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China’s premier pledges market opening in bid to avert US trade war

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President Xi Jinping (L) and Premier Li Keqiang (R) during the closing session of the National People’s Congress in Beijing, China March 20, 2018. Reuters

BEIJING, (Reuters) – Premier Li Keqiang said on Monday China and the US should maintain negotiations and he reiterated pledges to ease access for American businesses, as China scrambles to avert a trade war.

Mr Li told a conference that included global chief executives that China would treat foreign and domestic firms equally, would not force foreign firms to transfer technology and would strengthen intellectual property rights, repeating promises that have failed to placate Washington.

The US asked China in a letter last week to cut a tariff on US autos, buy more US-made semiconductors and give US firms greater access to the Chinese financial sector, the Wall Street Journal reported on Monday, citing unidentified sources.

Alarm over a possible trade war between the world’s two largest economies has chilled financial markets as investors anticipated dire consequences should trade barriers go up due to President Donald Trump’s bid to cut the US deficit with China.

US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer listed steps they want China to take in a letter to Liu He, a newly appointed vice premier who oversees China’s economy, the Journal said, quoting sources with knowledge of the matter.

The newspaper reported that Mr Mnuchin was considering a visit to Beijing to pursue negotiations.

Despite a steady stream of fierce rhetoric from Chinese state media lambasting the US for being a “bully” and warning of retaliation, Chinese and US officials are busy negotiating behind the scenes.

“With regard to trade imbalances, China and the US should adopt a pragmatic and rational attitude, promote balancing through expansion of trade, and stick to negotiations to resolve differences and friction,” Mr Li told the conference in Beijing, state radio reported.

China has offered to buy more US semiconductors by diverting some purchases from South Korea and Taiwan, the Financial Times reported, citing people briefed on the negotiations. China imported $2.6 billion of semiconductors from the US last year.

Chinese officials are also working to finalise rules by May – instead of the end of June – to allow foreign financial groups to take majority stakes in Chinese securities firms, the Financial Times said.

“I anticipate that for political reason it would be logical for China to respond, because countries do,” Blackstone Group Chief Executive Stephen Schwarzman told Reuters on Monday on the sidelines of the Beijing conference at which Mr Li spoke, the China Development Forum.

“That’s why I view this more as a skirmish, and I think the interests of both countries are served by resolving some of these matters.”

Fears of a trade war mounted this month after Mr Trump imposed tariffs on steel and aluminium imports, and then on Thursday specifically targeted China by announcing plans for tariffs on up to $60 billion of Chinese goods.

On Friday, China responded to the US tariffs on steel and aluminium by declaring plans to levy additional duties on up to $3 billion of US imports. The list of targeted goods contained no mention of soybeans or aircraft, China’s two biggest US import items.

China could also inflict pain on US multinationals that rely on China for a substantial – and growing – portion of their total revenues, said Alex Wolf, senior emerging markets economist at Aberdeen Standard Investments.

“This could put US companies such as Apple, Microsoft, Starbucks, GM, Nike, etc in the firing line,” Mr Wolf said in a note.

China can increase the regulatory burden on U.S companies through new inspections and rules; ban travel; stop providing export licenses of key intermediate goods; raise the tax burden on US multinationals in China; or block US companies from the government procurement market, he said.

Mr Trump unveiled the planned tariffs targeting Chinese goods after a US inquiry found China guilty of intellectual property theft and unfair trade, by forcing US investors to turn over key technologies to Chinese firms.

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