The PRC gets back to work Thursday after the long vacation for National Day. For those of you who got the week off, I hope you had a nice holiday. Today’s newsletter is a bit of a catch-up ahead of the return to the daily grind.
PRC Ministry of Commerce officials did not get much of a vacation as they prepare for the visit of European trade commissioner Maroš Šefčovič, who arrives Thursday for two days of talks that seem unlikely to head off escalation in the EU-PRC trade tensions.
In this issue:
1. EU-China trade talks
2. Reality after the Xi-Trump meeting
3. US-China AI/SI
The Feed: Business, Economy and Trade - Politics and Law - Foreign and Defense Affairs - Hong Kong - Taiwan - Tech and Media - Society, Arts, Sports, Culture and Health
Today’s top items:
1. EU-China trade talks - Ahead of European trade commissioner Maroš Šefčovič’s trip to Beijing, German Chancellor Merz and French President Macron released a letter and a joint position paper calling for measures that, while not mentioning China, signal a willingness to take a tougher approach against China. The PRC reaction so far has been muted, and I expect them to call the Europeans’ bluff.
There were reports earlier today that the EU would try to get China to agree to voluntary curbs on exports of hybrid cars, but according to the Financial Times the Chinese side will not go for it:
European trade commissioner Maroš Šefčovič starts two days of talks in Beijing on Thursday and wants to agree at least one measure to reduce China’s ballooning trade surplus with the EU rather than launch punitive measures that could spark a retaliatory spiral.
His original pitch was that Beijing agree to limit hybrid vehicle exports to the EU to about 15 per cent of the EU market compared with more than a third today or face retaliatory action such as tariffs.
However, EU officials told member states on Wednesday that China had refused, according to the diplomats.
On Wednesday, Yuyuan Tantian 玉渊谭天 published an article that likely signals the PRC’s approach to trying to avoid a trade war. I have translated it here. The article concludes:
The existing consultations can address at least four categories of issues:
现有磋商至少可以处理四类问题：
Through a joint monitoring mechanism, jointly verify trade flows in sectors such as plug-in hybrid vehicles and chemicals;
通过联合监测机制，共同核对插混汽车、化工等行业的贸易流量；
Address the electric-vehicle dispute through price undertakings and other means, preventing the dispute from escalating;
通过价格承诺等方式处理电动汽车争端，避免将摩擦扩大；
Encourage Chinese companies to invest in Europe while ensuring that Chinese-invested firms receive a stable and nondiscriminatory policy environment;
鼓励中国企业在欧洲投资，同时确保中资企业获得稳定、非歧视性的政策环境；
Make the supply of critical items more predictable while resolving market-access restrictions faced by Chinese companies in Europe.
就关键物项建立更稳定的供应预期，同时解决中国企业在欧洲面临的市场准入限制。
If the European side stands ready to escalate at any time while the two sides are engaged in friendly consultations, that cannot be called meeting each other halfway.
如果在双方友好磋商期间，欧方随时准备加码，这不叫相向而行。
New tools can raise the cost of foreign goods entering the European market, but they cannot lower European companies’ energy costs. They can restrict foreign companies’ development in Europe, but they cannot carry out Europe’s industrial upgrading on its behalf.
新工具可以抬高国际商品进入欧洲市场的成本，却不能降低欧洲企业的能源成本；可以限制国际企业在欧洲发展，却不能替欧洲完成产业升级。
After all, trade imbalances are structural problems that have taken shape over a long period and are difficult to resolve through short-term restrictive measures. Both sides need to maintain strategic patience.
毕竟，贸易不平衡是长期形成的结构性问题，依靠短期限制措施很难解决。双方都需要保持战略耐心。
I doubt that the EU will go for it, but given Merz’s political weakness, the riots in France and the contested nature of EU trade policy towards China, I would not be surprised if PRC leaders believe the EU is bluffing and will back down if given a few crumbs. That might be a miscalculation, as this time feels different.
2. Reality after the Xi-Trump meeting - The US remains frustrated with the flow of rare earths, and now, according to Reuters, is back to slowing some aircraft-parts exports to China as a way to generate leverage in the ongoing talks.
One story over the holiday may particularly upset Xi. The Wall Street Journal, citing “people familiar with the visit planning”, reported that Xi needed lots of rest during his brief visit to DC, including “a private room inside the West Wing for Xi to take a break between events, with only his wife, Peng Liyuan, permitted to join him”, and that he declined a working lunch.
It can be true that at his age he needs breaks after such a long trip and the jet lag without also meaning he is sick, as the rumor mill suggested before his visit. But the PRC side cannot be happy this was leaked, as it makes him look weak and puts more emphasis on the succession question just weeks from the Fifth Plenum and just a year out from the 21st Party Congress.
A few days after that Wall Street Journal story, the South China Morning Post wrote that Beijing wanted more from Xi’s state visit to Washington:
Beijing suggested Xi could engage with the American business community and public, pushed to raise dozens of diplomatic and security issues with Trump, and proposed talks on artificial intelligence between Chinese and American executives, according to the sources, who spoke on condition of anonymity because they were not authorised to speak to media.
3. US-China AI/SI - On October 1, Yuyuan Tantian 玉渊谭天 published an article that laid out what the PRC government likely sees as the “low-hanging fruit” for the mooted US-China AI/SI Dialogue.
From the piece, which I have translated here:
First, jointly explore standards for classifying and grading AI risks…
第一，共同探讨AI风险分类和分级标准。Second, finalize the scope, procedures, and requirements for notification of AI risk incidents…
第二，敲定AI风险事件通报范围、流程与要求。Third, place AI governance within the broader framework of China-US exchanges.
第三，将AI治理置于更广泛的中美交流框架中。
Those do seem like reasonable starting topics, and given the Trump Administration’s approach to AI/SI regulation I do not think anyone should expect much more.
PRC AI/SI specialists are thinking about the risks. Page 6 of the September 30 Study Times has an article by Zeng Yi, Wu Yuzhang Chair Professor at the Gaoling School of Artificial Intelligence, Renmin University of China, and Dean of the Beijing Institute of AI Safety and Governance, titled “Guarding Against the Risk of Frontier AI Technology Spinning Out of Control 防范前沿人工智能技术失控风险”, which I have translated here.
Zeng discusses the risks of a “Chernobyl moment” for AI/SI and concludes with this: