Posts Tagged ‘China-US trade war’

China, US must realise they need to accommodate each other to resolve trade war

November 19, 2018

China and the United States have to realise they must accommodate each other for an ongoing trade war between both powers to be resolved, said Prime Minister Lee Hsien Loong.

What happens next will depend on the meeting between Chinese President Xi Jinping and US President Donald Trump at the G-20 Summit in Buenos Aires, Argentina, from Nov 30 to Dec 1 and whether talks can be set on the right way, he noted.

“We all have to hope it goes in a constructive direction. Because otherwise, the loss to the parties, to America and China, as well as to other countries like Singapore and everybody else in the region and in the world will be considerable,” Mr Lee said.

By Royston Sim
Straits Times

Mr Lee’s comments came as Asia-Pacific Economic Cooperation (Apec) leaders failed to issue a joint communique on Sunday (Nov 18), reflecting the deep division on trade.

A chairman’s statement will be released in lieu of a formal written declaration from the 21-member regional grouping, which was formed in 1989 to promote free trade across the region.

Trade tensions between China and the US dominated the weekend’s annual summit in Papua New Guinea, with Mr Xi and American Vice-President Mike Pence trading barbs in back-to-back speeches on Saturday. Mr Pence had stated that the US will not lift tariffs until “China changes its ways”.

Reports said the disagreement between Apec leaders stemmed from the US pushing for the communique to include the need to reform the World Trade Organisation.

On how to make progress on what he called a very complicated and difficult issue, Mr Lee told Singapore media the China-US trade war becomes very difficult to solve if viewed as “a manifestation of a fundamental contradiction between two countries”.

Image result for China, U.S., Flags, pictures

“Because then the question becomes, why should I make any concession? If I do you’ll push me further, if you do I’ll push you further,” said the prime minister in an interview to wrap up his visit.

But if the conflict is treated as involving specific, practical trade issues which need to be overcome, then it is possible for both sides to deal with the specific issues at hand, he said.

“Presume good faith and good intentions on the other party, and work out practical solutions to those problems,” he added, calling it a “chicken and egg problem” that requires a level of trust for both sides to start to resolve.

The US and China have imposed tit-for-tat tariffs on billions of dollars of each other’s goods, with both threatening to step up action if necessary.

Mr Lee noted that US Commerce Secretary Wilbur Ross was reported in The Straits Times saying that Mr Xi and Mr Trump are likely at best to agree to a “framework” for further talks to resolve trade tensions when they meet in Argentina.

But just like the Trump-Kim summit held in Singapore in June, the meeting on the sidelines of the G-20 can set talks in a constructive direction, he said.

Resolving the trade war will become much harder if both countries do not reach a basic understanding, he added.

In a presentation to Apec leaders on Sunday morning, International Monetary Fund (IMF) chair Christine Lagarde estimated that a trade conflict could reduce world GDP by 0.8 per cent.

Mr Lee said the amount is derived from the direct impact of tariffs, as well as the implications on investment and on market confidence, among other things.

But ultimately, the consequences of the trade war extend beyond trade, he noted.

“If you go down this path, the consequences are not just trade, but really the overall relationship and the difference between a world where the major powers are accommodating one another, and a world where the major powers are at odds with one another. It’s not quantifiable in GDP terms.”

The trade war impacts Singapore in many areas, from the economy to politics and security, he said.

Politically, he added, it raises the issue of whether it is possible for a country to be friends with both powers. In terms of security, the question is what the conflict means for the region and the cohesion of Asean as both powers jockey for influence in the Asia-Pacific.

“We have to watch how the situation unfolds,” Mr Lee said. “Meanwhile, we must make sure that within Singapore, you stay one, united, and ready for whatever comes.”


Big Doubts About Life After Brexit

November 17, 2018

Companies exposed to the UK economy and its vulnerable housing market such as banks, insurers, retailers and homebuilders endured the most pressure.

