The subtlety of China’s negotiating style on full display

An unassuming event is about to take place in Shanghai, an event that could very well act as the catalyst for a trade agreement between the world’s two largest economic powers. The event in question is the China International Import Expo; the day to mark in your calendars is November 5. One day, and one full news cycle, prior to the US midterm elections.  

Now, I am well aware that what is presented below runs counter to every single sound bite across all media. In fact, based upon virtually all of the messaging from the past week, the outlook appears grim for any trade agreement to be reached. The only glimmer of hope that remains – according to conventional thinking – is for President Trump and President Xi to meet at the G20 next month and agree on the outlines of a deal. I actually agree that an agreement of sorts will be reached. Where the current conventional thinking is terribly flawed, however, is how the parties will get there over the next 30 days. 

For those that do expect an agreement at the G20, the expectation is for a back-channeled and quiet round of negotiations to take place, leading to an agreement-in-principal which can be finalized by the two Presidents. While the logic here might be seen as undeniable, the Chinese would vehemently contest the framework for the negotiation itself. The fatal flaw lies in the optics: going down such a path would look as though the Chinese were pandering to the Americans. This is simply not an option. For negotiations to take place – and I believe that they will – the process will need to be open, well telegraphed and, most critically, “owned” by the Chinese. Only under these circumstances would they be willing to agree to a framework in Argentina. And this is where the China International Import Expo will end up playing a critical role.

Virtually every single writing on military strategy agrees that timing is central to success in any campaign. With this in mind, consider the following set of facts. The China International Import Expo is to be held over six days, from November 5th to 10th. You’ll notice that is the very same week American voters head to the polls for midterm elections. Dig deeper though and you’ll find that it is the actual timing, and orchestration, of the Expo’s opening ceremonies that demand attention. On November 5th a detailed and painstakingly-choreographed schedule centers around a single speech; the (expected) keynote address by President Xi that afternoon.

There is no telling what details will be contained in that speech. It may also be that I’m misreading tea leaves. It does, however, stand to reason that included in the speech will be an overture to the world that China is open for business, including a direct, albeit politically-framed, message to the Americans that the time has come to address the ongoing trade dispute and enter into discussions for a mutually-beneficial, long-term “grand bargain”. President Xi can then use his bully pulpit to take ownership over how best to structure the bilateral trade talks and include overtures that ultimately compel Washington to reengage. Then you need to think for a moment how such a scenario might play out in the US. Pending the details of the speech and how it’s actually delivered (and received) would then require the American news cycle to address the comments and advances by President Xi and on the very eve of the elections. Timing is everything. 

I need to conclude here by addressing one potential, yet important, contradiction raised by a client recently when discussing this scenario. If President Xi were to do as I surmise, then wouldn’t the optics still be that of China pandering to the US? This is a critical question and one which I’d normally agree. Yet, November 2018 carries with it a great deal of significance to the Chinese people. November marks the 40th anniversary of Deng Xiaoping ushering in the “Reform and Opening Up” policy that, in hindsight, set China on a path of economic revitalization. Central to that policy was China becoming the “factory of the world” and economic growth driven by exports. Much has changed over four decades. Through fits and starts China is retooling its economy to one where growth comes from domestic consumption. Again, the China International Import Expo is meant to play a key role in this process, much as the Canton Fair did for exports.

The above thesis needs only two weeks to test and I could easily be wrong on all counts, but it was necessary to present a much needed alternative to that which pervades all global-marketplace media. At issue are the differing tactics deployed by the Chinese alongside how they balance relationships between – all at once – being both structural and transactional. In the end, the global community, not just the US, may need to accept that not only are the global economic rules changing, but so is the game itself.