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February 21, 2024
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Biden and Xi’s meeting sent an important signal for U.S. business in China

BEIJING — President Joe Biden’s meeting with Chinese President Xi Jinping last week has set a bottom line in the relationship that reduces uncertainty for businesses, analysts said.

Biden and Xi met for the first time in about a year in San Francisco on the sidelines of the Asia-Pacific Economic Cooperation conference.

“I think there’s a lot of consensus coming out of this summit,” Wang Dong, executive director of the Institute for Global Cooperation and Understanding at Peking University, told reporters Tuesday.

“What you get from this summit is a very clear signal the two countries, they are committed to what we can call recouple, in a way, on the basis of reciprocity and mutual respect,” he said. “I think this is very important for both countries and indeed for the global economy as well.”

In essence, the U.S. and China are working out what it means to cooperate where they can.

“I think for U.S. businesses the hope is that this kind of new tone can translate into a new normal for the economic relationship, where there’s a mutually beneficial relationship where China plays by the rules and the United States and China can get back to a more normal economic footing, have some of these tariffs and retaliations drop away,” said Jake Colvin, president of the Washington, D.C.-based National Foreign Trade Council.

He said he participated in the Asia-Pacific Economic Cooperation CEO Summit in San Francisco last week.

In conversations with Xi, Biden did not budge on export controls, enacted out of national security concerns. But a White House readout said “the leaders affirmed the need to address the risks of advanced AI systems and improve AI safety through U.S.-China government talks.”

The two sides also agreed to restore military-to-military talks, which have been on a hiatus for more than a year.

“For the business community, the meeting demonstrates that full decoupling is off the table and that investment in China remains permissible, at least in non-sensitive industries,” Gabriel Wildau, managing director at Teneo, said in a note Friday.

“The meeting signals that both leaders want to avoid a downward spiral and cooperate where interests align,” he said.

The Biden administration has sought to restrict U.S. investment in, or business with, Chinese companies that are developing advanced tech that could support military development. But U.S. officials have pointed out the vast majority of trade and consumer-related business isn’t affected.

Top-down messaging

As with U.S. official visits to China this year, the Biden-Xi meeting spurred action, such as the resumption of more flights between the two countries.

For the first time since the Covid-19 pandemic, a direct flight headed for Washington, D.C., took off from Beijing on Tuesday, state media reported.

“I heard stories from dozens of decisionmakers telling me their versions of how their personal experiences with Chinese interlocutors had suddenly changed: promises of imminent licenses long thought dead, clarity on anti-espionage rulings, higher-level access to Chinese decisionmakers, favorable treatment by the Chinese media, and the like,” Ian Bremmer, president of consulting firm Eurasia Group, said in a note Monday.

Mastercard on Monday announced its joint venture in China received approval from the People’s Bank of China to begin processing domestic payments. The venture waited nearly four years since its application to begin preparations was approved in principle.

Wedding versus marriage

After meeting Biden, Xi spoke at a dinner with top U.S. business executives in which he said the fundamental question was whether the two countries are “adversaries or partners.”

“I was very heartened by the fact that there were so many companies that were invested in the U.S. and China having a positive relationship,” said Blueshirt Group managing director Gary Dvorchak, who attended the dinner.

“In a negative U.S.-China environment a lot of those companies could have stayed away. Why do I want my CEO having a picture with Xi Jinping?” he said. “It would have been very easy for the whole thing to be massively negative and not have people show up.”

Looking further out, Dvorchak compared the dinner to a wedding. “The happy day is a happy day. How is the marriage?”

Upcoming election risk

Over the weekend, Eurasia Group said it’s more likely now that the U.S. and China will see a “managed decline” in their relationship through the end of 2024, and a lower likelihood of “serious deterioration.”

But the consulting firm sees zero chance of a “substantial improvement.”

The U.S. presidential election is scheduled for November 2024. The democratically self-ruled island of Taiwan is due to hold its elections in January.

Beijing considers Taiwan part of its territory, with no right to independently conduct diplomatic relations. The U.S. recognizes Beijing as the sole government of China but maintains unofficial relations with Taiwan.

“Whether this positive atmosphere can last very long is in doubt with [the] coming next year’s presidential election,” said Jin Canrong, deputy dean, professor and doctoral supervisor of the School of International Studies at the Renmin University of China.

He described the Biden-Xi summit as “very good,” with some consensus, but noted that in the long term, managing the relationship is “a very hard job.”

From a long-term point of view, there’s some doubt within the Chinese public about how the consensus achieved can be implemented, “because our impression is that the record of the U.S. side [fulfilling] their promise is very bad. They promise every day but do nothing,” Jin told reporters Tuesday.

He is also deputy director of the Center for American Studies at the Renmin University of China, and holds other positions.

No ‘splashy deliverables’

Long-standing issues for U.S. business operations in China remain, and deals aren’t made overnight.

Despite media reports saying the Chinese government might use the Biden-Xi summit as an opportunity to announce a commitment to resuming purchases of Boeing’s 737 Max aircraft, no such news has materialized. Boeing did not immediately respond to CNBC’s request for comment.

“This meeting didn’t result in any splashy deliverables,” Colvin said. “It was successful in putting a floor under the relationship and setting a new tone for cooperation and for problem solving.”

“But I think for companies there’s still going to be a focus on derisking and diversifying supply chains,” he said. “Ultimately they will make their decisions based on the reality on the ground in China.”

Evelyn Cheng, CNBC

Evelyn Cheng is a senior correspondent with CNBC.

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