Backdrop to turmoil was a volatile pound and weaker share prices for UK-exposed groups

By Michael Mackenzie

A mediocre performance for many asset classes in 2018 has challenged investors, but global fund managers can at least take a degree of comfort from having made the right call on the UK’s divorce from the EU. Last month, as a highflying Wall Street swooned, global investor allocations to UK equities remained well below their long-term average, according to the latest fund managers survey by Bank of America Merrill Lynch.

Image result for brexit, photos

Such positioning among global investors shows they have big doubts about life after Brexit, a point of view vindicated by the UK political response after Theresa May secured a draft Brexit withdrawal treaty with the EU this week. Resignations by ministers and a divided UK cabinet tell us that the prime minister’s vision of Brexit is already in trouble.

A leadership challenge to Mrs May looms before any parliamentary vote on the Brexit deal, while talk of a second referendum is gaining traction, further muddying the churning political waters.

Since the June 2016 referendum, markets have operated under the premise of a deal or no deal that represents a binary outcome of either being good or bad for investors.

Here the pound has been the most visible barometer, rising on hopes of a deal and faltering whenever the negotiations with the EU hit a hurdle. Now that we have a prospective deal, the market response will become far more gloomy if we face the spectre of either a hard Brexit or a badly managed departure from the EU that opens the door to another vote or a general election.

Both scenarios threaten business and consumer confidence and stand to hit the UK economy at a fragile time. As Europe contends with Italy’s budget and awaits the UK’s departure from its club, both events are overshadowed by a slowing global economy as the Federal Reserve’s policy tightening sucks dollars out of the financial system and US-Sino rivalry frames the investment outlook for 2019.

Data this week showed a third-quarter contraction in activity for both Japan and Germany, while China revealed that credit growth expanded at its weakest pace on record last month.

Against this worrying backdrop, UK share markets have naturally performed poorly. Now they, along with the currency and bond markets, are shifting towards, but are not yet fully pricing in, the worst type of outcome as the Brexit date of March 29 loiters well beyond the trading horizon.

That’s understandable as there’s still time left for a political solution that douses the Brexit fire and we don’t get a disorderly departure next March. Alastair Winter, chief economist at Daniel Stewart, argues: “Even if, as already seems clear, a majority of MPs will vote against the deal there is no doubt that a much larger majority will not accept ‘no deal’.”

Yet the bigger consideration is what does the UK look like as an investment opportunity once the divorce is finalised and a relief bounce in the pound and UK asset prices fades.

Stephen Beer of Epworth Investment Management starkly notes that the current draft Brexit bill shows nothing has changed since the vote to leave the EU.

“It remains the case that Brexit is likely to be economically worse for the UK than remaining in the EU. What we have now is more people realising that.”

It appears we may need to see a complete rout in UK markets before sanity emerges in Westminster

What we have seen via the markets is a highly volatile pound, weaker share prices for companies exposed to the UK economy and lower gilt yields.

The two-year gilt yield has fallen below the Bank of England’s base rate of 0.75 per cent — a message from the bond market that monetary easing beckons as the economy comes under pressure.

As global fund managers sit Brexit out for the duration, domestic investors will probably lean towards companies reliant on international revenues and place their faith in stronger growth outside the UK. Renewed falls in already meagre gilt yields means focusing on income via blue-chip dividends, the main attraction of the FTSE 100, an index that derives an estimated three-quarters of its revenue from outside the UK.

As the pound slid towards the lower end of its recent $1.26-$1.32 range on Thursday, the FTSE 100 held up, supported by global miners and healthcare companies (AstraZeneca and GlaxoSmithKline) alongside consumer businesses with an international focus (Unilever and Diageo).

Companies exposed to the UK economy and its vulnerable housing market such as banks, insurers, retailers and homebuilders endured the most pressure. This type of rotation represents a glimpse of the playbook investors will follow should we get a hard or chaotic Brexit outcome.

But this also entails risks. While HSBC and Standard Chartered were spared the selling across banks on Thursday, both these lenders have fallen sharply this year, hit by worries over slowing activity in China and emerging market economies. UK miners have also suffered as worries over weaker global growth have knocked industrial metals into a bear market since they peaked in April.

