Previewing the Trump-Xi Summit | Bloomberg Daybreak: Asia Edition

0:02 Bloomberg Audio Studios, podcasts, radio, news.

0:10 Welcome to the Daybreak Asia podcast.

0:12 I'm Doug Krnner.

0:14 The expectations for the upcoming summit between

0:16 Chinese President Xiinping and President Trump are intensifying.

0:21 These two leaders are slated to meet in Beijing

0:23 next week for what's being framed as a highstakes gathering.

0:27 It was already delayed once because of the war

0:30 and discussions are expected to focus on the topic of Iran

0:34 as the US and China attempt to navigate key friction

0:37 points in their relationship that would include sanctions and trade barriers.

0:42 For a closer look, let's bring in Bloomberg's Jenny Marsh.

0:45 Jenny is managing editor for North Asia EcoGV.

0:49 She joins from our studios in Hong Kong.

0:51 Thank you for being here.

0:53 So, Donald Trump last met with Xiinping in South Korea

0:56 just six months ago and so much has happened since then.

1:00 Jenny, give me a sense of how this power dynamic,

1:04 this power balance between the US and China has shifted in that period of time.

1:10 Yeah, I mean it's quite incredible.

1:11 I think you know when this meeting was first sort of conceived

1:14 and she and Trump decided they would meet four times this year,

1:18 the watch word was just stability.

1:20 you know, they have this one-year trade truce sealed last year in South Korea,

1:25 and everybody just wanted to keep the relationship on track.

1:28 Um, and what's happened since then is that Trump has sort

1:31 of dramatically uh revised American foreign policy and sort of changed

1:36 the global economic landscape um in ways that it turns out

1:40 have not been favorable to American power on the world stage.

1:44 You know, it started with um the sort of surprise snatching

1:48 of uh Maduro from Venezuela in January and then Trump has sort

1:53 of followed that up now with this uh war in Iran

1:56 which has sort of really now bogged him down and you know,

1:59 we're going into the 10th week in a conflict

2:02 uh that he seemingly can't really find a good

2:05 way out of and that has caused the deepest

2:07 shock uh to global oil supply in history.

2:11 Um and so I think you know that means that he

2:15 is now looking towards this summit in a very different sort

2:18 of from a vantage point is very different than they imagined

2:22 when they sort of thought about this um back in Busousan.

2:25 I mean essentially now Trump is under enormous pressure

2:28 to find a way out of the war without

2:31 sort of uh conceding and essentially losing the war

2:35 um and to sort of resolve the energy crisis.

2:38 And it's only made China look smarter.

2:41 It's made Xi Jinping uh look vindicated in a lot

2:44 of his long-term policies and also just like the adult in the room

2:47 to all the other countries around the world who China who

2:50 the US rather has uh sort of derailed their energy supplies this year.

2:55 I'm glad you mentioned that point because she has

2:58 long stressed the need for China to be self-sufficient.

3:02 And so what we have seen unfold since the end of February

3:05 is that China was essentially wellprepared for a situation such as this.

3:12 Yeah, absolutely.

3:12 I mean I think you know China

3:14 for a long time has been talking about self-reliance.

3:17 Um and a lot of that self-reliance in recent years

3:21 have been more kind of engineered towards like technological self-reliance.

3:25 So um trying to wean China off

3:28 dependence on American high-tech chips because that was

3:31 the area where the US was sort

3:32 of really squeezing China with its export controls.

3:35 But sort of more broadly than that, you know,

3:37 energy security has been a huge part

3:40 of China's sort of economic policy for decades.

3:43 Um and it's something which has been very controversial.

3:46 You know, this goes back to before Xi Jinping,

3:49 Chinese leaders have been investing huge amounts of money in renewable energies.

3:54 Um, and in the auto industry that's proved, you know,

3:56 it's reaped huge benefits because China has just leapfrogged over

4:01 the sort of the combustible engine auto market to dominate renewable energies.

4:07 Um, and you know, you've had European countries and the US

4:11 complaining in recent years that China sort of got this advantage

4:15 in uh renewable energies and the green tech sector unfairly because it

4:20 puts so much attention and money into sort of developing this technology.

