SinoInsight 1
On May 5, U.S. President Donald Trump announced plans to impose tariffs on all Chinese goods because he felt that the Sino-U.S. trade talks were going “too slowly” and China was trying to “renegotiate.”
While many observers believe that the trade deal was in jeopardy, we analyzed that a trade agreement could still be reached depending on how the Chinese regime reacted to Trump’s tweets in state propaganda.
Here is how the regime responded:
May 5
- Global Times editor-in-chief Hu Xijin tweeted: “Since @realDonaldTrump has made this kind of threat, I think Vice Premier Liu He will very unlikely go to the US this week. Let Trump raise tariffs. Let’s see when trade talks can resume.”
May 6
- Chinese Foreign Ministry spokesperson Geng Shuang said at a regular press conference that a Chinese delegation is preparing to travel to Washington for trade discussions.
- Semi-official media The Paper published on its official WeChat account a commentary titled, “Trade Talks Meet with Turbulence, China’s Stance Stays the Same” (“磋商又生波澜，中方态度依旧”) Xinhua and other state media shared The Paper’s commentary on their official WeChat accounts.
- No major state media issued commentaries on Trump’s tweets.
- Hu Xijin tweeted: “I got the information that Chinese delegation may still go to the US. This should be seen as a good will from the Chinese side.”
May 7
- The Chinese authorities announced that vice premier Liu He would visit the U.S. from May 9 to May 10 to conduct the 11th round of trade negotiations.
- Foreign Ministry spokesperson Geng Shuang said at a regular press conference that China “does not evade contradictions” and is “sincere in continuing negotiations.”
- The Global Times issues a commentary titled, “In Meeting U.S. Turbulence, the Best Answer is Staying Unperturbed” (“面对美方波动，最好的回答是淡定”).
- The People’s Daily issues an article titled: “Calm at the Key Juncture” (“关键之处见从容”).
May 8
- President Trump tweeted that “China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal.”
- The U.S. Trade Representative office files paperwork to formally raise tariffs on $200 billion worth of Chinese goods. In response, the Chinese regime threatened retaliatory measures should the U.S. proceed with tariffs.
- The Chinese regime commemorates the 20th anniversary of the bombing of the Chinese embassy in Serbia during the Kosovo conflict in a high-profile manner.
May 9
- The Paper published on its WeChat account a commentary titled, “If We Talk, We Talk, If We Fight, We Fight” (“愿谈则谈，要打便打”). Major state media shared the commentary on their social media accounts.
- The Global Times published an article titled, “America Prepares a ‘Banquet at Hongmen,’ But China Isn’t Scared” (“美国要摆“鸿门宴”，但吓唬不住中国”). The Banquet at Hongmen refers to an actual historical event during the Chu–Han Contention (206–202 BC) where a strategist of the warlord Xiang Yu directed failed attempts to kill Xiang’s chief rival and future Han emperor Liu Bang during a friendly banquet.
- A Chinese commerce ministry spokesperson said that China had shown the greatest sincerity and goodwill during the trade negotiations, and expressed hope that both countries would work together to “reach a mutually beneficial, win-win agreement.”
OUR TAKE
1. The Chinese regime appeared to have carefully calibrated its response to Trump’s tariff threat after it had decided that negotiation, not confrontation, was the best way forward.
First, state media likely “ignored” Trump’s tweets while carrying out strict information censorship on May 5 and May 6 to curb potentially uncontrollable anti-American sentiments from rising in the public. Had the CCP wanted to clash with the U.S. instead of seeking a deal, state media would have instead issued harshly worded commentaries instead of sharing a tepid article by a semi-official media about how China’s “stance stays the same” on trade.
Next, Beijing signaled that China was still willing to deal with commentaries in state media about staying “calm” and “unperturbed” despite “U.S. turbulence” on May 7. That day, Chinese and U.S. deputies to senior trade negotiators decided in a conference call that Liu He would participate in the latest round of trade talks, according to a report in The New York Times.
With Liu and the Chinese team prepared to “make a deal” in the U.S., state media started working to “sell” the trade agreement to the public. To that end, Chinese regime turned to nationalism (commemorating the 20th anniversary of the Belgrade bombing), and showed that it would not fall for American trickery (Banquet at Hongmen analogy) and was willing to get tough with the United States if needs must (“If We Talk, We Talk, If We Fight, We Fight”). The show of tenacity helps Beijing guard against criticism from the masses and political rivals after concessions are made in Washington to seal the trade agreement.
2. The CCP has a history of using America as a bogeyman to stir up nationalism and prop up its rule. Ironically, the bogeyman strategy is now giving the CCP headaches as it struggles to shape the narrative on Sino-U.S. trade negotiations to control public opinion.
3. Surface appearances and standard logic usually go out of the window in analyzing the CCP’s true intent because the Party adheres to its own unique operating logic. SinoInsider has been able to accurately analyze and predict China’s moves because we deeply understand CCP culture and operations.
SinoInsight 2
China’s statistics bureau recently released economic data for April. Most of the data showed declines:
New renminbi loans increased by 1.02 trillion yuan (-40.8 percent MoM). Total social financing (aggregate financing) increased by 1.36 trillion yuan (-52.4 percent MoM), the lowest since 2018. Money supply data were below expectations, with the increase in M1 money supply falling to 2.9 percent from 4.6 percent in March
Auto sales fell by 18 percent from the previous year, a steeper decline from the 12 percent in March. The average daily wholesale volume for autos fell by 22 percent year-on-year, or much worse than March. April was also the seventh consecutive month where sales declined from a year ago.
Sales of excavators increased 6.96 percent year-on-year, a modest increase as compared to sales in the previous three months (10 percent, 65 percent, and 15.7 percent). Excavator sales are a barometer of infrastructure investment and construction in China.
China’s exports fell 2.7 percent in April from a year earlier; in March, exports saw a 14.2 percent increase. Exports to the U.S. fell 13 percent while imports declined by 26 percent.
On May 8, mainland media National Business Daily combed through the data released by major Chinese airlines and airports, and reported negative throughput growth for Chinese airports in April.
OUR TAKE
1. We anticipated worsening economic figures in April and the second quarter of 2019.
In our April 17 article, we noted that China cannot “sustain its “strong” first quarter economic performance in April and beyond” and that “slower demand for Chinese goods will unlikely reverse in April even if a Sino-U.S. trade deal is reached.” Moreover, we believe that any “rebound” the signing of a trade deal will only be temporary” and sharp declines are on the horizon.
In the April 25 edition of this newsletter, we wrote that the “steep decline of electronics components and fabricating equipment in the first quarter will likely translate into a sharp reduction in Chinese exports in the second quarter.”
The recently released data verifies our earlier analysis and pessimism about China’s economic prospects.
2. We believe that China’s economic decline has not yet “bottomed out.” The Chinese regime will not be able to reverse the deterioration of China’s economy with a trade deal, and the economy will likely worsen further in the second half of 2019.