Little wonder the currency options market is attracting further buying of insurance against the risk of a much bigger drop in the pound over the next one to three months. Unfortunately, it appears we may need to see a complete rout in UK markets before sanity emerges in Westminster.

Asian markets mixed but traders on edge, pound holds ground

November 15, 2018

Asian investors moved nervously Thursday as they struggled in the face of multiple headwinds, while oil prices resumed their drop and the pound struggled to hold its gains.

Fears about the China-US trade war, rising Federal Reserve interest rates, tensions within the European Union and slowing growth in most economies have helped drive stocks south for the past few months.

And this week it has been the turn of the crude market to drive the sell-off, dragging energy firms as it dropped like a stone on slowing demand and high output, while US sanctions on major producer Iran were not as severe as expected.

Image result for china stock market , photos

While OPEC and its kingpin Saudi Arabia have said they will tighten the taps to put an end to the recent sell-off — both main contracts have fallen around a fifth from their early October highs — the US has pushed up production.

Calls from Donald Trump for lower prices, a stronger US dollar against emerging market units and soft Chinese growth have also been factors in depressing the market.

And despite a brief rise in oil prices Wednesday, observers do not expect a rebound any time soon.

“The toxic elixir of weakening global demand and oversupply suggests upticks (in oil prices) will run into substantial selling as numerous bearish factors are weighing on sentiment,” said Stephen Innes, head of Asia-Pacific trade at OANDA.

Energy firms were mixed Thursday as traders took a breather from the heavy selling of the past few days, with Hong Kong-listed CNOOC up 1.5 percent but Inpex down 0.3 percent in Tokyo.

On broader markets, Hong Kong edged up 0.5 percent, Shanghai was 0.8 percent higher, while Seoul and Taipei each added 0.2 percent.

However, Tokyo ended the morning down 0.3 percent, Sydney eased 0.4 percent and Singapore was off 0.1 percent.

– Deal or no deal? –

There was little reaction to a Bloomberg report that China had submitted a series of trade concessions — which were said not to meet US demands — to the Trump administration.

The move comes ahead of a G20 summit this month, where Trump will meet Chinese President Xi Jinping.

“I suspect equity traders will be more focused on the ‘a long road that lies ahead’ as we can only assume it will be filled with numerous potholes,” Innes said. “As such we could expect risk sentiment to continue shading to the dark side of the equation.”

The unease in Asia comes after another negative performance on Wall Street where indices hit their lowest levels since late October, with traders also depressed by a warning from a top Democrat indicating the party would put the brakes on deregulation.

On currency markets, the pound was holding up after news of Prime Minister Theresa May’s success in pushing her Brexit plan through cabinet but analysts warned she faced a tough time getting it through parliament next month.

With many of her ministers and plenty of backbenchers — as well as the opposition — against her breakthrough deal with Brussels, there are doubts she has the muscle to get her way, leaving an uncertain future for the British economy and the pound.

“We still can?t say with any confidence whether this deal, no deal, or indeed a second referendum, is now the most probable outcome to this ongoing saga,” said Ray Attrill, head of forex strategy at National Australia Bank.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.3 percent at 21,791.87 (break)

Hong Kong – Hang Seng: UP 0.5 percent at 25,769.69

Shanghai – Composite: UP 0.8 percent at 2,653.79

Pound/dollar: UP at $1.3001 from $1.2989 at 2200 GMT

Euro/dollar: UP at $1.1318 from $1.1307

Dollar/yen: DOWN at 113.54 yen from 113.64 yen

Oil – West Texas Intermediate: DOWN 32 cents at $55.93

Oil – Brent Crude: DOWN 21 cents at $65.91 per barrel

New York – Dow: DOWN 0.8 percent at 25,080.50 (close)

London – FTSE 100: DOWN 0.3 percent at 7,033.79 (close)

Energy firms down in Asia after oil slump, broader markets slip

November 14, 2018

Asian energy firms took another battering on Wednesday after oil prices suffered their worst day in three years, while the region’s equity markets fell into negative territory.

The pound enjoyed some support after Britain and the EU said they had reached a draft Brexit deal, though observers were cautious as it faces a number of hurdles before being given the green light.

