What's the Investor Upshot as Biden and Xi Shake Hands on the 'Dynasty' Set? (original) (raw)

Chinese investors saw no immediate reason to cheer as their president, Xi Jinping, met with his U.S. counterpart, Joe Biden, for the first time in a year. But there's no doubt the meeting is a positive step at a time of trouble for the Chinese economy, and its downcast equity markets.

Despite gains on Wall Street the day before, mainland stocks moved lower Thursday, with the CSI 300 Index of the largest listings in Shanghai and Shenzhen falling 1.0% on Thursday. That leaves it down 8.1% year-to-date.

In Hong Kong, the story was similar, with the benchmark Hang Seng Index falling 1.4%. It is down 11.5% in 2023, the performance here almost always worse than in the mainland since the Hong Kong economy looks to China for growth but "imports" U.S. high interest rates. Mainland investors also have fewer places to put their money, particularly now that the property market is in a tailspin.

It is, however, a good thing for the world's No. 1 and No. 2 economies for their leaders to at least be back on decent diplomatic terms. There's been no recognition in China, where the media is censored, that Biden repeated his quite correct insistence, when asked by a reporter, that Xi is a "dictator." Let's leave that aside for now ...

It's enough that these two men shook hands, to be honest. A few days back, it was not even a given that Xi would even travel to San Francisco for the APEC Summit, the event that has brought the two presidents together. But China has sent a top-flight delegation in the end.

Hong Kong's leader, Chief Executive John Lee, is a noticeable absentee, subject as he is to U.S. sanctions. He rather preposterously claims to have been personally invited but to be unable to attend for "scheduling" reasons. The snub is an embarrassment for the former top cop in Hong Kong, sanctioned for suppressing human rights during the pro-democracy demonstrations here. Financial secretary Paul Chan stands in Lee's place. Hong Kong state media are trying to ignore the sanctions, with government broadcaster RTHK making no mention of them in a piece on Tuesday insisting Chan will be telling "true stories" about Hong Kong.

You should look to Hong Kong Free Press for English-language coverage of the city. The independent site notes how a U.S. congressional commission describes Hong Kong as just a "Chinese, rather than international, city," operating under Chinese Communist Party laws, control, and censorship. The Hong Kong government counters that it "strongly disapproves" of the "so-called report."

But back to the Xi-Biden meet-and-greet. They spent four hours together, with the White House describing the talks as "candid" and "constructive." Chinese state-owned news service Xinhua calls them a "candid" and "in-depth" exchange. They shook hands on the doorstep of the Filoli Estate in Woodside, about 25 miles south of San Fran. Filoli may be familiar to readers of a certain vintage since it served as the exterior of the fictional Carrington Mansion back when the TV show "Dynasty" was dominating the 1980s airwaves. It's now open to the public under the National Trust for Historic Preservation.

In my last column, I outlined how U.S. restrictions on the supply of high-end chips and chip tech to China could hurt U.S. producers such as Nvidia (NVDA) , Advanced Micro Devices (AMD) and Intel (INTC) , as well as chip foundries such as Taiwan Semiconductor Manufacturing Co. (TW:2330) (TSM) .

Biden stresses that the United States and China are in "competition," but also have areas for "potential cooperation." And they want to avoid unnecessary "conflict," "confrontation" and a "new Cold War."

I think China secretly wants to be thought of as engaging in a Cold War with the United States, because that would reinforce its superpower status. Both Beijing and the Chinese media repeat the phrase often enough to reinforce the idea, even as they rail against a U.S. Cold War mentality.

With Chinese support for Russia, Iran and, to a lesser degree, North Korea, it has allied itself with U.S. enemies. At the same time, U.S.-China ties are so interwoven into the economies of both countries that a strict Bamboo Curtain of any kind, total disengagement, is impossible. They really are competitors who must deal with each other.

That's what this meeting is about. China had cut off all diplomatic ties at the start of the Biden administration, defensive about U.S. tariffs and sanctions as well as pressure about the origins of Covid-19. It has taken persistent diplomacy by Biden and his cabinet, in particular Secretary of State Antony Blinken, Secretary of the Treasury Janet Yellen, and Secretary of Commerce Gina Raimondo, to restore some semblance of ministerial talks and ties.

What's come out of these latest California talks? Well, much like "Dynasty," it's been more about show than substance. But there is top-level movement on combatting the supply of drugs like fentanyl, a restoration of military-to-military communication, and an agreement that the two sides should address risks surrounding artificial intelligence.

Those three outcomes are the most-specific results. The rest of the time was spent on "regional and global challenges," as the White House puts it, in other words where China and the United States attempt to make their positions clear.

The U.S. position on Taiwan is anything but clear, on purpose. On the one hand, Washington has since the 1970s hued a course of "deliberate ambiguity" about Taiwan's status. Biden stressed that "our one-China policy has not changed," while reiterating that the United States has an "ironclad commitment" to "defending our Indo-Pacific allies," which actually is a change. Biden has been the only president to say specifically that U.S. forces would come to Taiwan's aid should China attack the island democracy.

The Beijing government, which as Communist China has never governed Taiwan but insists the former stronghold of Chinese Republicans is a renegade province, glosses over the topic in these talks. But Xinhua does lament "Washington's dogged arms sales to Taiwan," alongside U.S. "attempts to stifle China's technological advances" with export controls and sanctions on Chinese tech.

China agrees there's grounds for cooperation on the drug trade, AI and military communication, this last point just to avoid any misunderstandings. Warships and warplanes have had recent close calls that neither side wants to descend into anything like a hot war.

Xi recognizes five pillars of support for U.S.-China links: partners that "respect each other," manage disagreements, advance mutual cooperation, shoulder joint responsibilities to solve problems facing global society, and promote people-to-people exchange.

Biden says U.S. trade restrictions and sanctions are not an attempt to stifle China's economy but a way to respond to China's "unfair" trade policies, with hefty state subsidies and an insistence on foreign companies handing over intellectual property to local Chinese partners. What's more, at times of tension China has responded with sudden investigations of U.S. companies or the detention of citizens not only from the United States but also Canada, Australia, and beyond.

Biden and Xi last met in Bali in November 2022. A shake of hands one year later sets the stage for closer cooperation in shared areas of concern -- climate talks and emissions caps being another such field -- and is an advance on the high-level impasse on diplomacy and ministerial interaction.

Don't expect markets to move near-term. But to see countries with a combined economic output of US$43.5 trillion, some 43% of the global total, seek joint areas of interest marks progress. It's a good thing, a little thing, and far, far better than the nothing void that preceded the prior meeting of these two leaders last November.

At the time of publication, McMillan had no positions in any securities mentioned.