1 Sino-US trade conflict on pause after Xi-Trump meeting in Busan
US and PRC reach trade truce in South Korea
On Oct. 30, Chinese leader Xi Jinping and U.S. President Donald Trump met at an airbase in Busan, South Korea. The meeting, which was concluded after about 90 minutes, led to the following agreements:
Rare earths
- The PRC agreed to pause its expanded rare earths licensing regime imposed on Oct. 9, 2025 for at least a year, with a reevaluation of the program that period. However, the PRC’s rare earths restrictions announced in April 2025 and December 2024 appear to remain in place.
- The White House issued a fact sheet on Nov. 1, 2025 noting that the PRC would issue “general licenses valid for exports of rare earths, gallium, germanium, antimony, and graphite for the benefit of U.S. end users and their suppliers around the world,” and those licenses entails “the de facto removal of controls China imposed in April 2025 and October 2022.”
Export restrictions
- U.S. Treasury Secretary Scott Bessent said that the U.S. will suspend for one year a new measure that greatly expands the number of Chinese companies that face restrictions on accessing U.S. technology in response to the PRC pausing its rare earths restrictions.
- The Trump administration’s Sept. 29 measure prevented Chinese firms that are at least 50 percent owned by previously sanctioned companies from receiving U.S. technology exports, or the so-called “50 percent rule.” According to some estimates, the measure, which makes it more difficult for Chinese firms to use subsidiaries to buy restricted tech, would have affected 200,000 new Chinese companies.
Tariff reductions and trade truce extension
- Both sides agreed to extend the trade truce reached in Geneva in May 2025 for a year, that is until October 2026.
- Trump cut fentanyl-related tariffs on China by 10 percent, lowering the U.S. tariff rate on Chinese products from 57 percent to 47 percent. Trump did not impose an additional 100 percent tariffs as he had threatened earlier in the month in response to the PRC’s expanded rare earth restrictions.
Suspended investigations
- The PRC commerce ministry said that the U.S. will pause the implementation of measures under its Section 301 investigation targeting China’s maritime, logistics, and shipbuilding industries for one year, and the PRC would correspondingly suspend the implementation of its countermeasures for the same duration.
- The White House said that the PRC would “terminate its various investigations targeting U.S. companies in the semiconductor supply chain, including its antitrust, anti-monopoly, and anti-dumping investigations.” Also, the PRC would take “appropriate measures to ensure the resumption of trade from Nexperia’s facilities in China.”
Fentanyl and drug trafficking
- The PRC committed to enhancing cooperation with the U.S. on cracking down on fentanyl.
- Trump said that Xi will “be very strong in enforcing the fentanyl, everything having to do with fentanyl regulations internally” and will take “very strong measures against those that don’t obey.”
- It is unclear how the U.S. plans to ensure the PRC’s compliance with fentanyl.
Agricultural exports
- Secretary Bessent said that the PRC agreed to buy 12 million tons of American soybeans during the current season through January (down from 22.5 million tons in the previous season), and buy 25 million tons annually for the next three years as part of a larger trade agreement.
Energy
- President Trump wrote in a Truth Social post that the PRC is beginning the process of purchasing American energy. “In fact, a very large scale transaction may take place concerning the purchase of Oil and Gas from the Great State of Alaska. Chris Wright, Doug Burgum, and our respective Energy teams will be meeting to see if such an Energy Deal can be worked out,” he wrote.
Summit commitments
- President Trump said that he would visit China in April 2026, and Xi will reciprocate later in the year.
Additionally, Secretary Bessent said that the U.S. and China had finalized an agreement on TikTok when officials from both sides met earlier in Kuala Lumpur.
Trump on the trade truce
In an Oct. 30, 2025 post on Trump Social, President Trump wrote that he had a “truly great meeting” with Xi Jinping. He added that both sides “agreed on many things, with others, even of high importance, being very close to resolved.”
Speaking to reporters on Air Force One, Trump said Xi is a “great leader.” Trump also said, “On a scale of 0 to 10, with 10 being the best, I’d rate the meeting a 12.” When asked about whether Ukraine or Taiwan was brought up at the meeting, Trump said that they discussed Ukraine, but Taiwan was never mentioned.
PRC reacts to the trade truce
Oct. 30
1. State mouthpiece Xinhua published a report on the meeting between Xi Jinping and President Trump in Busan.
Per Xinhua, Xi said that it is natural for China and the U.S. to have occasional frictions as the world’s two largest economies. Facing such turbulence and challenges, the two heads of state should, as “helmsmen,” steer the course and maintain overall stability to ensure that the “big ship” of China-U.S. relations sails smoothly.