Both main crude contracts plunged Tuesday — Brent lost 6.6 percent and WTI 7.1 percent — on oversupply fears just as demand falters in the face of the China-US trade war and easing economic growth.

Image result for Sinopec, photos

With prices now down more than a fifth from their four-year highs seen in early October, oil kingpin Saudi Arabia this week said it will cut output. The announcement fuelled an initial surge in the crude market before a Donald Trump tweet calling for it to keep prices low sent the commodity plunging.

The selling continued on Tuesday and then Wednesday in Asia after OPEC trimmed its outlook for demand this year.

And energy firms were caught in the crossfire.

Hong Kong-listed CNOOC dived four percent while Sinopec and PetroChina each lost around three percent. In Tokyo, Inpex was more than two percent down and Woodside Petroleum sank 3.5 percent.

“Oil prices remain the hottest topic in capital markets if not in the world after extending their slide to 12 days and suffering one of the more precipitous falls in years,” said Stephen Innes, head of Asia-Pacific trade at OANDA.

“It’s all about the toxic combination of weakening global demand and oversupply that has sent prices tumbling.”

Broader markets were also lower. Tokyo ended the morning down 0.1 percent, with traders also taking note of data showing the Japanese economy shrunk in July-September owing to weakness in China and a series of natural disasters hitting domestic spending.

– Sterling uncertainty –

Hong Kong and Shanghai were each down 0.4 percent, Sydney lost more than one percent and Singapore was off 0.3 percent.

Seoul dropped 0.4 percent and Wellington gave back 0.3 percent, though Manila, Taipei and Jakarta edged up.

There was little movement after comments from the White House’s top economics adviser Larry Kudlow that US and Chinese officials were “having communications at all levels” on trade ahead of a possible meeting between Trump and President Xi Jinping this month.

With both sides digging their heels in, expectations for a breakthrough are low, analysts said.

On currency markets the pound managed to hold on to small gains that came on the back of news that Prime Minister Theresa May finally had a Brexit agreement to put to her cabinet.

However, she must now get it past a divided cabinet before putting it to parliament, where both pro- and anti-Brexit MPs unhappy with the few details that have so far emerged from the pact.

“Failure to pass the deal will raise the prospects of a disorderly Brexit, a general election and also a second referendum,” said Rodrigo Catril, senior foreign exchange strategist at National Australia Bank.

“By the end of the week with some certainty the pound won?t be trading near current levels, it could be significantly higher or massively lower.”

The euro was also enjoying some lift from the Brexit news, though the gains were tempered by news that Italy’s populist government had stuck to its wallet-busting budget plan, putting it on course for a standoff with Brussels.

– Key figures around 0250 GMT –

Tokyo – Nikkei 225: DOWN 0.1 percent at 21,784.17 (break)

Hong Kong – Hang Seng: DOWN 0.4 percent at 25,699.63

Shanghai – Composite: DOWN 0.4 percent at 2,643.15

Oil – West Texas Intermediate: DOWN 39 cents at $55.30 per barrel

Oil – Brent Crude: DOWN 31 cents at $65.16 per barrel

Euro/dollar: UP at $1.1305 from $1.1287 at 2200 GMT

Pound/dollar: UP at $1.3010 from $1.2964

Dollar/yen: UP at 113.94 yen from 113.82 yen

New York – DOW: DOWN 0.4 percent at 25,286.49 (close)

London – FTSE 100: FLAT at 7,053.76 (close)


China-US trade row might pave the way for the soybean Silk Road

June 30, 2018

Trade threats are giving added urgency to Beijing’s need to find long-term alternative suppliers for one of its key imports

South China Morning Post

Landlocked Kazakhstan in Central Asia is home to an extraordinarily diverse array of horticulture but there’s one crop coming in for special attention from China.

China is looking to Kazakhstan and other countries along the Silk Road to diversify its sources of soybeans.

China already imports nearly 100 million tonnes of the crop a year, accounting for about 60 per cent of the world’s market. Last year roughly half of those imports came from Brazil and a third from the United States, with suppliers in places like Russia, Ukraine and Kazakhstan together contributing less than 1 per cent of the total.

