China signals readiness to mend ties with U.S. ahead of Trump inauguration

President Xi Jinping sent a strong signal this week that Beijing was ready to work with U.S. President-elect Donald Trump to resolve trade disputes amid risks of a potential trade war.

In a letter to the U.S.-China Business Council on Thursday, Xi said the two sides should “choose dialogue over confrontation, win-win cooperation over a zero-sum game,” while reiterating his commitment to open up the China market for foreign companies, including U.S. businesses.

The remarks echoed his speech at a Tuesday meeting with visiting heads of major international economic organizations, where he said “there will be no winners in tariff wars, trade wars, technology wars,” according to CNBC’s translation of his speech in Mandarin. Xi called both sides to maintain dialogue and manage differences.

The flurry of messages from Beijing reflects “a sense of anxiety” and “these overtures have occurred in a very public way,” said Kenneth Jarrett, senior advisor at Albright Stonebridge Group.

“This could mean that Chinese authorities lack channels to the new Trump team … and that Beijing believes there are political benefits in projecting a public image of a willingness to work together with the new U.S. administration,” Jarrett added.

Trump’s policy stance of putting America first is posing a “tremendous threat” for Chinese policymakers, who are already facing the tall task of reviving the ailing economy, said Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co.

Trump, who is set to take office in January, has vowed an additional 10% tariffs on all U.S. imports of Chinese goods. During his election campaign, Trump had threatened to impose tariffs in excess of 60% on China.

Earlier this month, the Joe Biden administration announced broader restrictions on U.S. exports of advanced memory chips and chipmaking machineries to Chinese companies. The next day, Beijing responded by banning exports of several rare materials used in semiconductors and military applications.

“China made it obvious that despite this commitment to growth and constructive trade relations, it will not back down in the face of U.S. pressure, should it come to that,” said Daniel Balazs, a research fellow at S. Rajaratnam School of International Studies.

Earlier this week, China’s market regulators announced it had opened an antitrust investigation into the American chip powerhouse Nvidia. The company has been banned from shipping its most advanced chips to China, but still its sales of less advanced chips and processors to Chinese companies amounted to 15% of its revenue in the October quarter.

However, both sides are seen to be more likely to try to work out a deal through negotiations, rather than a forceful implementation of hefty tariffs, experts said.

There may be “some introduction of tariffs” but they will likely be “closely coordinated and nothing sudden, too large or disruptive,” Sam Radwan, president of Enhance International, told CNBC.

Exports have been a rare bright spot in China’s faltering economy as companies rush to ship to the U.S. before the higher tariffs come into play, but once the stronger levies are enforced China’s exports too will face a slowdown.

President Xi reiterated on Tuesday that he had “full confidence” to achieve this year’s growth target, calling the country “the biggest engine of world’s economic growth.”

Earlier this week, CBS reported that Trump had invited the Chinese leader to attend his inauguration next month.

Beijing is trying to avoid “any appearance that Xi is being unfriendly by not coming to the inauguration,” Derek Scissors, senior fellow at American Enterprise Institute said.

There has never been a precedent for Chinese leaders to attend the U.S. inauguration, which is typically witnessed by Chinese ambassadors, CBS reported.

A spokesperson of China’s commerce department told reporters at a regular briefing on Thursday that China has maintained close communication with the U.S. counterpart, and is open to keep communicating with the incoming economic and trade officials under the Trump administration.

While Chinese government tries to project a willingness to negotiate with the incoming Trump government, it does not “necessarily signal China is willing to make the kind of concessions” that Trump seeks, said Gabriel Wildau, managing director of Teneo.

One example of such concessions that China can make would be promising stricter oversight on fentanyl trades, according to Scissors.

“In a darker scenario where escalation does proceed, Beijing could point to these early statements to show the rest of the world that Washington is the side that rejected cooperation and compromise,” Wildau added.