Xi said that China’s economic momentum remains “solid” (citing GDP and export numbers for the first three quarters of 2025) despite internal and external difficulties. He added that China’s economy is “like a vast ocean — large in scale, resilient, and full of potential,” and the regime has the “confidence and capability to handle various risks and challenges.” Xi also said that “focusing on doing our own things well” is an important “secret to China’s success.”
Xi expressed hope that the trade teams from both sides would promptly refine and finalize the follow-up work to give both countries and the global economy a “reassuring boost.” He noted that although China–U.S. economic and trade relations have experienced setbacks, they have also provided lessons for both sides. The two countries, he said, should “look at the bigger picture and focus on the long-term benefits of cooperation,” rather than fall into a cycle of retaliation. Xi added that both teams could continue talks “on the basis of equality, respect, and reciprocity.”
Xi also stressed that China and the U.S. have promising prospects for cooperation in areas such as combating illegal immigration and telecom fraud, anti–money laundering, artificial intelligence, and infectious disease control. He said that relevant departments on both sides should strengthen dialogue and practical cooperation. Xi also said that as the world faces many difficult problems, both sides can shoulder their responsibilities as major powers and work together on initiatives that are “beneficial, practical, and positive” for both nations and the world.
Xinhua reported that Trump said he was honored to meet Xi, praising China as “a great country” and Xi as “a great and respected leader” as well as “a long-time friend.” Trump noted that they had a very pleasant interaction, adding that “U.S.–China relations have always been good and will become even better. I hope for a better future for both China and the United States.” He added that the two countries can accomplish many great things in the world, according to Xinhua.
2. Xinhua published several commentaries on the Sino-U.S. relationship following the conclusion of the Xi-Trump meeting in South Korea. The titles of the commentaries are:
- “Feature: ‘China and the United States Can Achieve Mutual Success and Shared Prosperity’”
- “First Observation: ‘The Metaphor of the ‘Big Ship’ Is Full of Meaning’”
- “Quick Study Comment: “Let the ‘Big Ship’ of China–U.S. Relations Sail Smoothly”
- “Xinhua Commentary: ‘Steering the Direction and Managing the Overall Situation of China–U.S. Relations’”
Central themes in the four commentaries include:
- The two heads of state must jointly steer the “big ship” of China-U.S. relations.
- Economic and trade cooperation serves as the ballast to the bilateral relationship; stones should stabilize the ship, not becoming stumbling blocks.
- China will focus on doing its own work well and is willing to share the benefits of development, but only on the basis of mutual respect and equality.
- The Xi-Trump meeting is not an endpoint, but a “navigational ceremony” meant to stabilize the overall bilateral relationship and chart a new course for the future.
3. PRC commerce ministry spokesman He Yongqian answered reporters’ questions about China-U.S. economic and trade consultations in Kuala Lumpur.
He said that the results of the talks were “hard-won” and that they inject “greater certainty and stability into China-U.S. economic cooperation and the global economy.”
4. PRC foreign ministry spokesman Guo Jiakun made the following noteworthy points in answer questions about the Xi-Trump meeting at a regular press conference:
- The PRC side stated that the atmosphere of the Xi–Trump meeting was “candid and constructive,” and that the two sides reached “multiple consensuses.”
- Guo reiterated the PRC’s official position that as the world’s two largest economies, China and the U.S. should uphold the principles of “mutual respect, peaceful coexistence, and win–win cooperation,” properly manage differences, and promote stability.
- The PRC side welcomes the U.S. implementation of the meeting’s consensuses, and calls on Washington to abandon unilateralism and protectionism.
- The PRC foreign ministry would continue to support bilateral mechanisms, promote high-level exchanges, and deepen people-to-people interactions.
Chinese markets unconvinced by Xi-Trump summit
On Oct. 30, the Shanghai Composite Index fell 0.73 percent to close at 3,986.90 points, falling below the 4,000-point mark after breaking through it on Oct. 29 (4,016.33 points at the close).
Our take
1. The conclusion of the Xi-Trump summit in Busan saw the U.S. and the PRC rewind their trade conflict back to almost the state it was before both sides imposed a flurry of restrictions in recent months.
From the PR perspective, Beijing appeared to come out ahead. The Xi leadership’s move to “fight fire with fire” in directly or indirectly reciprocating the Trump administration’s various trade and national security moves found success in stopping the latter from undertaking a “salami slicing” escalation of the trade conflict. Beijing also “won” a small tariff cut and managed to confirm a Trump visit to China, allowing Xi Jinping to play up his prowess as a “statesman.”