4:26 But if you're Xiinping right now, I mean,

4:28 it looks like absolutely the right choice because for a country

4:31 that doesn't really have much of its own energy,

4:34 you know, it has to import its oil.

4:36 um when you have massive sort of solar capacity and wind capacity,

4:41 you suddenly have the energy commodities you need at your fingertips.

4:46 And also the rest of the world is realizing how

4:48 dangerous it is to rely on other countries for their energy.

4:53 And now we're seeing other countries also realizing

4:55 they need to sort of pivot more to renewables.

4:57 And who are you going to buy that from?

4:59 Well, China.

5:01 So would you say that she has a great deal of incentive

5:04 to avoid being party to this conflict between the US and Iran?

5:09 I know that recently China's foreign minister

5:11 Wong Yi met with Iran's foreign minister Arachi.

5:15 It seems like China is trying to navigate the middle ground here,

5:18 trying not to become quite a mediator,

5:22 but at least a party with a potential to, let's say,

5:25 facilitate a forum for the possibility of some type of resolution.

5:29 Is that saying too much?

5:32 I think that's right.

5:33 I I think sort of whether or not China

5:34 wants to be a mediator is a closely watched question.

5:38 When um the US and Iran first came together for peace talks in Pakistan,

5:42 there was a lot of reporting um with people sort

5:46 of on the Iranian side and even Trump himself uh

5:49 suggesting that China had sort of used its influence over

5:52 Iran to get the Iranians to those talks in Pakistan.

5:56 And China did not like that claim at all.

5:58 And we saw Chinese state media pushing back on it.

6:01 It doesn't want to get its hands too dirty on this.

6:04 Um it took Xiinping himself a long time,

6:07 well over a month before he even commented on this war.

6:10 You know, it really is America's war.

6:12 And you know, there's that famous saying,

6:14 never interrupt your enemy when they're making a mistake.

6:17 And I think that's very much how China has seen things.

6:20 However, it's going on so long now that no

6:22 one is immune to the shocks of this war.

6:25 and you know and China doesn't have infinite reserves

6:28 and so we are seeing China sort of step up.

6:31 Um she has spoken to the leader of Saudi Arabia

6:33 and now this week before the big sort of summit

6:37 with Trump next week the Iranian foreign minister for the first

6:40 time since the war began has traveled to Beijing.

6:43 And so you do see China taking a more active role

6:46 but also being incredibly careful in its language to stay neutral.

6:51 you know, they called on both sides,

6:52 all sides to open the hom straight yesterday.

6:56 So, being very careful not to sort of say Iran or the US,

7:00 one of them needed to do it more than the other.

7:02 Everybody needs to act, you know,

7:04 um to to secure the free passage of that waterway.

7:09 Jenny, when we continue the conversation,

7:10 can we look at the economic relationship between the US and Iran?

7:14 We'll have more with Bloomberg's Jenny Marsh when

7:17 we continue here on the Daybreak Asia podcast.

7:26 Welcome back to the Daybreak Asia podcast.

7:28 I'm Doug Krner and I'm speaking with Bloomberg's Jenny Marsh,

7:31 managing editor for North Asia Ecov.

7:34 Jenny, can you help me understand the economic

7:37 relationship where China and Iran are concerned?

7:39 I believe Iran is formally a part of China's Belt and Road Initiative, right?

7:45 It's part of the Belt and Road Initiative.

7:47 they have a a strategic partnership.

7:50 Um, and the key thing is that China buys at least um it buys about

7:55 90% of Iran's oil which uh makes about 11% uh of China's overall crude supply.

8:03 So there's a big economic partnership which is heavily tilted in China's favor.

8:09 Beyond the immediate economic relief that Iran may get,

8:15 assuming that there is some type

8:16 of resolution that would allow for sanctions relief,

8:19 do you have a sense that China would be

8:21 willing to commit some type of capital to the Iranian

8:24 economy to support any type of recovery that may

8:27 be required as a result of this conflict?

8:29 because Iran is going to be looking

8:30 for some type of reparation or monies that would

8:35 be used to prop up the economy again

8:38 after everything that the economy has been through.

