China asks U.S. to protect ‘hard-won’ results before Xi-Trump meeting

Trade negotiators from China and the U.S. announced Sunday that they’d struck a slew of agreements on issues spanning tariffs, shipping fees, fentanyl and export controls over two days in Malaysia. That marked a significant cooling of tensions, after a recent volley of tariff threats and fresh export curbs threatened to derail the bilateral relationship.

Striking a conciliatory tone, the People’s Daily said Monday the progress showed Beijing and Washington were capable of handling their differences. “Neither side was blindsided by these issues, instead they focused on solving the problems,” according to the commentary penned by Zhong Sheng, a Chinese homonym for “Voice of China” that’s often used to set out Beijing’s foreign policy views. 

The Hang Seng China Enterprises Index rose as much as 1.3% on Monday, while the broader MSCI AC Asia Pacific Index advanced 1.5% to a new intraday record. China’s 10-year government bond yields edged up, as demand for safety assets ebbed following the positive results of trade talks.

Xi and Trump are expected to sign off on the terms this week in South Korea when they sit down in person for the first time since the U.S. president returned to power. That meeting could reveal details around issues such as China’s purchases of U.S. soybeans, Washington’s plans for shipping fees on Chinese vessels and Beijing’s rare earth export controls.

“We expect the leaders to approve the deal, but whether it will bring lasting relief to markets is less clear—the new reality for U.S.-China ties appears to be one of frequent ruptures and short-term fixes,” Chang Shu, David Qu and Jennifer Welch of Bloomberg Economics wrote in a note.

From Beijing’s perspective, fewer external uncertainties will buy policymakers’ time to focus on supporting the domestic economy and enhancing its tech sufficiency, they added. While Chinese industrial companies saw their earnings surge the most in nearly two years last month, the job market remains gloomy and a years long housing crash is lingering.

The People’s Daily commentary called on the U.S. to stick to the trade and economic consultation mechanism led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. Export curbs announced by U.S. officials outside that framework have derailed the system several times in recent months, prompting Beijing to jam its rare earth supply chain that’s critical to American manufacturing. 

Bessent said he believed China would delay its latest rare-earth restrictions “for a year while they reexamine it” after the latest talks. It had been unclear how Beijing would enforce its proposed curbs asserting control over any global shipment containing even a trace of certain rare metals from China, a move that had sparked outcry in Europe, too.

Another potential area for a quick win is the 20% fentanyl tariff the U.S. has imposed on Beijing to pressure authorities into halting the flow of precursor chemicals used to make the deadly drug. Relief on that levy—which stacks on top of Liberation Day tariffs—could be a boon for the Asian nation at a time when domestic demand is weak.

China and the U.S. have held five rounds of talks since Trump unveiled the highest U.S. tariffs since the 1930s in April, which ended with Chinese exports to America facing a 55% levy. The People’s Daily piece said those talks were proof that neither nation wanted to decouple.

“The two sides should meet each other halfway, cherish outcomes of every dialogue and continuously build mutual trust and manage differences,” the publication said. 

Despite the latest dovish language from both sides, global investors are learning to embrace the new normal of “tension, escalation and truce,” Ting Lu, chief China economist at Nomura Holdings Inc. wrote in a Monday note.

“It’s good for the world’s top two largest economies to dial down tensions,” he added, “but we believe the superpower rivalry will likely escalate in the future.”