MNI INTERVIEW: HK Bill A Problem Even After Phase 1 China Deal

     BEIJING(MNI) - China and the U.S. are likely to sign a 'phase-one'

preliminary trade deal this year as the two sides negotiate rolling back tariffs

on Chinese goods, although U.S. legislation expressing support for protests in

Hong Kong could cast a shadow over later-stage trade talks, a Chinese former

vice commerce minister told MNI in an interview.

     "I am optimistic that the phase one deal could be done by the end of the

year, " said Wei Jianguo, now vice chairman of the China Center for

International Economic Exchange, a state-backed think tank, adding that

compromises had been achieved on substantive issues, leaving mainly smaller

details still to be agreed.

     A deal would help Chinese exports and help bolster investor confidence at a

time when its economy is slowing, he said, adding that it was possible that an

end to the dispute with the U.S. might pave the way for increased cooperation in

new technologies, such as alternative energy and intelligent manufacturing.

     While China will continue to insist on the removal of additional tariffs

imposed since the trade war with Washington broke out in 2018, an initial move

could see a phased, partial withdrawal of the levies, Wei said. Subsequent

negotiations, for second- and third-phase deals, would be more challenging, as

they touch on the two countries' core interests, he said.

     "There is a long way to go for future negotiations, relating to a vast

range of topics," the veteran former official said, mentioning protection for

intellectual property rights, Chinese restrictions on foreign investment and its

financial sector, subsidies for state-owned companies, and technology

manufacturer Huawei. Dividing talks into phases should make tackling these

easier, he added, pointing to intellectual property rights and China's drive to

expand its cutting-edge industries, which the U.S. says rely on stolen

technology, as most challenging.

     "Whether the two sides choose to engage on these issues is what I am most

concerned about," said Wei.

     --HONG KONG BILL

     President Donald Trump's decision to sign the Hong Kong Human Rights and

Democracy Act of 2019 will "definitely" impact future talks, Wei said, adding

that the U.S. was crossing a Chinese red line. China's foreign minister summoned

the U.S. ambassador after the signing on Wednesday, and accused Washington of

interfering in its domestic affairs.

     But progress in trade talks would reduce the need for Chinese fiscal and

monetary stimulus, Wei said, adding that moving the economy away from dependence

on exports to a greater focus on domestic consumption would take time.

     "The trade war has badly impacted export-oriented companies on the east

coast, particularly private firms targeting the U.S market, and they need some

time to adapt to the new conditions," he said, although he expressed confidence

that Chinese growth would remain above 6% next year, and that the economy should

improve in the second half of 2020.

     China is also seeking to reduce its reliance on the U.S. market by seeking

free-trade agreements with other countries, including via the proposed Regional

Comprehensive Economic Partnership in the Asia Pacific region, and the

China-European Union Bilateral Investment Treaty. Such deals could additionally

strengthen China's hand in its talks with Washington, Wei said.

     The RCEP agreement, which would group China with a number of developing

countries as well as with partners such as Japan and Australia, would also send

a signal that China is not prepared to give up its developing country status in

the World Trade Organisation, he said.

     Next year will also be key for Chinese relations with Europe, Wei said,

adding that European leaders should balance their relations with the U.S. and

China, and would obtain real benefits from the BIT deal with Beijing.

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

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