Almost all of the soybeans are processed into animal feed in China to satisfy the country’s ever-growing appetite for meat.

With finite room for growth in its small group of suppliers, China has long known it needs to diversify its sources to meet its expanding demand. That need has gained greater urgency in the last year as trade ties with the United States have frayed rapidly under the strain of tariff threats on both sides.

China has already imported less of the commodity from the US, and has instead turned to Brazilian and Russian supplies. In May, Russian authorities reported a record 850,000 tonnes in soybean exports to China since July, more than double the 340,000 tonnes a year earlier.

“Even if there is an agreement [with the US] China will look to diversify,” DC Analysis president Dan Cekander said. “The environment is now right that they will investigate all avenues of alternative suppliers, and the longer this dispute is prolonged the more likely that will happen.”

So far, China had cultivated few large-scale alternative sources and the huge market share might make buying US supplies inevitable, analysts said. But that could change as China pours investment into countries involved in its “Belt and Road Initiative”, Beijing’s effort to link economies into a China-centred trading network. And the longer the dispute with Washington goes on, the more these emerging sources will have to gain.

“The trade war with the US is generating really good press for the agricultural investment strategy along the belt and road,” said Even Pay, a senior analyst at Beijing-based consultancy China Policy. “[The trade war has] made the case for diversifying import partners really concrete, so policymakers and companies that may have been sceptical before are now seeing a lot of evidence that overdependence on any single supplier of agricultural products is risky.”

One neighbour keen to step into the breach is Kazakhstan, which after nearly a decade of trying finally exported soybeans to China last year.

Growers in the Central Asian nation shipped just 8,400 tonnes of the crop to China between September and March, according to Ukraine-based agribusiness consultancy UkrAgroConsult.

Exports had been derailed over the years by local protests over the leasing of land to Chinese agribusinesses.

But now Kazakhstan is laying the groundwork for greater exports in general with belt and road infrastructure projects, including the Kazakh section of the China-Europe transport corridor completed last year and the massive Khorgos dry port on the border with Xinjiang in China’s far west.

 China-US trade war is making American soybean farmers anxious

The relationship was reinforced in June when Chinese President Xi Jinping held talks with Kazakh President Nursultan Nazarbayev in Beijing, and pledged to coordinate their pet economic projects, Xi’s belt and road plan and Nazarbayev’s “Bright Path” economic policy. The two leaders agreed that bilateral ties would focus on transport, agriculture, investment and interbank associations, all critical for increasing Kazakhstan’s role as an agricultural exporter to China.

Tristan Kenderdine, research director at Future Risk based in Almaty, Kazakhstan’s biggest city, said

China wanted to use the belt and road to diversify its agricultural supply lines, but investment in agriculture moved more slowly than that in other industries. “Kazakhstan is desperate to diversity its economy, and cooperation with China is crucial,” Kenderdine said.

Investment is also growing along the China’s border with Russia in Heilongjiang province. In April, construction began on a port in Fuyuan for shipments of crops, much of it soybean, grown by Chinese companies on Russian farmland.

In addition, a small but rising amount of soybean comes from Ukraine. He Zhenwei, secretary general of the China Overseas Development Association, told entrepreneurs in Ukraine this month that this would continue, with China expected to increase imports of soybean and other agricultural products from the former Soviet state.

China has invested heavily in infrastructure in Ukraine, from dredging seabeds to increase capacity at seaports, to building grain silos and highways.

But there are still serious challenges to importing significant amounts of soybean and other agricultural products from these countries, including poor water supplies and Soviet-era infrastructure, according to Professor Yang Shu, director of the Institute for Central Asian Studies at Lanzhou University.

“At the moment, these countries could never hope to make a dent in major soybean suppliers like the US and Brazil,” Yang said.

Nevertheless, the evolving relationships and Chinese investment in agriculture in the region point to well beyond soybeans. At an interministerial meeting in May, Chinese officials called for the country to speed up development of its large international grain traders and agribusinesses, and to transfer of production capacity to advantageous areas along the belt and road.

