The US needs a stable Chinese economy. Will Biden’s commerce secretary offer help?

By Laura He, CNN

Hong Kong (CNN) — US Commerce Secretary Gina Raimondo will travel to China next week, a visit that coincides with a worsening slowdown in the world’s second largest economy.

While China’s troubles might give Raimondo greater leverage to pursue better market access for American companies, she is also likely to face calls from Beijing to help stabilize its faltering economy by easing some of the pressure Washington has recently applied.

“In terms of Raimondo’s trip, Beijing’s principle objective will be securing a reprieve, however temporary, from the onslaught of US export controls and other restrictions being levied on China’s economy,” said Craig Singleton, senior fellow at the Foundation for Defense of Democracies, a non-partisan think tank based in Washington.

Raimondo will travel to Beijing and Shanghai from Sunday through Wednesday, and discuss the US-China commercial relationship, challenges faced by US businesses and areas for potential cooperation, according to the Commerce Department.

China’s growth forecasts for this year are being marked down as exports and foreign investment slump, a real estate crisis deepens and worries about its financial health spread. For Beijing, Raimondo plays a key role in a number of areas that have been the source of mounting friction between the world’s top two economies.

Her department helps set America’s global trade policy — a sticking point in US-China relations since the Trump administration increased tariffs on a range of Chinese goods.

The secretary is responsible for supporting American businesses abroad, and also administers a series of US export controls that are aimed at cutting China off from advanced technologies that could be for military use.

Whether the Biden administration is willing to ease up on Beijing remains to be seen, but an announcement that coincided with news of Raimondo’s visit suggests Washington is trying at least to create the conditions for a useful conversation.

The Commerce Department announced on Monday that it was removing 27 Chinese companies from US export controls. China’s Ministry of Commerce welcomed the decision, saying it was conducive to trade and reflected the interests of both sides.

“[This] may have helped grease the wheels for Raimondo’s trip,” Eurasia Group analysts said in a note this week. “It also suggests that the Biden administration is making modest but measurable progress with Beijing in reestablishing limited government-to-government communication and cooperation.”

Still a vital relationship

For the United States, a stable Chinese economy is also in its interest.

China remains the biggest source of imports into the US, and last year trade in goods between the two countries hit an all-time high of $690.6 billion. US imports from China totaled $536.8 billion, accounting for about 17% of its total imports. Exports to China were $154 billion, 7.5% of total US exports to the world.

American companies have huge manufacturing networks in China and rely on Chinese consumers.

Tesla, which opened a factory in Shanghai in 2018, now makes half of its electric cars in China. Apple still makes many of its iPhones there. Others consumer brands like Starbucks and Nike have a large customer base in China. Intel, Microsoft and General Motors derive a sizable portion of their revenues from the country.

China is also the No. 2 foreign creditor to the United States. It held $835.4 billion of US Treasuries at the end of June, according to most recent data from the US Treasury Department. That’s second to Japan’s official stash of $1.11 trillion.

Pain points

The key friction points in the vital relationship currently center on the US export controls and “de-risking” measures it has taken against China in the past year.

In October, the US government banned Chinese companies from buying advanced US chips and chip-making equipment without a license. The move strikes at the heart of Beijing’s tech ambitions. Washington has persuaded Europe and Japan to take similar measures.

That was followed earlier this month by President Biden signing an executive order that limits US investment in certain tech sectors of the Chinese economy, including AI and quantum computing.

China accused the US of “politicizing and weaponizing” tech and trade issues.

Then there are the long-standing trade curbs on the two countries imposed by each other.

A trade war erupted between the two countries in 2018, when President Donald Trump imposed additional tariffs on hundreds of billions of dollars worth of Chinese goods. China retaliated with tariffs on more than $100 billion worth of US imports.

Most of the tariffs still remain under the Biden administration. They are under review, but it’s still unclear whether the review will result in any tariffs being removed.

Ball in US court?

Raimondo might also express concern about Beijing’s recent crackdown on Western consulting firms, which has unnerved US businesses.

On Tuesday, China fined the Mintz Group, a New York-based corporate due diligence firm, about $1.5 million for allegedly conducting unapproved statistical work in the country. The fine came to light months after authorities closed the firm’s Beijing office and detained five of its local employees.

It’s just part of China’s broader crackdown on consulting firms in the name of national security.

In late April, Beijing tightened its counterespionage law and expanded the list of activities that could be considered spying. Around the same time, police questioned staff at the Shanghai offices of consulting giant Bain & Company.

A few weeks later, state media released details of multiple raids on the offices of Capvision, an international expert network firm with headquarters in Shanghai and New York, by state security forces.

“[Chinese President] Xi Jinping’s moves … indicate a willingness to face the risks associated with reduced integration with the Western-led global economy,” said Singleton, adding that he doesn’t expect US-China relations to “meaningfully improve” anytime soon.

But the Chinese leader’s current challenge is “striking a balance” between his willingness to risk relations with the US, and the West, and the Chinese Communist Party’s general aversion to instability in any form, Singleton said.

To avoid social instability, the Chinese leadership is likely to embrace piecemeal or sector-specific measures to partially alleviate economic pressures.

“Those efforts may include adopting a more conciliatory approach towards Washington on a narrow set of issues in which China stands to benefit,” he said.

And with that, the ball might be in Washington’s court.

— Kylie Atwood and Jeremy Diamond contributed to reporting.

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