But in actuality, Beijing’s situation remains no less dire following the Xi-Trump summit than it was prior. The 10 percent tariff cut over fentanyl cooperation will not shift the needle for companies and countries concerned about supply chain security and that are looking to diversify from China. Likewise, the Trump administration is only temporarily giving up some ground on national security issues with the “50 percent rule” suspension. The extension of the trade truce (including investment, export, and rare earths controls) for just a year and the short duration of the summit (Trump was expecting a three to four-hour session before the meeting; a short summit indicates that only prearranged agreements were made and perfunctory remarks were exchanged) suggest that fundamental issues between both sides remain some distance away from being resolved, contrary to President Trump’s boast. Finally, the focused discussion on mostly trade matters during the summit (Xi did not even bring up Taiwan) underscores the lingering tension between both sides and hints at a degree of precaution on Xi’s part against pushing too hard on other matters so that he could have at least walked away with very modest gains rather than risk reigniting tensions with the U.S. and incurring Trump’s threatened 100 percent tariffs.
The somber reaction of Chinese capital markets to the Xi-Trump meeting indicates that investors are not taken in by the spectacle of the summit (including Trump’s glowing review of the meeting and the CCP’s propaganda about withstanding the trade war) and recognize that China’s situation remains grim despite the fanfare.
2. Xinhua’s report about the Xi-Trump summit and follow-up commentaries are intended to convey the following messages:
- The propaganda seeks to downplay the intensity of the Sino-U.S. trade conflict and expresses hope that the bilateral relationship is not a “zero-sum” game and will improve after the meeting between the two leaders.
- The propaganda signals to the U.S. that the trade war has not worsened China’s economic problems (on the contrary, the Chinese economy is doing well) and that Beijing has the confidence to overcome even greater challenges in the future.
- The propaganda indicates that both Xi and Trump are responsible for maintaining the stability of trade relations and whichever side disrupts this stability going forward is deserving of blame.
- The propaganda signals that the U.S. and China both stand to win in the long term if they engage in cooperation rather than competition.
3. The Sino-U.S. trade truce presents benefits, risks, and opportunities for both Xi Jinping and President Trump.
For Trump, the pause in the trade conflict gives him time to address other pressing geopolitical issues (Ukraine-Russia, Middle East, Latin America, etc.) and domestic problems (particularly an economy facing recessionary pressures) in the lead-up to the mid-term elections. Should Trump weather the storm and the Republicans cling on to Congress, he would have more leeway to tackle the “China challenge” from late 2026 and onwards. The Trump administration could also use the one-year pause to shore up U.S. supply chains and access to rare earths and other critical materials, as well as address other vulnerabilities that have been exposed as a result of recent escalations in trade tensions.
For Xi, the extended trade truce fits with the CCP’s strategy of “delaying and waiting for change.” The Xi leadership will likely look to seize the one year pause period to rescue the economy, improve governance, and resolve some of the many crises plaguing the regime. In particular, Xi could step up “rectification” efforts (i.e. the anti-corruption campaign) to clean up the lingering disloyal and corrupt elements in the CCP that he believes to be seriously impeding government efficiency, as well as minimize the internal opposition to his taking a fourth term at the 21st Party Congress.
Yet Xi’s efforts at “rectification” could bring about a contradictory result. Even as Xi’s factional foes in the Party elite dwindle and come under heavy control, the “anti-Xi” elements in the regime have likely swelled to encompass the majority of rank-and-file officials whose interests have been hurt by the anti-corruption regime and initiatives have been stifled by the need to be “guided” by Xi’s political theories. While the rank-and-file officials cannot challenge Xi directly, they can sabotage his plans by employing “weapons of the weak” like “lying flat,” practicing “inaction,” and “preferring left instead of right” when implementing policy. Ultimately, Xi’s concerns about factional struggle and attempts to fix structural deficiencies in the CCP authoritarian system could be creating another potentially more serious source of political instability.
How the Xi leadership evaluates the “fruits” of the Xi-Trump meeting in Busan could also lead to eventual self-sabotage. We earlier noted that Xi Jinping resides in a siloed information environment, and Chinese scholars have “advocated that the PRC should always retaliate first against U.S. sanctions — regardless of whether the move is successful or backfires — and then negotiate afterward to gain leverage in future talks.” Should Xi’s advisers believe that President Trump did a TACO (“Trump Always Chickens Out”) in South Korea, America’s domestic and foreign crises have left it particularly vulnerable, and “fighting fire with fire” is the best path forward when during with the U.S., then Beijing could potentially overreach in subsequent negotiations and in searching for leverage against Washington (including playing the rare earths card). This would in turn lead to sharp escalations in Sino-U.S. trade tensions and other disastrous consequences for the PRC.