Cekander said the trade row with the US could also prompt China to begin substituting soybeans for other goods, switching soybean meal used for feed, to corn and corn meal, which would boost demand for supplies from countries like Ukraine.

“The biggest fear is that there is structural change in Chinese demand if trade tensions wear on,” he said.

People’s bank of China Urged to be More Hands Off on Exchange Rates

June 25, 2018

With China-US trade war looming, will Beijing be more hands off on exchange rates?

South China Morning Post

Analysts are calling for the central bank to stop using exchange rate levels as a monetary policy tool

Monday, 25 June, 2018, 12:13pm

Chinese analysts are calling on the government to give up its policy of maintaining a steady exchange rate for the yuan amid the looming threat of a trade war with the United States

The currency in the offshore market dropped to nearly 6.53 against the US dollar in Monday, down for an eighth day and recording its longest losing streak since 2016, as US President Donald Trump escalated trade hostilities against China and China’s central bank announced policy easing on Sunday.

The central bank’s move on Sunday to release US$100 billion into the banking system, a decision that is set to add depreciation pressure on the yuan, and its setting of the daily yuan rate at he weakest level in over five months on Monday showed that Beijing is happy to let the yuan go.

“The central bank is willing to sit back and watch the yuan weakening against the dollar, or it is even intentionally driving down the exchange rate,” Xu Qiyuan, a fellow with the Chinese Academy of Social Sciences, wrote in a note.

For more than a decade, the People’s Bank of China has been committed to “keeping the yuan exchange rate basically stable at a reasonable and balanced level”, but some researchers are saying its time to change.

In a recent article, Ma Jun, a newly appointed member of China’s monetary policy committee, and Guan Tao, a former official with the State Administration of Foreign Exchange, wrote that Beijing should stop using exchange rate levels as a monetary policy tool.

In the report published in the latest issue of the central bank’s own journal, China Finance, the pair said the yuan should be allowed to float freely to reduce the conflict between “exchange rate and interest rate policies” and ensure “independence of monetary policy”.

If the PBOC were to heed the analysts’ advice it would result in much greater volatility in the value of the yuan in the near term, and probably see it weakening against the US dollar if trade tensions with Washington escalated, observers said.

“It’s not a good time to be forecasting the exchange rate of the renminbi in the near term,” said Eddie Cheung, a foreign exchange strategist at Standard Chartered in Hong Kong, using the official name for the yuan.

Investors were rushing to sell their yuan positions, as the entire Asia-Pacific market was in the shadow of a trade war, he said.

Teck Leng Tan, a currency analyst at UBS Global Wealth Management, said the yuan could fall to 6.70 or 6.80 to the US dollar in the coming weeks if the tariff threats made by China and the US became a reality.

The first batch of US tariffs against Chinese products are set to come into effect on July 6.

“It’s very risky for the yuan in the short term,” Tan said.

Beijing has been very sensitive to movements in the yuan’s exchange rate since August 2015 when a misstep on a planned modest devaluation of the currency triggered a massive outflow of funds.

The incident prompted Premier Li Keqiang to say that there was “no basis for continued depreciation in the renminbi” although the central bank later introduced a “counter cyclical” factor to keep currency movements in check.

From a low of 7 yuan to the dollar at the end of 2016, Beijing successfully engineered a 10 per cent appreciation of the currency through March of this year.

While it was mission achieved in exchange rate terms, the stronger yuan hit China’s export sector and its international payment positions.

Deng Haiqing, a visiting scholar at Renmin University of China, wrote in a note that it was very likely that the currency would weaken to below 7 to the dollar.

“A depreciation of the yuan can greatly help China’s position in a trade war,” he said.

Despite Deng’s comments, central bank governor Yi Gang said earlier this year that China would not deliberately weaken the yuan in a trade war with the US.

Such a move would be “a declaration of war not only against the US but everyone”, Tan said.

Beijing has traditionally worried about yuan depreciation because its value is often seen as a barometer for investor confidence in the Chinese economy. Another sharp fall could trigger more capital outflows.

But Yu Yongding, an economist and senior fellow at the Chinese Academy of Social Sciences, said in an article published on news website last week that Beijing did not have to worry about capital outflows as it could always implement capital account controls.

