China to stick to 'phase one' commitments, holding trade deal through US election, TS Lombard says - CNBC

Chinese Vice Premier Liu He shakes hands with US President Donald Trump during a signing ceremony for trade agreement between the US and China in the East Room of the White House in Washington, DC, January 15, 2020.

Saul Loeb | AFP | Getty Images

China will likely do its part to uphold commitments in the "phase one" trade deal with the U.S., according to a report by London-based consultancy TS Lombard.

"Beijing is invested in the deal insofar as it helps the leadership's drive to stabilize the economy and boost market confidence; at the same time, it is hoping for further tariff rollbacks in due course," Eleanor Olcott, China policy analyst at the firm, wrote in a Thursday report.

In particular, Olcott said China "is willing and able to stick to" boosting imports from the U.S. and keeping the Chinese yuan stable. She added that this will ensure the deal holds until the U.S. presidential election in November.

U.S. President Donald Trump and Chinese Vice Premier Liu He signed the partial deal on Wednesday in Washington. That came after a trade war that lasted more than two years, during which the countries slapped elevated tariffs on each other.

The deal includes China increasing its purchase of U.S. goods and services by at least $200 billion over two years. Beijing must also "refrain from competitive devaluations" of its currency, according to the official document.

Olcott said some recovery in Chinese exports and continued strong inflows into Chinese securities could help Beijing to keep the yuan stable, as mandated in the deal.

On the part of the U.S., Trump could point to the remaining tariffs on Chinese goods "as proof that he is maintaining the pressure on Beijing," added Olcott.

Several other analysts, however, have been skeptical that China could fulfill its end of the bargain. Deborah Elms, executive director at consultancy Asian Trade Centre, told CNBC before the deal signing that China could face difficulties increasing its imports from the U.S. because it may have to more than double its purchases of some products.

Analysts from financial services firm Daiwa Capital Markets agreed that there's "a good possibility that China will fall short of expectations, either because the bar is too high or the track record suggests that enforcement is tricky."

"In that case, it would be relatively easy for Trump to come back to the checklist again, impose new tariffs and/or ask for more concessions," Daiwa analysts wrote in a Thursday note. "As the presidential campaign starts rolling, the China card is an easy one, and worth playing over and over."

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2020-01-17 05:22:00Z
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