Resolving trade war and Hong Kong unrest more important to China than saving ‘face,’ StanChart says

FAN Editor

China’s priorities right now are to resolve its trade dispute with the U.S. and settle the civil unrest in Hong Kong, said Becky Liu, head of China macro strategy at Standard Chartered Bank.

“At this stage, we feel that China does want to diffuse some of the tensions … with the U.S. and obviously want to calm down in Hong Kong as well,” Liu told CNBC’s “Street Signs” on Friday.

The People’s Republic of China will be celebrating the 70th anniversary of the founding on Oct. 1, when President Xi Jinping will oversee a military parade in Beijing.

“The National Day is an important day but in the context of this big trade negotiation with the U.S., even including the Hong Kong situation, the face issue is not as important as many people have thought,” said Liu said, referring to the Asian mentality of “saving face” — the idea of avoiding public humiliation, or appearing like one has lost out.

Saving face may be important to the Chinese government ahead of the important national anniversary, but that is not Beijing’s priority right now.

“We feel clearly the Chinese authorities would like to at least contain the pace of escalation of conflict with the U.S.,” Standard Chartered’s Liu said.

U.S.-China trade tensions escalated last week. President Donald Trump threatened to raise duties on $250 billion in Chinese goods to 30% from 25%, and increase tariffs on another $300 billion in products to 15% from 10%. It came the same day China announced new tariffs on $75 billion in U.S. goods

But Beijing appeared to soften its stance Thursday when a foreign ministry spokesman said China was willing to resolve the trade war with a “calm attitude” and indicated it won’t retaliate immediately.

US-China trade talks

Both sides are due to meet face to face in Washington in September.

Standard Chartered bank sees “quite a lot of risks ahead especially on the back of all these trade negotiations,” Liu said.

In the medium to long term, “it looks like the probability for a trade deal in the foreseeable future or even with the current U.S. government is getting lower,” she said. This is reflected by China’s move to let the Chinese yuan move lower against the dollar, she added.

Beijing appears to want to resolve the Hong Kong issue locally, Liu said.

On Thursday, China sent a fresh batch of troops into Hong Kong. The military move was described as routine, but such movements are not usually highly publicized.

Beijing was signaling that it can intervene in Hong Kong, Liu said, but it would not be their preferred option. Liu also pointed out that China faced U.S. sanctions in the aftermath of the bloody crackdown in Tiananmen Square in 1989.

“China does not want to test that again unless they have to,” said Liu.

— CNBC’s Yun Li contributed to this report.

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