President can claim the truce – even if temporary – as a reward for his all-or-nothing approach to remedying the United States’ trade deficit with China, and forcing China to open up its own market.

While Mr Trump has drawn praise for finally taking on China, his methods have raised fears of a deeper and wider trade war that would eventually cost more jobs than it creates.

But on board Air Force One on the way back to Washington, he told reporters: “It’s an incredible deal. What I’ll be doing is holding back on tariffs. China will be opening up, China will be getting rid of tariffs. China will be buying massive amounts of products from us.”

That the deal was done at the leaders’ level also underscores a particular phenomenon of the Trump presidency. Personal chemistry between President Trump and foreign leaders – in this case China’s President Xi Jinping – and Mr Trump’s appetite for deal-making matter more than painstaking negotiations at the level of senior officials.

“We’re encouraged to see Presidents Trump and Xi working together to reduce trade barriers between the US and China,” the Consumer Technology Association, a US trade group that opposes tariffs, told The Wall Street Journal.

US analysts were cautiously optimistic, noting that all tariffs so far imposed remain in place. It was agreed in the truce only that the US will not raise tariffs a further 25 per cent on Jan 1, and the negotiation window is for only 90 days. If talks do not produce results, the 25 per cent additional tariffs will go into force after 90 days.

The Chinese have long been willing to buy more US goods, help fight fentanyl abuse, and launch trade talks, said Dr Bonnie Glaser, senior adviser for Asia and the director of the China Power Project at the Centre for Strategic and International Studies.

A statement from White House press secretary Sarah Sanders noted that China has agreed to start purchasing agricultural products from US farmers “immediately”.

The statement also noted that China would purchase a “not yet agreed upon, but very substantial” amount of agricultural, energy, industrial and other products.

That President Xi agreed to designate fentanyl a controlled substance, meaning that Chinese selling the powerful synthetic drug to the US will be subject to maximum penalties, is also important to President Trump, who has made fighting America’s raging opioid epidemic a priority.

Fentanyl, which is illegally mixed into opioids, is many times more powerful than morphine or heroin. Every day, more than 115 people in the US die after overdosing on opioids, the National Institute on Drug Abuse said in March.

“The misuse of and addiction to opioids – including prescription pain relievers, heroin, and synthetic opioids such as fentanyl- is a serious national crisis that affects public health as well as social and economic welfare,” it said.

President Xi agreed to designate fentanyl as a controlled substance, meaning that people selling the powerful opioid to the United States will be subject to China’s maximum penalty under the law.

“What he will be doing to fentanyl could be a game changer for the United States,” President Trump told reporters on board his plane. “That’s a big – to me, that’s a very big thing.”

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Ex-US Treasury chief Henry Paulson warns of 'economic iron curtain'

SINGAPORE (AFP) – Former US Treasury secretary Henry Paulson warned Wednesday (Nov 7) of the risk of an “economic iron curtain” unless the United States and China step up efforts to ease soaring trade tensions.

Washington and Beijing have been locked for months in a stand-off over US President Donald Trump’s move to end what he describes as years of unfair trade practices by China.

He has imposed new tariffs on Chinese imports, prompting Beijing to retaliate with its own levies on US products, and continued the offensive by boosting military support for rival Taiwan and denouncing China’s human rights record.

In a speech in Singapore as Americans voted in midterm elections set to deliver a stinging rebuke to Trump, Paulson warned that “economic tensions are reaching a breaking point” between Washington and Beijing.

“Today this region must look warily at the prospect that what until now has been a healthy strategic competition could tip into a full-blown Cold War,” said Paulson, who served under Republican president George W. Bush.

Paulson, who backed Trump’s Democratic rival Hillary Clinton in the 2016 presidential election, warned that decades of US-China economic integration appeared to be going into reverse, which could have broad impact.

“I fear that big parts of the global economy will be closed off to free flow of investment and trade,” he said.

“I now see the prospect of an economic iron curtain – one that throws up new walls on each side and unmakes the global economy, as we have known it.”

The Iron Curtain was the term used to describe the political and ideological barrier that divided western Europe from the communist Soviet Union during the Cold War.

Tensions have gone beyond trade in recent weeks as the midterms approached.

Trump has cast China as a villain set on bringing him down, and in a closely-watched speech earlier this month Vice President Mike Pence vowed to challenge the Asian giant on multiple fronts and accused Beijing of seeking to interfere in the polls.

There have been signs of ties improving in some areas, with the State Department announcing this week that top-level US-China security talks will take place in Washington Friday.

Nevertheless Paulson, speaking at the Bloomberg New Economy Forum, warned: “We are in for a long winter in US-China relations.”

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