8:41 I think it's a good question and you have seen

8:43 other countries um roll out some sort of economic aid.

8:47 So South Korea uh has done that not a huge

8:50 amount but it has offered um the Iranians some economic aid.

8:54 China could do the same.

8:56 I I think it would be fairly small potatoes

8:58 compared to what the Iranians are going to need.

9:01 Um what you might see is Chinese companies who are, you know,

9:05 experts in infrastructure construction at very very

9:09 competitive prices coming into Iran after the conflict

9:12 ends to try and um and helping to rebuild the country in that way.

9:17 Um that would certainly make sense.

9:19 I I think Iran is more focused on trying to get money back from the US.

9:23 It wants reparations from the American side

9:26 for what it sees as sort of, you know, they started this conflict.

9:29 They've incurred all this damage to the country.

9:32 So, they're really focused on on getting that um

9:34 from the US rather than sort of looking towards China.

9:38 Help me understand the way that China may be using this conflict between the US

9:44 and Iran to understand maybe the next step

9:48 that it needs to take where Taiwan is concerned.

9:51 I mean, is does this enter the conversation at all?

9:56 Yeah, it is very interesting and there are obviously lots of parallels.

9:59 You know, the Taiwan Strait is one of the world's busiest shipping routes.

10:04 Um, Taiwan also has a commodity the world can't live without,

10:07 which is its high-tech chips.

10:09 Um, I think there's a few ways of looking at it.

10:12 I I think for she Trump is teaching him or reinforcing

10:16 a lesson that Putin already taught him which is you

10:19 know a much stronger military aiming to have a quick

10:22 decisive strike on a smaller power uh can go quickly arry.

10:28 You know he saw this happen uh with for Putin in Ukraine.

10:31 Putin, you know, years later still sort of bogged down there with massive

10:35 costs to his country and now Trump finding that actually he also can't,

10:41 you know, he can't just beat Iran easily.

10:44 So I think that will give she pause um

10:47 you know thinking about any sort of military operation.

10:50 I think what Trump is doing this year, not just with um Iran,

10:54 but also the blockades on Venezuela and Cuba are sort of maybe

10:59 giving more of a template of something that she could do,

11:01 which would be just to choke off Taiwan from its energy supplies.

11:05 Taiwan only has 11 days worth of LG stored in the country.

11:10 It's really um it's sort of its grid isn't very self-sufficient.

11:14 So you could see China sort of using this as a template not for an invasion

11:19 but as an economic uh blockade which is

11:22 something that the PLA um sort of drills for.

11:25 We've seen it in some of the military exercises they've done already.

11:29 But I think as well

11:31 she probably has a preference for sort of the political solution

11:35 to all of this and I think that's what's been more on display.

11:38 you know, you had uh he took a meeting

11:41 with the KMT chair Tongi Wan during the Iran the Iranian war.

11:46 That was for the first time in a decade.

11:47 the KMT chair had gone to China and met

11:49 with Shei and you know and then also we've

11:53 had this sort of crazy saga with the president

11:56 of Taiwan trying to fly to Esatini to visit

11:59 one of Taiwan's 12 last um diplomatic allies

12:02 and China sort of finding very novel and unorthodox

12:05 ways of of stopping that leaning on African countries

12:08 to block lies a airplane going over their airspace.

12:11 So it feels to me the Chinese would rather just sort

12:16 of squeeze Taiwan politically to the point where as president can't travel.

12:21 He doesn't really seem like much of a president on the world stage.

12:24 Platform the opposition party the KMT who are much more

12:27 friendly towards Beijing and try and bring the island closer

12:31 to China and blur the lines between the two places

12:34 that it's a much more sort of preferable option for shei.

12:37 So, you mentioned the fact that China is

12:39 the largest buyer of Iranian crude oil, and I'm wondering,

12:43 Jenny, because I know the US Treasury was sanctioning

12:47 some private oil refiners in China for processing Iranian crude.

12:51 So, to get back to the Trump cheese summit,

12:54 is this going to be a major sticking point here,

12:56 or is that going to be kind of water off a duck's back, so to speak?

13:00 We'll ignore it because we have bigger fish to fry.

