Author: Yang Ge
Posted on: Caixin Global, March 5th, 2017
President Xi Jinping and his U.S. counterpart, Donald Trump, could reach a new understanding over cross-border acquisitions at their first meeting this week, clearing a cloud of uncertainty over a growing number of deals that are running into political resistance, observers said.
They added that any such new understanding would likely result in a slowdown of deals in the sensitive high-tech and financial sectors, and that Trump would pressure Xi to give U.S. firms the same access to China that Chinese firms now get in the U.S.
Observers were split on the tenor of the upcoming meeting, with some predicting tension, and others saying the April 6-7 summit at Trump’s Mar-a-Lago resort in southeastern Florida will be more cordial. But most agreed a slowdown in cross-border deals was almost inevitable after the meeting, since Trump argues the U.S. gets far less out of the world’s largest bilateral trade relationship than China does.
“Donald Trump represents a voice of concern about the imbalance or so-called unfairness in the economic relations between the two countries. So he has vowed to correct this,” said Jia Qingguo, dean of the School of International Studies at Peking University.
“I think both sides will accept the idea of clarifying the boundaries for investment so that businesses can have a better guide when they make investments. Otherwise, you make a lot of efforts, put a lot of resources in the deal, and then you’re told that it’s not approved on national security grounds.”
Jia and others made their predictions amid a growing tide of collapsed deals after Chinese firms tried to buy U.S. counterparts in the technology and finance sectors. The latest signals from that tide came just this week, when Trump’s team was reportedly looking for an American or other friendly buyer for Westinghouse Electric Co. LLC, which filed for Chapter 11 bankruptcy protection in the U.S. late last month. The administration reportedly was making its queries after becoming concerned a Chinese buyer might launch a bid for Westinghouse’s nuclear power plant-building assets, according to a Bloomberg report.
Earlier this week, other reports said that two members of the U.S. House of Representatives had sent a letter to Washington requesting special scrutiny for the proposed sale of wire-transfer specialist MoneyGram International Inc. to Chinese financial services firm Ant Financial Services Group Co. Other recent deals that collapsed for similar reasons before Trump took office included plans for Chinese buyers to purchase Western chip makers Aixtron SE and Micron Technology Inc.
Low-Tech Investments Welcome
Jia said that Trump was likely to welcome Chinese investment in certain lower-tech areas that are priorities for the U.S. president. “Certainly Donald Trump hopes China will invest in the manufacturing industry in the U.S. and other sectors which aren’t directly related to military or high-tech,” Jia said. “He wants China’s investment in those things, where the U.S. doesn’t want to invest.”
But deals from the technology and financial sectors are likely to get even more scrutiny going forward, more for political rather than national security reasons, said Edward Tse, CEO of Gao Feng Advisory Co.
“While Xi Jinping might try to bring up this topic to Trump during their meeting, it will most likely fall on deaf ears,” Tse said. “Trump has positioned China as America’s largest threat to economic prosperity, and due to his recent political failures, he will need a tool such as anti-Chinese policies to rebuild support in Congress and among his supporters that feel alienated by his domestic policies.”
While some have predicted the upcoming summit could be tense as each side tries to gain an advantage, signals of toughness coming from both sides could largely be the result of posturing as each leader plays to his respective home audience, said Gary Dvorchak, Asia director at BlueShirt Group, an investor relations adviser.
He made his assessment as a new Pew Research Center poll showed that Americans’ impressions of China have generally improved over the last few years, in step with an improving domestic economy. The poll found that 44% of Americans now have a favorable of China, up from 37% a year earlier, while the number of people who viewed China unfavorably dropped to 47% from a previous 55%.
“I think the exchange is going to be far more cordial than the public posturing,” said Dvorchak, whose family played host to Xi when he first visited the U.S. in 1985 as a member of an agricultural delegation to the state of Iowa.
“You lay out your extreme positions, and then when you sit down at the table you move closer to the middle,” Dvorchak said. “In negotiating, it always has to have a certain level of cordiality around it. I think they’ll get along much better in private, though the rhetoric will probably be fairly tough.”