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The June gathering of G-20 leaders in Osaka is seen to be a possible location for the next Xi-Trump summit. (Nikkei montage/Kyodo)
China up close

Xi-Trump summit in Japan in play as China eyes longer fight

Great powers' battle for hegemony threatens to make trade deal tentative at best

KATSUJI NAKAZAWA, Nikkei senior staff writer | China

TOKYO -- China's top trade negotiator Vice Premier Liu He arrived at the Office of the U.S. Trade Representative, just steps from the White House, on Wednesday morning and was greeted by his counterpart Robert Lighthizer.

Despite a recent incident in which a Chinese woman was caught intruding into U.S. President Donald Trump's Mar-a-Lago estate in Florida carrying a thumb drive coded with malicious software, the two negotiators shook hands with big smiles. By now, after multiple rounds of negotiations, they know each other well.

Tasked with setting up a summit between Trump and Chinese President Xi Jinping by the end of the month, however, Liu has an uphill climb.

Liu's boss, President Xi, would prefer to visit the U.S. and put the trade talks behind him before he hosts the second Belt and Road Forum for International Cooperation in Beijing late this month. For that to happen, Liu has to clinch a near-full deal as soon as possible.

Furthermore, the Chinese side is looking for the U.S. to follow proper protocol and deliver an official red-carpet invitation to Xi. Time is running out.

Trump administration officials have touted progress in the trade talks, but as was seen at the recent U.S.-North Korean summit in Hanoi, negotiations with China could collapse if differences masked by Washington's talking points cannot be bridged.

Against this backdrop, a source familiar with U.S.-China relations had some interesting thoughts about the future of the negotiations.

"China will not make any unilateral concessions," the source said. "Pay close attention to a possible U.S.-China summit in Japan."

Such a summit would coincide with a meeting of the leaders of leading industrial and emerging-market nations in Osaka, scheduled for June 28-29. Both Trump and Xi will attend the Group of 20 gathering -- a golden opportunity for the two to sit down together.

If the U.S. and China are still fighting over trade in late June, all eyes would be on Osaka for a breakthrough.

Meanwhile, Beijing also has the option of pursuing a Xi-Trump summit one month earlier, in late May. The U.S. president is already planning a trip to Japan at that time. He is to be the nation's first state guest in the Reiwa era, which begins on May 1 with the ascension to the throne of a new emperor.

From Japan, it would be a short trip to China.

Yet a May summit in China has its complexities. For one, Trump has already visited Beijing, in November 2017, and by protocol, it is Xi's turn to visit the U.S.

Furthermore, under the current tense security environment, including a recent incident in which Chinese warplanes crossed the "median line" separating mainland China and the self-ruled island of Taiwan, it would be difficult to ask Trump to break with protocol and fly on to Beijing.

A U.S.-China summit on the sidelines of the G-20 gathering in Osaka in late June, however, would allow both sides to save face.

The negotiations toward a trade deal resemble high-stakes diplomatic poker. But China partially revealed its hand with the recent passing of a foreign investment law. Approved in March at the annual session of the National People's Congress, the nation's parliament, the law, in effect, admits that the Chinese government has until now not adequately extended protection to foreign companies' investments and assets.

The law contains measures to protect foreign investors. It includes a ban on forced technology transfers, an apparent acquiescence to one of the U.S.'s big demands.

At first glance, the ban seems to be a significant Chinese concession. On second glance, it has its limits.

To start with, it would not take effect until Jan. 1, a long way off.

In China, even all-important revisions to the national constitution usually take immediate effect. In March 2018, a revision that scrapped the two-term limit imposed on Chinese presidents was implemented the day it was enacted.

But with the new foreign investment law, China is in no rush. Implementation -- and taking the binds off some foreign companies operating in the country -- can wait until next year.

The annual session of the National People's Congress, China's parliament, is held at the Great Hall of the People in March. Here, a foreign investment law was approved. (Photo by Taro Yokosawa)

Furthermore, for the new foreign investment law to be smoothly implemented, additional legislation and detailed rules would be needed. Without these subsidiary laws, local governments would not budge, and orders from the central government would not be carried out.

"It will take about two years for the new foreign investment law to have an actual impact," said one source familiar with the law.

Another problem regarding the new law is that the ban on forced technology transfers only applies to government actions.

But foreign companies entering China are usually pressured to handover technology by private Chinese companies, not the government. Associations of Western companies operating in China have repeatedly pointed this out, but their concern has gone unheeded.

Lighthizer and other members of the U.S. negotiating team are well-versed in U.S.-China relations and the myriad issues they entail, including the possibility of Beijing not enforcing the rules it has agreed to.

The U.S., therefore, is demanding the inclusion of a verification mechanism that would consist of regular meetings, implementation reviews and a penalty regime for violations.

Call it a substitute for trust.

For China, this demand represents unacceptable interference in its domestic affairs. Still, China has continued to make strenuous efforts to try to find common ground with the U.S.

In February, after one round of trade negotiations, Vice Premier Liu as well as vice ministerial- and bureau chief-level officials returned to Beijing while division chief-level Chinese officials remained in Washington to search for that mutual understanding.

But it takes considerable time to nail down the specific details and wording in huge numbers of consensus documents. Learning lessons from the past, the U.S. is not tolerating slight discrepancies between the Chinese and English versions of the documents.

U.S. and Chinese officials have held telephone talks to discuss important points. But this kind of negotiating also takes time. In China, top-down decisions must be minded, and negotiators need to seek permission from higher authority before they can make major concessions.

Meanwhile, signals coming out of Beijing hint to a prolonged fight.

"Capitalism will perish eventually and socialism will achieve a victory ultimately," Xi said in a speech. "But socialism will continue to cooperate and struggle with capitalism, which has developed productivity, for a fairly long period and it is necessary to learn from the beneficial results of civilization created by capitalism."

This speech by Xi was given six years ago, but on Monday, with Beijing and Washington still battling it out in trade negotiations, the speech was republished in the Communist Party's theoretical journal.

In the speech, Xi declared that while learning from and taking advantage of the U.S., socialist China will defeat the capitalist America in the end.

Xi has set a deadline for China to vanquish the U.S. -- 2049, the 100th anniversary of the founding of the People's Republic of China, or "a new China." On the way to the target year, China also aims to catch up with the U.S., at least economically, by 2035.

This means China cannot afford to accept demands from the U.S. that could shake the foundation of its socialist system. For China, cutting off subsidies to state-owned companies and implementing other structural reforms is out of the question.

What is important for China is "political security," which means maintaining its socialist system -- the system that is to defeat the U.S.

The trade negotiations represent nothing less than two great powers' battle for hegemony, as does the skirmishing over private Chinese tech giant Huawei Technologies.

If a U.S.-China summit does materialize, possibly in Japan, any agreement that might be concluded is likely to be tentative. The two countries face an extremely bumpy road to a sustainable and permanent deal.

Katsuji Nakazawa is a Tokyo-based senior staff writer and editorial writer at Nikkei. He has spent seven years in China as a correspondent and later as China bureau chief. He is the 2014 recipient of the Vaughn-Ueda International Journalist prize for international reporting.

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