13:02 Sorry to keep mixing metaphors here.

13:06 Uh I think it depends which part of the Trump administration you listen to.

13:10 So overnight you had uh Gria talking about how this is going to be a big

13:14 point and they they will talk about

13:16 China's oil purchases from Iran at the summit.

13:19 You know China is essentially sort of the biggest sponsor of Iranian terrorism.

13:23 And then Trump on the same day striking a very different tone.

13:26 He told reporters that, you know, if they have a deal with Iran,

13:30 then these sanctions on Chinese banks aren't even going to be

13:32 an issue because the US itself will be giving Iran sanctions relief.

13:37 Um, so I think it really depends where things land.

13:41 But certainly like I think the US the main um sort of lever they have

13:46 right now for pressuring Iran to strike

13:48 a deal is by choking off its oil revenue.

13:52 And so if China continues to buy that oil,

13:55 then they're diminishing sort of the US's strategy.

13:58 Uh and so in that case, you know,

14:00 threatening the banks with secondary sanctions is one of the most

14:04 powerful sort of uh tools they have against China.

14:07 There is a story um a Bloomberg story that uh China's banking um

14:13 regulator has instructed Chinese banks to comply

14:16 with these new US sanctioned on refiners.

14:19 So going against the blocking order that China issued

14:22 itself and I think that just speaks to the fact

14:24 that you know China's strategy when it comes to US

14:27 sanctions is to put its own economic interests first.

14:30 So to avoid any blowback on its own economy which seems

14:34 to be how the banking sector is kind of navigating this.

14:37 So, if we can agree that President Trump

14:39 is arriving in Beijing on some weaker footing,

14:44 is Beijing likely to try to extract some

14:47 type of concessions as it relates to trade,

14:51 some of the other things that have already happened in the US China trade war.

14:56 Yeah, you have to what does she want

14:58 to do with this position he's found himself in?

15:01 So on trade, uh I think the Chinese are going to be

15:04 very interested in the uh section 301 investigations that are pending.

15:08 Um and we'll be pushing the US to not

15:11 kind of go aggressively on those as they try

15:13 and reconstitute the tariff wall um that the US

15:17 Supreme Court sort of tore down earlier this year.

15:20 That's one thing I think they'll be very keen on.

15:24 um when it comes to sort of chip export controls,

15:27 China does still need sort of the highest end Nvidia chips.

15:31 So, they've made it clear they're not interested in sort of the mid-range stuff,

15:36 but if they can get access to sort of the best Blackwells,

15:39 um then I think that would be a bonus.

15:41 And we're watching out to see if um Jensen

15:44 Hang from Nvidia is on the plane with Trump,

15:46 which would be a sign that's very much on the agenda.

15:49 And Jensen's made it very clear he wants to sell more to China.

15:53 And then I guess Chinese investment in the US

15:55 is another um hot topic that we're looking at where

15:59 China could really push and and Trump is sort

16:01 of uh more doubbish on this and others in his administration.

16:06 um Chinese companies would like the chance to invest

16:08 in America and access you know the world's biggest

16:10 economy um particularly in the auto sector and the likes

16:14 of Ford have signaled that in some way they

16:17 would like to JV with these um Chinese companies

16:21 who are so advanced in some of their technology so

16:23 that would also be another area that the Chinese

16:26 could potentially sort of try and make some headway on

16:28 Jenny we can leave it there thank you so

16:30 very much it's always a pleasure Bloomberg's Jenny Marsh

16:33 managing editor for North Asia EcoGV joining from our studios

16:37 in Hong Kong here on the Daybreak Asia podcast.

16:41 Thanks for listening to today's episode

16:43 of the Bloomberg Daybreak Asia Edition podcast.

16:47 Each weekday, we look at the stories shaping markets,

16:49 finance, and geopolitics in the Asia-Pacific.

16:52 You can find us on Apple, Spotify,

16:55 the Bloomberg Podcast YouTube channel, or anywhere else you listen.

16:59 Join us again tomorrow for insight on the market

17:01 moves from Hong Kong to Singapore and Australia.

17:05 I'm Doug Krer and this is Bloomberg.