Will investors start getting bullish on China again? The news of a deal between the two opposition candidates in Taiwan makes the January Presidential election much more competitive, and increases the chances that a candidate preferable to Beijing wins. While the next two months before the election will be tense, they may now be less tense than if DPP candidate William Lai looked to be a shoo-in.

The Xi-Biden meeting later today will likely mark at least a near-term bottom in the structural decline of the US-China relationship, and the collapse of a key part of the Indo-Pacific Economic Framework (IPEF) due to pressure from within Biden’s party, on the eve of APEC, makes the US look unreliable, while Xi will continue to promise all sorts of increased trade access and economic linkages between the PRC and the rest of APEC.

Xi’s dinner tonight with American executives should be an opportunity for Xi and his team to at least say the right things to a receptive audience eager for reasons to do more business and investment with the PRC.

The annual China Economic Work Conference should meet within a month, and there is still a chance there will be a Third Plenum this year. If Xi can follow up from this week with more meaningful and credible stimulus and policy calibrations for the PRC economy, or at least more targeted official leaks about coming changes, I would not be surprised to see investor sentiment whiplash back to being bullish, at least in the short-term, on PRC markets. Markets cycle between fear and greed, and after this week we might start see greed start prevailing over fear again, in spite of all the challenges facing the PRC economy.

Xi may be groggy from jet lag, but he should be happy on his first morning in San Francisco.

Summary of today’s Essential Eight:

Xi’s arrival in San Francisco
Biden-Xi meeting - The US side has worked hard to set very low expectations for the meeting later today at Filoli, an estate in Woodside, California (good luck to afternoon commuters on 280, a drive I made daily for a couple of years). That is an interesting choice for the meeting, as it is famous for its role as the estate in the hit TV series Dynasty, which Xi may have seen back in the 1980s.
Taiwan election deal - Former President Ma Ying-jeou has brokered a deal for a joint ticket with Hou of the KMT and Ko of the TPP, with the pick for the top of the ticket to be determined through analysis of polls over the next several days. This combined ticket far from guarantees that William Lai, current VP and the DPP candidate for President, will lose the January 2024 election, but it makes the race much more competitive. The top of the combined ticket matters, and Ko of the TPP as the Presidential candidate would likely have a better shot against Lai than Hou of the KMT would, but regardless this combination is something that Beijing will be happy to see, and may have encouraged Ma Ying-jeou to pursue it. Foxconn founder Terry Gou has qualified to run as an independent in a vanity campaign that is destined to fail but could have a spoiler effect that helps the DPP. So no one should be surprised if even more pressure is put on Foxconn by the PRC authorities to persuade Gou to get out of the way.
Joint statement from the Kerry-Xie Sunnylands climate discussions - The US and the PRC released identical statements, nicely timed on the eve of the Xi-Biden meeting, from the recent meeting between the two climate negotiators. From the US side I heard the outcomes from the meetings were seen as “underwhelming, less progress than at least the US side had hope for”. But it is still progress and the two countries will launch a “Working Group on Enhancing Climate Action in the 2020s”. It is also positive for the COP28 climate summit in Dubai later in November.
Xi on 5 important relationships in handling ecological conservation - The latest issue of Qiushi leads with an excerpt from Xi's speech at the National Ecological and Environmental Protection Conference on July 17, 2023 on the important relationships in handling ecological conservation. The last one - “双碳”承诺和自主行动的关系 The relationship between the 'dual carbon' commitments and independent actions - includes “our committed 'dual carbon' goals are firm and unchanging, but the paths and methods, pace, and intensity to achieve these goals should and must be determined by ourselves, and not be influenced by others”.
Property support measures still not working - As expected, the various policy tweaks over the last several months have not stemmed the decline in real estate investment or sales, and the “金九银十 Golden September, Silver October” two month period that once saw booming sales were a disappointment this year.
ICBC and the US Treasury Market - The ICBC ransomware attack that disrupted the US Treasury market may force a rethink of the PRC bank’s role in the US Treasuries market. This was by all reports a ransomware attack by a rogue actor, but did it helpfully expose some significant vulnerabilities that a state actor who wanted to disrupt US markets could use in a time of increased tension or conflict? The PRC is very focused on hardening its financial system, especially against actions from the US. Should the US be thinking along the same lines?
Crackdown on the sale of birth certificates - Several hospital officials across in China are going to jail or are under investigation for selling birth certificates, which are needed for hukou and identity documents. Some may have been sold to parents of babies born through illegal surrogacy, but more were probably related to child trafficking. It took a “citizen investigator” to break open these cases, and now the authorities are cracking down. Will they now track down the children who were given purchased birth certificates?

Today’s newsletter is out a little earlier than usual because this afternoon Andrew Sharp and I are recording a special episode of the Sharp China podcast with Ben Thompson of Stratechery. Look for it in your inboxes Thursday, or add it to your favorite podcast player here.

Thanks for reading.

Sinocism

A good start to Xi's visit; Time for…

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