2 Beijing targets capital flight and fraud with gold tax reform
On Nov. 1, the PRC Ministry of Finance announced tax policies related to gold (hereinafter referred to as the “2025 gold tax policy”). The policy would be in effect from Nov. 1, 2025 to Dec. 31, 2027, and would repeal the previous gold tax policy.
Key points in the 2025 gold tax policy are as follows:
- As long as “standard gold” is traded on the Shanghai Gold Exchange or the Shanghai Futures Exchange, the seller will be exempt from value-added tax (VAT).
- If physical gold is withdrawn from the vault, the buyer’s ability to deduct input VAT or issue special invoices will depend on the intended use of the gold:
- If the gold is used for investment, only a regular invoice may be issued and a 6 percent VAT deduction is allowed.
- If the gold is used for production, a special invoice can be issued and a full VAT deduction (13 percent) is allowed. Any violations (i.e. using the gold for purposes other than production) will result in the suspension of special invoices for between three to six months to the party in question.
Under the previous gold tax policy, any gold (including investment gold bars) traded on the Shanghai Gold Exchange was eligible for an immediate VAT rebate and exports were eligible for a full 13 percent VAT refund.
Background
Due to the PRC’s strict foreign exchange controls, gold (a high-value and easily concealable asset) has become the preferred conduit for underground money houses, corrupt funds, and illicit proceeds. Prior to the 2025 gold tax policy, gold smuggling not only caused massive tax revenue leakage but also fueled VAT invoice fraud, money laundering, and capital flight. This poses a systemic threat to the PRC’s financial oversight and anti-money laundering system.
Meanwhile, central banks worldwide have been increasing gold holdings (2022: 1,136 tons, 2023: 1,037 tons, H1 2024: ~500 tons) to hedge against U.S. dollar credit risks since 2022. Among those central banks was the People’s Bank of China, which increased its gold reserves by 329 tons over 24 consecutive months (since November 2022). Spot gold prices have surged from an average of $1,800 per ounce in 2022 to breaking the $4,000 mark in October 2025.
Our take
At a glance, Beijing’s 2025 gold tax policy appears to be aimed at boosting transactions of the yellow metal through VAT deductions, thereby boosting fiscal revenue. However, the CCP authorities also appear to be plugging loopholes that have been exploited for money laundering, capital flight, and fraudulent export tax rebates through gold transactions, as well as to stabilize liquidity on the gold exchange and enhance the stability of the financial system. Therefore, Beijing’s policy adjustment can be seen as a supplementary measure to the PRC’s foreign exchange controls, effectively bringing physical gold into the capital account regulatory framework.
1. Based on publicly available data, Beijing’s 2025 gold tax policy will only have a limited impact on increasing fiscal revenue.
The Shanghai Gold Exchange and the Shanghai Futures Exchange do not disclose data on physical gold deliveries, at least at the time of writing. But according to figures published by the China Gold Association, national industrial and other gold consumption in 2024 was only 80.16 tons. Assuming this represents the maximum scope affected by the new policy, and using an estimated average 2025 gold price of 600 yuan per gram, Beijing’s theoretical annual fiscal gain from reducing the input tax deduction rate for production-use gold from 13 percent to 6 percent would be around 3.4 billion yuan. This amount is negligible compared to China’s total VAT revenue of 6.67 trillion yuan in 2024.
2. Beijing’s 2025 gold tax policy appears to be geared more towards blocking channels for capital outflows and fraudulent tax rebates rather than merely increasing tax revenue.
Under the old gold tax regime, illicit actors could exploit the “levy and immediate rebate” (即徵即退) policy for gold transactions by falsely declaring investment gold bars as raw materials for production, thereby obtaining special VAT invoices to fraudulently claim input deductions or export rebates.
The “levy and immediate rebate” mechanism originated from a 2002 policy that granted tax incentives to the gold industry. Per the old policy, VAT was collected according to regulations, then immediately refunded in whole or in part to encourage industrial activity. However, illicit actors soon found loopholes in this system.
Below is a simplified, hypothetical example illustrating how the old policy was abused:
- An illicit actor sets up shell company A in mainland China.
- Shell Company A purchases 1 kg of gold (AU99.99) from the Shanghai Gold Exchange for 600,000 yuan. The exchange issues a VAT invoice totaling 678,000 yuan (including 13 percent VAT). The tax authority then refunds 78,000 yuan of VAT to company A.
- Shell Company A falsely declares the gold as being processed into jewelry (rents a factory for the purpose of taking photo “proofs,” but produces no actual goods), and “exports” it to Shell Company B in Hong Kong. Then Shell Company A issues another export VAT invoice, and applies for an additional 78,000 yuan tax rebate.
