MNI EXCLUSIVE: China Wants Easier US Trade Terms, To Keep Deal

--Unlikely China Will Meet Import Commitments, Advisors Say

--China Wants More Time, Or Reduction In Commitments

--But Wants To Preserve Phase 1 Deal

     BEIJING (MNI) - China may propose extending the implementation period of

its Phase 1 trade agreement with the U.S. or cite force majeure to reduce

promises for purchases of American goods, but Beijing wants to keep the deal if

possible despite a report in a state-run newspaper that some officials were

unhappy with it, advisors and sources close to the government told MNI.

     As the coronavirus pandemic takes a toll on both Chinese demand and U.S.

production, policy advisors and sources said it is "almost impossible" for China

to meet its commitment to increase imports by no less than $200 billion over

2017's level over the next two years, especially given historic declines in the

prices of energy products.

     "It looks unlikely that China could increase its imports this year from the

U.S. by USD87.1 billion on 2019, or by USD63.9 billion on top of the 2017

baseline. So hopefully both sides can agree to extend the deadline," said He

Weiwen, former economic and commercial counsellor at the Chinese Consulate

General in San Francisco and New York. He noted that China's imports from both

the rest of the world and from the U.S. alone dropped 5.9% in the first four

months of the year versus the same period of 2019.

     --DELAYING IMPLEMENTATION

     "I think both the Chinese and the U.S. governments would like to extend the

implementation period. Trump can still talk about the same numbers. And that

definitely gives Trump a political advantage during the run-up to the general

election in November," said a source close to the government.

     "It doesn't do China any good to directly confront Trump. The relationship

with the U.S. is still the most critical to China, so despite the noises, China

will not end an agreement it has fought hard for," said the source.

     Cui Fan, deputy general-secretary and director of research at the China

Society for WTO Studies, also noted that it would be difficult for Trump to

soften his stance given the election. "The deal contains a force majeure clause

allowing the two sides to bring up renegotiations," said Cui, who is an advisor

to the Ministry of Commerce, "With a pandemic like this, the current numbers (in

the deal) are unrealistic."

     He Weiwen, now senior fellow at Renmin University's Chongyang Institute for

Financial Studies, believes China will try to keep to the agreements signed by

the two countries, though he agreed that it may cite force majeure, in

consultation with the U.S. side, to adjust its import plans.

     --DISPUTE SETTLEMENT

     "If the U.S. objects to activating the clause even though we are facing a

pandemic, it would be the U.S. which is violating the deal," said He.

     While China will continue to make efforts to increase its imports, agreed

purchase amounts for energy, industrial and agricultural products all need to be

adjusted if there is no extension, He said, adding that this would be possible

within the dispute settlement mechanism set out in the agreement.

     The impact of the crisis on the aviation sector may further dampen demand

for imports of aircraft, after China took delivery of only 23 planes from

Jan-April, down from 99 in the same period of last year, He said. Impediments on

both the supply and demand side pose hurdles for purchases of farm products

including beef and pork, with U.S. producers struggling with labour shortages,

said both He and the government source.

     Global Times, the Chinese Communist Party's English-language tabloid,

published a source-based story on Monday reporting that some senior advisors

wanted to renegotiate the trade deal or even scrap it. The article in the

newspaper, which has a record of taking hawkish positions, does not fully

reflect the government's view, one source said.

     Even so, while China is keen to preserve Phase 1, Chinese officials have

largely given up hope of further developing trade agreements with the U.S. in a

Phase 2 deal, government sources said, echoing comments from advisors over the

past few months.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: archie.zhang@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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