Thu, 27 Jun 2019

China blamed Washington for wrecking trade talks and insisted the US must alter its "wrong practices" before negotiations can resume, leaving the next move to President Donald Trump as financial markets slump amid prospects for a prolonged dispute.

"China's stance on the talks has been clear - if the US wants to resume talks, they should show sincerity and correct their wrong practices," ministry spokesman Gao Feng said in Beijing on Thursday. "Only on a basis of equality and mutual respect can the talks continue."

The comments are the latest sign that China has no intention of making concessions to the US to restart talks, which collapsed earlier this month. The US blames China for backing out on parts of the deal which were already agreed, while China blames the US for escalating the trade war by announcing further tariffs.

US equity futures and European stocks tracked a slide in Asian shares as investors increasingly anticipate a full-blown trade war between the world's two largest economies. Safe assets were in demand, with gold and the yen gaining alongside the dollar and Treasuries.

Gao didn't respond to a question about whether the two sides were still in communication, or if there were plans for the US delegation to come to Beijing. He also declined to say what specific signs of sincerity China required from the US to restart talks.

"The US unilaterally escalated trade tensions, and has taken many actions which seriously hurts the China-US trade talks," he said. "There are principles for cooperation, and there are bottom lines in negotiations. China won't make concessions on matters of principle."

'Extreme Pressures'

The US ratcheted up tensions with China last week by putting Huawei Technologies on a blacklist that jeopardises its supply of American components from semiconductors to the Google software that run on its smartphones. Trump is considering widening the dragnet to include five Chinese video surveillance companies, people familiar with the matter said earlier.

China has lodged a solemn protest with the US on the ban on exporting Huawei, Gao said.

Chinese Foreign Minister Wang Yi, speaking at the Shanghai Cooperation Organisation meeting in Bishkek, Kyrgyzstan on Wednesday, said China's door is open if the US is willing to negotiate in an equal manner, but will definitely fight until the end if the US opts for "extreme pressures".

Wang said the US's suppression of a private company such as Huawei is "typical behavior of economic hegemony".

WATCH: China's Xi: Prepare for difficult times

Economists at some of the biggest financial institutions are growing increasingly pessimistic that the two sides will resolve the trade dispute. Goldman Sachs, Nomura Holdings and JPMorgan Chase and Co. are among those that have rewritten their forecasts as Trump threatens to impose a 25% tariff on around $300 billion of additional Chinese imports.

Analysts at Nomura have made that hike in duties - which would mean practically all of China's exports to the US are hit by tariff hikes - their baseline forecast. They see it as a 65% probability before year-end, and most likely to come in the third quarter.

New Cold War

China and the US may be stuck in a cycle of "fighting and talking" until 2035, according to a senior Chinese government researcher, who said relations will get worse before they get better.

For the next few years both sides will test each other's strategic intentions and be prone to misjudgments which make trade talks difficult, according to Zhang Yansheng, chief researcher at the China Center for International Economic Exchanges. Zhang previously worked at the country's top economic planner, and spoke at a briefing organised by the government.

Speaking in the southeast province of Jiangxi this week, President Xi Jinping readied Chinese officials for a lengthy fight. He warned cadres of the "complicated and long-term effects" of external influences and called for a "new Long March" - recalling the party's revolutionary struggles in the 1930s.

Xi said China should become self-reliant in core technologies and even issued a veiled threat when he visited a rare earths processing plant, signaling that China may restrict sales of the elements used in everything from smartphones to electric vehicles.

China's government is drawing up plans to potentially bail out Huawei if necessary, according to a person familiar with discussions on how to respond to the threats to the company. One possible option includes offering financial assistance to Huawei, according to the person, who added that nothing had been decided yet.

The Communist Party's flagship People's Daily newspaper on Thursday accused US politicians of waging a "technology cold war" and warned that targets in other countries could also suffer from the US's "zero-sum mentality".

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