Shanghai | As China and the US prepare to sign a phase one trade deal this week, the mood is hardly celebratory in Shanghai, where economists and investors are worried about a permanent cooling in relations between the two powers.
Shares across Asia rose on Monday ahead of a White House signing ceremony on Wednesday involving US President Donald Trump and Liu He, Beijing’s top trade negotiator. However, there is still a question mark over what growing tensions over security and technology issues mean for the global economy.
While the outlook for investment opportunities in China on the first day of the annual UBS Greater China Conference in Shanghai was upbeat, top policy-makers and analysts warned the trade war was far from over.
“The first-stage agreement has applied a brake to the fast-sliding relationship, but there is still not yet a US policy towards China,” one senior Chinese official said.
“Under the table, the technology war is deepening,” he said.
“The rhetoric and policy behaviour over the last year is pushing to decoupling. The prospect is not very good for US-China relations.”
The official said the United States should accept China as a country which had a different ideology.
Former Federal Reserve Bank of New York president William Dudley told the UBS conference that the November US presidential elections meant Mr Trump was unlikely to risk hurting the American economy by antagonising China further on trade this year.
“You are seeing the president being more friendly on trade. The trade issue is not going to go away but it is not going to intensify going into the election,” he said.
Raghuram Rajan, Reserve Bank of India governor, said the trade tensions had created uncertainty for investment and global supply chains for the long term, as countries juggled their desire to support China economically but the US politically.
“Countries want to be friends with both. It is extremely important to find a way to patch things up. Significant institutional reform is needed to bring back trust,” he said.
UBS Asia Pacific president Edmund Koh told reporters that US tensions would amplify China’s efforts to bolster its technology sector, and there were significant opportunities for foreign investors as the world’s second-largest economy opened up.
Politically, however, there would still be issues between the two powers.
“It [the trade war] is more opportunistic for us because as a Swiss bank we are seen as being more independent. I’m glad they are actually talking. A Cold War is when you don’t talk,” he said on the sidelines of the conference.
“It will not be binary though, as there will not be an end date when everything is settled. Beyond trade there is still a lot of politics. It is positive as long as they are talking , the minute they stop talking and negotiating that is when there will be a lot of problems.”
The uncertainty created by the 18-month-long US-China trade war and on-again, off-again talks between the two powers has hurt markets in Australia and around the world.
There was a breakthrough last month when Mr Trump and President Xi Jinping agreed to suspend another wave of planned tariffs. Washington said China agreed to buy between $US40 billion to $US50 billion ($72 billion) worth of additional US agricultural products annually. The details of the 86-page phase-one deal have not yet been made public.
UBS chief China strategist Wendy Liu said the trade war was an incentive for Chinese companies to reduce their reliance on US technology and focus more on innovation. More funds were being directed into research and development, she said.
She said China’s interest rate cut in November would also encourage companies to investment in R&D.
UBS’s US economist Seth Carpenter said US manufacturing was stronger in the years leading up to the trade war, despite Mr Trump’s hope that American companies in China would shift their operations back to the United States.
“The irony is there was a renaissance in US manufacturing. That has actually been a casualty of the trade war,” he said.
