China caught off guard by unpredictable Trump

But Chinese leaders are confident they can withstand a Sino-US trade war

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By Tom Mitchell

When Donald Trump escalated trade tension with China this month, Xi Jinping cited a Chinese saying in vowing to defend global trade rules. “When the sky falls, big men must hold it up,” he said in private meetings, according to four people briefed on his remarks.

The Chinese president and his top advisers, including vice-president Wang Qishan and vice-premier Liu He, were initially confident the US and China could bridge their differences through talks, according to people who have recently met them.

“China and the US are like an old married couple, we fight a lot but we still need each other,” Lou Jiwei, a former finance minister, said in a closed-door exchange with an international delegation in late March, according to two people briefed on the meeting.

But China’s view of the US president began to shift after Mr Trump threatened to put tariffs on another $100bn of Chinese imports. The US President had already enraged Chinese officials in March by signing the Taiwan Travel Act, which urges more US exchanges with the self-ruled island that Beijing regards as Chinese territory.

Beijing’s previously sanguine view of Mr Trump was partly due to the fact the US president did not use his first year in office to follow through on some of the pledges he made during the campaign about getting tough with China.

While Chinese officials now realise Mr Trump meant what he said in Beijing in November — that the Sino-US trade relationship was not “fair and reciprocal” and had to be solved — they also believe they can emerge from a trade war relatively unscathed.

“Trump has certainly got [China’s] attention,” said Peter Mandelson, the former EU trade commissioner who this week led a British delegation to China that met Mr Wang. “Chinese officials are confident and sure of their direction. They don’t want a fight [with the US], but if they get one they’re going to give as good as they get.”

China was surprised again on Friday after Mr Trump said he would consider re-joining the Trans-Pacific Partnership trade deal. Chinese officials had seen his move to leave the TPP, which did not include China, on day one in office as a “grand gift”.

“We have our problems with Trump,” said one western diplomat in Beijing. “But he has taught us that when you push back hard against the Chinese, it knocks them off-balance.”

Two senior Chinese officials told the Financial Times that the Taiwan Travel Act and Mr Trump’s additional trade threats limited Mr Xi’s room for manoeuvre in a major speech last week that had been previously billed as a blueprint for aggressive economic reforms. China’s president did not want to give the impression he was yielding to US pressure.

Speaking at the Bo’ao Forum on Hainan island on April 10, Mr Xi only mentioned a few previously unveiled initiatives, rather than any major new initiatives. He then inspected a naval base and presided over the Chinese navy’s largest ever maritime parade. Afterwards, the Chinese military announced it would conduct live-fire exercises in the Taiwan Strait on April 18.

The exercises are partly intended to signal China’s hostility to any attempt by the US to upgrade relations with Taiwan, as has long been advocated by John Bolton, the foreign policy hawk who recently became Mr Trump’s third national security adviser.

Chinese officials said the limited reforms Mr Xi outlined at Bo’ao were not in response to US pressure. They also stressed that bilateral trade talks between Beijing and Washington could not be held under the shadow of Mr Trump’s latest threat.

“The Chinese made it clear that as far as they are concerned, on trade the ball is now back in Trump’s court,” said one person who attended a meeting between Mr Xi and foreign dignitaries at the Bo’ao forum.

In private, Chinese officials say Mr Xi’s iron grip on power will help them weather any trade war with the US, especially with Mr Trump’s mounting political troubles at home. In the same meeting at which Mr Lou likened China and the US to a married couple, other Chinese officials in attendance described Mr Trump as a vulnerable adversary.

“They said that Trump was a gift to China because he is a flawed individual and weak politically,” said one person briefed on the meeting. “It would be much more difficult if China had to deal with a US president with broad support and a strategic vision.”

Follow Tom Mitchell on Twitter: @tmitchpk

https://www.ft.com/content/bb342dec-3eeb-11e8-b7e0-52972418fec4

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