US-China meeting in Bali lays foundation for stronger economic ties

Hong Kong
CNN Business

Officials attending the first U.S.-China summit under the new Biden administration in March 2021 exchanged undiplomatic words, highlighting a strained relationship between the world’s two largest economies grappling with a trade war in slow fire

US-China ties have cooled further since then, especially after US House Speaker Nancy Pelosi visited Taiwan in August. That helps explain why expectations for Monday’s meeting between President Joe Biden and Chinese leader Xi Jinping on the sidelines of the G20 summit were set so low.

But to the surprise of many, the meeting included televised images of smiling officials, handshakes and a pledge to reopen lines of communication on pressing global issues. US Secretary of State Antony Blinken, who had clashed with his Chinese counterparts at the 2021 summit in Alaska, is now expected to visit China next year.

Analysts said the meeting could lay the groundwork for stronger ties between the world’s major economic powers. Stock markets in mainland China and Hong Kong were buoyed as a result, with tech giants such as Alibaba ( BABA ) and Tencent ( TCEHY ) rising on Tuesday.

US President Joe Biden (R) and Chinese President Xi Jinping (L) shake hands as they stand on the sidelines of the G20 summit on the Indonesian resort island of Nusa Dua from Bali on November 14, 2022.

Speaking after the three-hour meeting, Biden described as an “open and frank” discussion, saying he plans to handle the relationship with China “responsibly.”

“We’re going to compete vigorously, but I’m not looking for conflict,” Biden told reporters.

Xi said in a statement that the two countries should avoid “confrontation and conflict.” Both sides would continue discussions on the basis of common understandings already in place and would “strive for an agreement soon”, he added.

Neil Thomas, senior analyst for China and Northeast Asia at Eurasia Group, said the purpose of the meeting was to “build a floor” under declining relations between Beijing and Washington.

“The meeting met or exceeded the low expectations set by the Biden administration and was a slight positive for global stability,” he said.

In an official reading, President Biden said the United States and China must work together to address transnational challenges such as climate change and global macroeconomic issues such as debt relief, health security and global food security.

“The two leaders agreed to empower key senior officials to maintain communication and deepen constructive efforts on these and other issues,” he said.

Ken Cheung, chief Asian currency strategist at Mizuho Bank, said the meeting was a positive sign that the two sides were willing to find common ground.

“Despite no tangible results, the resumption of direct dialogue between the top leaders between China and the United States indicated the cooling [of] China-United States tensions, of good omen [for] the China-US relationship after China’s Party Congress and the US mid-term elections,” he said.

The relationship is at its lowest point in decades, with friction over trade, human rights and Taiwan fueling fears of a cold war between the two world powers. Last month, the Biden administration imposed unprecedented export controls on China’s chip industry, threatening to severely undermine China’s high-tech ambitions.

While Biden said he and Xi were nowhere near resolving the litany of contentious issues, there was no need to worry about “a new cold war.”

The message was welcomed by investors.

Hong Kong’s Hang Seng Index (HSI) rose nearly 4% on Tuesday, on track for a third straight day of gains. The index, boosted by China’s latest policy shift towards a gradual reopening of borders and a broad rescue package for the ailing real estate sector, has soared 14% since last thursday

Chinese tech stocks, which had been hit by a regulatory crackdown at home and rising geopolitical tension abroad, led markets higher on Tuesday. Alibaba shares soared 11% in Hong Kong, followed by Tencent, which rose 10%.

China’s Shanghai Composite Index also rose 1.6%, while Shenzhen’s Technology Components Index rose 2.1%.

The “unexpectedly constructive tone” of the Biden-Xi meeting has served to boost markets, analysts at ING Group said in a research report.

They said Biden’s reiteration of the US position on Taiwan and its “One China” policy was helpful, as was Xi speaking out against Russia’s use of nuclear weapons..

The most surprising development was Blinken’s planned follow-up visit to China.

“This was much more progress than we, or indeed most commentators, had expected, and it dominates what could otherwise have been a fairly unremarkable G20 summit,” ING analysts said .

— CNN’s Betsy Klein, Kevin Liptak and Jennifer Hansler contributed to this report.

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