China, US Deescalate With Talks, Metals Concession

“Both China and the US hope to push forward a meeting between their leaders during the APEC Summit” to be held November 12-18 in San Francisco, Wang Yong, a professor with the School of International Studies at Peking University, to ld Chinareports, a media unit of the state-owned CICG Asia-Pacific .“The establishment of the two working groups increased the expectation that top leaders of both sides will meet again after the last meeting a year ago.”

“It's not easy to turn around the strategic competition between China and the US in the short run. But having dialogues is better than nothing as it can help both sides to understand each other's policy direction,” Wang said.“This also shows that rational and pragmatic voices are now on higher ground.”

“Since the US-China trade war broke out in 2018, both sides have lagged in developing a mechanism to resolve problems,” said Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation. Reducing damage caused by US sanctions to the global economy“will be one of the most important tasks of the economic working group.”

Zhou also said it is necessary for both countries to discuss their macro and fiscal policies, which have been inconsistent for some time.

Meanwhile, the US Commerce Department on September 22 released the final rule implementing the national security“guardrails” of the bipartisan CHIPS and Science Act, which was passed by the Congress in August last year.

The rule prohibits CHIPS funds recipients from expanding material chip-making capacity in foreign countries of concern – mainly China and Russia – for ten years, and from entering into certain sorts of joint research or technology licensing efforts with foreign entities of concern.

In August last year, the US announced a subsidy package of US$52.7 billion to boost its chip sector. South Korean and Taiwanese firms can apply for the subsidies but in exchange they would have to limit their expansion in China.

Last November, Chinese President Xi Jinping and US President Joe Biden met on the sidelines of the G20 summit in Bali, Indonesia. The two countries agreed to improve their bilateral relations but their political tensions then increased in early 2023 after a Chinese spy balloon was seen flying across North American airspace.

The chip war also escalated as the US on August 9 this year unveiled new rules to restrict American funds and firms from investing in China's high-technology sectors from 2024. Beijing also started requiring companies to apply for licenses to export gallium and germanium, raw materials of high-end semiconductors, from August 1.

In a meeting in Malta on September 16-17, China's Foreign Minister Wang Yi and US National Security Advisor Jake Sullivan discussed key issues in the US-China bilateral relationship, global and regional security issues, Russia's war against Ukraine and cross-Strait issues, among other topics.

The meeting was followed by the establishment of the two new working groups between China and the US last Friday.

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US hawks

After a four-hour meeting between Raimondo and Chinese Commerce Minister Wang Wentao on August 28, the US and China agreed to set up working groups to handle their trade and investment disputes. It appears that Beijing wanted to set aside the chip war and focus on resolving other economic issues with the US.

This came after the US compromised on several things in August: unveiling softer-than-expected investment curbs against China's high-technology sector; agreeing that the Netherlands can continue to ship high-end DUV lithography to China until the end of this year; and removing 27 Chinese entities from its“unverified list.”

But Washington refused to make more compromises, especially after the sanctioned Huawei Technologies launched its flagship smartphone Mate60 Pro on August 29 to show off its chip-making ability.

Representative Michael McCaul, the chairman of the House Foreign Affairs Committee, last Friday said that the requirement that US firms notify the government about their investments in China's high-technology sectors is not sufficient.

“I'm tired of seeing our technology ripped off and being used in their weapons,” McCaul told Bloomberg News in an interview, adding that sale of high-end chips, AI and quantum computing products from US to China should be banned.

Read: China sets aside chip war, moves on with US

Follow Jeff Pao on Twitter at
@jeffpao3

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