CITI’S TAKE
The US-China summit last week serves well to stabilize biliteral relations and contain downside risks, in our view. It carries heavy symbolic weight, with both sides characterizing the bilateral ties as “constructive strategic stability”. Most of the outcomes were in trade and investment: setting up of Boards of Trade and Investment, China purchasing US$17bn of agricultural goods and 200 airplanes, and market access for US beef and poultry. With the outcomes relatively modest, as expected (see our note), and much of the de-risking already done before the summit, market reaction is likely to be muted. The real test lies ahead in terms of post-summit follow-through, the functioning of the new boards, and President Xi Jinping’s US visit.
A high-profile summit. US President Donald Trump and Chinese President Xi’s bilateral talks on May 13th–15th carried significant weight, with [1] the participation of top US business leaders, [2] critical topics discussed, [3] rare visits of a US President to the Temple of Haven (Xinhua, May 14th) and Zhongnanhai (Xinhua, May 15th), and [4] a new high-level vision on bilateral relation towards “constructive strategic stability” (Xinhua, May 14th). The White House readout confirmed the vision with “a constructive stability on the basis of fairness and reciprocity” (White House, May 17th). Taking place against the backdrop of the Mideast conflict, the summit paves way for a series of bilateral and multilateral engagements in the months ahead (Figure 1).
Deliverables in trade and investment. As we had expected (see: What to Expect from the US-China Summit), the tangible outcomes of the high-profile summit were relatively modest. Compared with the 2017 visit, the two sides did not hold any joint press conference (White House Archives, Nov 9th, 2017). Both the White House factsheet and China MoFCOM’s 5-point list (MoFCOM, May 18th) confirmed modest deliverables in trade and investment. For the topics covered in our preview note, see Figure 2.
Geopolitics: On the Middle East conflict, the US readout mentioned China’s agreement on the Strait of Hormuz and Iran’s nuclear issue (usembassy-China, May 15th). Chinese Foreign Minister Wang Yi’s post-summit comments (MFA, May 15th) didn’t provide any new information but reiterated China’s ceasefire stance. On Taiwan, Foreign Minister Wang confirmed that it was one of the key topics of the summit. US Secretary of State Rubio reiterated the US’s stance on the issue in an interview with NBC (May 15th), and it did not find a mention in the factsheet.
Economics: Most results were in trade, with the White House factsheet and China MoFCOM’s list of preliminary results (MoFCOM, May 16th) being:
[1] Tariffs: No official confirmation of a truce extension, despite signals of mutual willingness. The key new development was the establishment of a Board of Trade for non-sensitive goods. China’s MoFCOM specified further that the board is to facilitate discussions on reciprocal tariffs cuts on products of equivalent scale, with two-way agricultural trade highlighted.
[2] Trade expansion: Specific items included China’s dairy and aquatic product exports to the US, and US beef, poultry, and aircraft sales to China. It includes US$17bn per year of agricultural products and the initial tranche of 200 Boeing aircraft (White House, May 17th), with the potential for it to rise to 750, according to President Trump (Reuters, May 15th).
[3] Investment: Both sides mentioned the setting up of a Board of Investment, as a government-to-government forum for discussing investment-related issues.
[4] Rare earth/chips: China “will address” US concerns on rare earth shortages, restrictions on processing equipment and technology, per the White House factsheet. Messaging on chips is mixed, and it was missing in the official readouts. USTR Jamieson Greer called it a “sovereign decision for China”, whereas President Trump said the issue “came up” and “think something could happen with that” (NYTimes, May 15th). China is on track to achieve tech self-reliance regardless of the external environment, in our view.
Market reaction likely to be muted. Much of the de-risking, particularly for equities, was likely done during the visit of Iran’s Foreign Minister a week prior to the China-US summit (Xinhua, May 6th). Outcomes on trade and investment are relatively modest, as expected, and may not be sufficient to drive an immediate market reaction. Exchange rate remains a point to watch, in our view; there has been no confirmed discussion on the renminbi so far.
What to watch ahead
Post-summit deliveries top our watch list. Various issues, including tariff truce and reductions, purchase progress, and bilateral investment will likely shape the agenda and set the stage going into the next summit.
A busy geopolitical calendar should keep escalatory risks contained. Three additional presidential exchanges are expected before year-end. President Xi’s visit to the US, now with a September invitation from President Trump, is likely the most significant one to watch.
China’s domestic economy warrants closer attention as the mid-year Politburo meeting approaches. We continue to view it as a plausible venue for policy adjustments.
Bottom line: The US-China summit has set the stage to stabilize biliteral relations and contain risks. The real test lies ahead: post-summit follow-through, the functioning of the new Boards of Trade and Investment, and President Xi’s US visit.
