The global capital market has experienced considerable turbulence recently. Three major U.S. stock indexes fluctuated repeatedly. From September 28 to October 6, the Dow fell 1.30%, the S&P 500 fell 1.79%, and the Nasdaq fell 3.13%. In European stock markets, the German DAX fell 3.86% over the same period. The French CAC index fell 2.37%. Meanwhile, the global energy market has risen. From September 28 to October 6, U.S. crude oil rose by 2.02%, and Brent crude oil rose by 1.65%. Natural gas prices have risen sharply. European natural gas prices have soared by 60% in just two days. The soaring energy costs have triggered inflationary pressures. There are worries that the economic growth rate will slow down, and the European Union has sounded the alarm about this.
For China, its focus is more on the latest changes in its relations with the U.S.
On October 6, Chinese Foreign Ministry spokesperson Hua Chunying announced that Yang Jiechi, a member of the CPC Central Committee's Political Bureau and director of the Office of the Central Committee for Foreign Affairs, will meet with Jake Sullivan, President Joe Biden's U.S. National Security Advisor, in Zurich, Switzerland. The meeting follows a consensus reached in a telephone conversation on September 10 between China and America's heads of state.
The two sides will exchange views on U.S.-China relations and related issues. This information immediately aroused the market's attention, as it is a further sign of the easing of the relationship between the two countries. It is estimated that an important purpose is to negotiate a meeting between the two heads of state.
On October 6, U.S. local time, a senior U.S. government official revealed the key result of the talks is that the U.S. and China have reached an agreement in principle. U.S. President Biden and Chinese President Xi Jinping will hold an online meeting before the end of the year. It is worth noting that both the United States and China said that the six-hour meeting was constructive and frank. A senior U.S. official has stated that in general, the conversation was the most meaningful and substantive one conducted under the level of the head of state so far. He added that Washington hopes this meeting will become a model for future contacts. The Ministry of Foreign Affairs of China also said in a statement that the two sides agreed to take action in strengthening strategic communication, properly managing differences, avoiding conflict and confrontation, seeking mutual benefit, and working towards improving the relations and stable development of the two countries.
Judging from the publicly disclosed information, the tone of the conversation is remarkedly different from that of the U.S.-China talks in Alaska that took place in March this year, and it is also very different from the Tianjin talks between Chinese and U.S. officials in late July this year. Since this meeting directly paved the way for the meeting between the two heads of state, it can be said that a wind of change is possibly blowing in the awkward U.S.-China relations since the Biden administration took office.
Another sign occurred a little earlier. On October 4 1, U.S. Trade Representative Katherine Tai said that some Chinese imports will be excluded from the tariff list of former U.S. President Trump, and the U.S. will frankly communicate with China on the implementation of the trade agreement. Tai said that the U.S. will continue to urge China to stop providing multi-billion-dollar state subsidies to the semiconductor, steel and other industries. The United States believes that these subsidies harm the interests of American companies. Tai said that she will seek to meet with Chinese senior officials in the next few days to have an open and honest dialogue about China's under-purchase of American goods. She stated that she will reopen a targeted system to authorize the exclusion of particular Chinese products from the U.S.' punitive tariffs, which will relieve some of the strain on American businesses, and that she may make more changes to exclusion procedures in the future. It is worth noting that when asked about the issue of decoupling with China, Tai said that it is unrealistic for the world's two largest economies to stop trading with each other.
These two signs are no longer subtle diplomatic hints, but high-profile declarations of the clear willingness of the decision-makers of the two countries to promote the improvement of bilateral relations. ANBOUND pointed out in an analysis in September that the current situation of the United States and its government has brought a geopolitical "window period" for China. China can continue to maintain its current policies without fear of pressure from the United States for the next 2-3 years. Such a "window period" is very precious to China, but how to deal with it and whether to adjust the country's policy tone based on struggle is a new geopolitical issue.
Will such developments between U.S. and China lead to a resumption of the two nations' previous relationship? Obviously, such a possibility seems remote for now, and neither side will be optimistic about it. The basic pattern of U.S.-China relations is strategic, and the existing problems and oppositions are structural. This was decided when the U.S. national security strategy was adjusted, as seen in the 2018 National Defense Strategy. Even senior officials of the U.S. government indicate that the Zurich meeting between China and the United States should not be regarded as a thawing of relations between the two countries, but an attempt to stabilize the relations to allow competitions to be managed more responsibly.
It is the circumstances that determine the current development of U.S.-China relations, and this is also the result of the pressures faced by both countries, and this is especially true for the United States.
From a practical standpoint, if there is some loosening in U.S.-China ties, it will send a crucial positive message to the two countries and the rest of the globe, allowing more energy, money, and time to be spent on resolving everyone's own problems. The interaction between geopolitics and geo-economics is like a pendulum, as ANBOUND has previously stated. It will not always be in such an extreme situation. It will gradually swing to a roughly balanced condition, but not an intermediate one, in the long run.
Possible changes in U.S.-China relations may bring shifts in economic fields such as trade, investment, finance, and geopolitics. The direct pressure China faces from the United States may be reduced, but China may also need to make some concessions in related fields. However, such softening will be limited because the two countries' relations still have a bottom line that will not simply change.
Final analysis conclusion:
Some recent signals in U.S.-China ties point to the prospect of a change in the two countries relationship. The "window period" in the relationship predicted by ANBOUND is rapidly approaching. For both China and the United States, seizing this vital "window period" will be critical.
