MNI EXCLUSIVE: Partial Trade Deal Less Likely: China Advisors

--US Xinjiang Moves Have Made Deal More Difficult, Advisors Say

--Beijing Keen To Limit Dispute To Trade Issues

     BEIJING (MNI) - The chances of a partial deal between China and the U.S.

have fallen significantly following Washington's latest moves to target Chinese

companies and officials, Chinese policy advisors and trade experts told MNI,

with one adding that Beijing is increasingly focussing on ensuring that what it

sees as a long-term dispute does not escalate.

     While some advisors thought there was still a possibility of an interim

agreement, they pointed to this week's U.S. move to add 28 companies and

organization to a blacklist and place visa restrictions on Chinese officials in

response to a "repressive campaign" in Xinjiang. President Donald Trump said

talks with China could be impacted should anything "bad" happen in the handling

of anti-government protests in Hong Kong.

     "China has insisted on the need to separate trade from other issues ... but

(recent U.S. moves) will increase mutual distrust," said Zhou Xiaoming, who

served at China's Mission to the United Nations Office in Geneva, describing the

chances of ever reaching a comprehensive resolution to the trade dispute as

"mission impossible" unless the U.S drops its determination to change China's

economic model.

     There is still a possibility of a partial deal, Zhou said, in which the

U.S. pulls back from a further increase in tariffs on Chinese goods Oct. 15 or

even commits to imposing no new additional levies, in return for Chinese

promises to import more farm and fuel products as well as further moves on

intellectual property rights, technology transfer, and market access. But

Chinese negotiators could also come home with "empty hands".

     Vice Premier and top trade negotiator Liu He is in Washington for a 13th

negotiation round, as talks resume after a suspension of more than two months.

     --TALKS ON YUAN?

     The presence of People's Bank of China Governor Yi Gang in the delegation

may indicate talks include currency and opening access to the financial sector,

a source with knowledge of trade issues said. Taxation and industrial policy may

also be discussed, the source said, noting that fiscal ministry, commerce

ministry, information technology ministry and the agriculture ministry officials

were also present.

     But there is only a "5% chance" of a partial deal, said Wang Haifeng,

director of International Trade and Investment at the Chinese Academy of

Macroeconomic Research. He expected no "obvious progress" on China's industrial

policy or financial sector.

     "Negotiators may explain China's subsidy policy is consistent with

international rules, and address the roadmap and timetable of opening the

financial sector," said Wang, adding that any breakthrough would be closely

linked to whether the U.S. pulls from back from increasing tariffs to 30% from

25% on $250 billion of Chinese goods on Oct. 15.

     Beijing still has room for promises on purchases of U.S. farm products, if

given a few years to meet any such commitment, the source familiar with trade

issues said.

     "If the Trump government is pragmatic and willing to solve problems, it

should give us time. We cannot settle matters in one step," the source said.

"What is done regarding the additional tariffs on Oct. 15 will be key to gauging

whether talks have made any substantial progress."

     The South China Morning Post reported preliminary negotiations have failed

to progress on key issues and that China refused to talk about forced technology

transfers. But the source told MNI China had made efforts to address this issue,

together with providing more protection for intellectual property rights and

opening up its markets, through measures including the upcoming Foreign

Investment Law.

     --LONG-TERM PESSIMISM

     In the longer term, the source was pessimistic the U.S. would agree to roll

back tariffs imposed since the dispute began last year, although he noted that

Trump and China's President Xi Jinping had the power to strike an agreement.

     "It is up to the two top leaders whether they want a deal or not," the

source said, noting that Beijing will try to ensure the dispute remains

contained within negotiations and does not spiral into confrontation.

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

Financial Studies, said China will insist on the removal of all tariffs imposed

since last year. Trump will regard targetting China as electorally advantageous,

and will not cede ground, said He, former counsellor at the Chinese Consulates

General in New York and San Francisco, and China will not abandon its economic

model.

     Zhou Mi, senior fellow at the Chinese Academy of International Trade and

International Trade and Economic Cooperation, a Ministry of Commerce think tank,

told MNI only a comprehensive deal would serve Beijing's interests.

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

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