Why does US want to improve US-China relations?

In our view, it is the cave-in of Chinese economy that gives US administration a great opportunity to manoeuvre ahead of the 2024 election. Now is the best time to engage China for market opening concessions. Senator Schumer specifically mentioned semiconductor, financial and aerospace. We expect some exchanges.

 

Then why does China play along?

We believe the main reason is Taiwan, whose presidential election is in January and pro-independence candidates are leading the pools. China also needs US to help arresting the capital flight out of China and show endorsement to Xi’s 3rd term.

 

Prevention of a Trump-Lai election victory a shared goal

Recent standoffs between coastal guards in Scarborough Shoal and between navies of three carrier strike groups near the Japan sea are escalation unseen before. The muted US reaction is also unseen before. This suggests the prevention of a Trump-Lai election victory has become a common ground for US and Chinese politicians.

 

Neither US nor China can back off from trade war promises

We don’t think US will lift restrictive polices on solar PV, battery and EV as these initiatives are in place to encourage domestic investment and need 3-5 years to bear fruits. Similarly, we will see resistance from Chinese high-tech industries for lifting sanctions on firms like Micron, now that significant R&D has been spent. We see more concessions made by China as currently China needs US more than US needs China. We suggest investors to take profit ahead of the Taiwan election.