China uses a “managed floating exchange rate” to control the yuan, with the central bank announcing a daily midpoint for its value against the US dollar and other currencies, and from which it is allowed to move just 2 per cent in either direction.



Donald Trump brands China a military rival in US reboot of great power strategy

January 31, 2018

Beijing stresses the two countries have common interests as US president insists that the stakes with China are not just economic

By Catherine Wong
South China Morning Post

PUBLISHED : Wednesday, 31 January, 2018, 9:29pm
UPDATED : Wednesday, 31 January, 2018, 9:55pm
 Image may contain: 1 person, stripes

US President Donald Trump named China as a major US competitor on both economic and military fronts in his first state-of-the-union address, another sign that Washington is putting great power rivalry at the heart of its national strategy.

Analysts said Trump’s explicit references to China contrasted with Beijing’s view of the Sino-US relationship and those of his predecessors who saw China as a partner despite their economic competition.

In response to the speech, Beijing called on Washington to abandon the “cold war” approach to their ties and for the two nations to respect each other.

“Even though there are differences, the two countries still share more mutual interests than differences,” Chinese foreign ministry spokeswoman Hua Chunying said on Wednesday. “History and reality shows that cooperation is the only correct choice.”

Chinese Premier Li Keqiang also played down concerns over rising confrontation between Beijing and Washington, stressing that both sides have a lot of common interests.

“I hope the United States can have a comprehensive and objective view of the Sino-US relationship, expand our common interests and manage our differences,” Li said.

In an annual address to a joint session of the US Congress, Trump vowed to boost American defences to counter threats from China and Russia.

“Around the world, we face rogue regimes, terrorist groups, and rivals like China and Russia that challenge our interests, our economy, and our values,” Trump said.

“In confronting these dangers, we know that weakness is the surest path to conflict, and unmatched power is the surest means of our defence.

“For this reason, I am asking the Congress to end the dangerous defence sequester and fully fund our great military.”

Trump also said the US must “modernise and rebuild” its nuclear arsenal, although the US would “hopefully never having to use” such weapons.

He also highlighted the need for fair and reciprocal trade relationships, and promised to take action to defend the country’s intellectual property.

“And we will protect American workers and American intellectual property through strong enforcement of our trade rules,” he said.

Trump’s reference to China as a direct threat on all fronts is a departure from the take of his three immediate predecessors.

In 2000, then US president Bill Clinton talked about the importance of engaging China and appealed to Congress to back the US’ effort to bring China into the World Trade Organisation.

Six years later, president George W Bush referred to China as one of the “new competitors” along with India on the economic front.

In 2016, US president Barack Obama said only that the United States must not let China write the rules of global commerce.

Trump’s focus on China as a broader threat reflects a major shift in US defence priorities outlined in US Defence Secretary Jim Mattis’s National Defence Strategy released in January. The document says the US will refocus on China and Russia after a decade of fighting terrorism in the Middle East.

Trump has also signed into law a sweeping defence policy bill authorising a US$700 billion budget for the military, but it still needs lawmakers’ approval.

Wu Xinbo, director of Fudan University’s Centre for American Studies, said Trump was playing up the threat from China and Russia to back his call for a big increase in the military budget.

“[But] China has yet to pose a direct military threat to the US,” Wu said.

Teng Jianqun, director of the US studies department at the China Institute of International Studies, said there was a huge discrepancy in how China and the US viewed their relationship.

Chinese analysts and officials tended to be optimistic about bilateral ties, while those in the US were pessimistic, Teng said.

“If we do not pay attention to this perception gap, there could be miscalculations from both sides,” he said.

Jie Dalei, assistant professor of international relations at Peking University, said that even though Trump had clearly named China as one of his country’s greatest rivals, it would be difficult for the US to follow through on a strategy to contain China.

“The [US’] Indo-Pacific strategy is still a concept rather than a plan for execution,” Jie said. “Without economic assistance or other support, Trump won’t be able to achieve any more than Obama.”

Additional reporting by Wendy Wu and Liu Zhen