- Shell Company B sells the gold in Hong Kong for 678,000 yuan. The illicit actor thus collects two rounds of tax refunds, netting 156,000 yuan in illegal profits.
- In some cases, the gold never leaves China. Smugglers instead use fake export documents to claim tax rebates while reselling the gold domestically for cash.
Under the new policy (2025 gold tax policy), investment-purpose gold purchases are no longer eligible for the “levy and immediate rebate” treatment. Such purchases are limited to receiving a 6 percent input VAT deduction with an ordinary invoice. Only gold used for verified production purposes may qualify for the full 13 percent VAT deduction or rebate. If a production enterprise is found to have misused the gold, it will face a three to six month suspension from issuing special VAT invoices, effectively preventing it from obtaining further tax rebates. This measure significantly narrows the window for fraudulent tax refund schemes.
Additionally, in coordination with the tax system reform, customs and exchanges are advancing digital tracking of physical flows to block cross-border arbitrage in precious metals.
3. Beijing’s 2025 gold tax policy could also be a strategic move to stabilize liquidity in the gold exchanges and strengthen the financial system’s resilience in preparation for future global financial risks.
i) The new policy reduces liquidity risk in the Shanghai Gold Exchange and reinforces the credibility of “paper gold.”
China’s gold market operates under a bifurcated structure, dividing transactions into two primary position types: paper gold (non-deliverable, account-based) and physical gold (deliverable, vault-withdrawable).
Historically, Chinese investors have shown a far stronger preference for physical gold than international averages. Under strict foreign exchange controls and a closed capital account, gold has served as a natural hedge for households and enterprises against RMB depreciation and financial uncertainty. Consequently, whenever there is market stress — such as currency depreciation or geopolitical tension — investors tend to withdraw physical gold, creating the risk of a “liquidity run” on exchanges.
By raising the tax and compliance cost of physical delivery, Beijing’s 2025 gold tax policy discourages investors from taking delivery of physical gold. For those merely seeking speculative or hedging exposure, holding paper gold becomes more cost-effective. In other words, Beijing’s goal is not to prevent an actual run, but to lower the probability of a potential one.
Beijing’s move is a form of “preventive liquidity management” where taxation is the means, but financial stability is the real objective. The logic behind the move is similar to Beijing’s controls over foreign exchange, U.S. dollar deposits, and crypto assets in recent years — by raising the cost of conversion or redemption, the CCP authorities can suppress sudden surges in withdrawals and strengthen systemic stability.
ii) The new policy raises the tax cost of physical gold for investment, boosting China’s gold premium and attracting external gold inflows, thereby expanding domestic reserves.
China’s domestic gold prices have long traded above international benchmarks. Between 2024 and 2025, the “Shanghai Gold” premium averaged $30 to $60 per ounce, reflecting robust domestic demand. Following the new policy, this premium is likely to widen further.
Higher domestic prices seem to dampen consumer demand at first glance. But in practice, they generate a powerful suction effect, drawing gold into China through legal, semi-legal, or gray-market channels.
China possesses the world’s largest gold import infrastructure. When the domestic premium rises, international traders have a strong incentive to ship bullion into China, whether through official import quotas or via “bonded-to-fake-export” gray routes that funnel gold into the mainland market. The net effect is that Beijing can absorb physical inflows and expand national gold reserves indirectly, without visibly increasing official gold purchases.
iii) By attracting gold inflows, Beijing builds reserve strength and gains financial tools for potential “extreme scenarios.”
Beijing’s rollout of the 2025 gold tax policy coincides with a period of rising global financial instability. The U.S. faces persistent fiscal deficits and a high interest rate environment, driving up Treasury yields and eroding the value of foreign asset holdings. More broadly, geopolitical fragmentation and de-dollarization have led many nations to reconsider the security of their reserve assets. Meanwhile, PBoC gold purchases have already reached record highs.
In addition to being a fiscal adjustment, the gold tax reform also functions as a financial defense maneuver. In theoretical “extreme scenarios” — such as escalation of U.S.-China conflict, suspension of dollar settlement, or a global financial crisis — the CCP could, under its authoritarian system, freeze, requisition, or confiscate private gold holdings, effectively converting private assets into state reserves.
Such moves are not without historical precedent. During the early years of the PRC (1950 to 1955), the CCP authorities collected roughly 200 tons of gold and several thousand tons of silver nationwide, forming the basis for foreign reserves used to import grain and steel. Similarly, the U.S. government controversially conducted a mandatory gold buyback in 1933 as part of a series of monetary and fiscal reforms to stabilize an economy that was impacted by the Great Depression.
