Trumped Up? The $250 Billion in U.S.-China Trade Deals May Not Tally

Published November 09, 2017
Dow Jones Newswires

On the surface, deals worth $12 billion for Qualcomm Inc. to sell chips to three Chinese smartphone brands look like a win for America Inc. during President Donald Trump's visit here.

But there is a catch to the Qualcomm deals and many of the other agreements involving companies such as Boeing Co. and General Electric Co., announced at Mr. Trump's summit with President Xi Jinping this week. Many in the $250 billion haul aren't full contracts. Announcing them gave both governments a big headline number to cheer about but, as some business groups said, without addressing harder-to-resolve problems in U.S.-China trade.

In Qualcomm's case, the nonbinding, intended orders by smartphone maker Xiaomi Corp. and the Oppo and Vivo brands owned by Guangdong's BBK Electronics span over three years and are basically on par with existing orders, according to a person familiar with the deal. A Qualcomm spokeswoman declined to comment on whether the deals went beyond expected orders.

The biggest deal, an $83.7 billion Chinese direct-investment plan, didn't even involve a U.S. company: state-owned China Energy Investment Corp. signed a preliminary agreement to invest in shale gas and chemical manufacturing in West Virginia. That headline figure would be invested over the course of 20 years.

The second-largest figure--$43 billion--was an estimate of construction costs for an Alaska natural-gas project, with the investment breakdown between the U.S. and Chinese companies still under negotiation. Alaska Gasline Development Corp. President Keith Meyer said he expects the pipeline to earn $8 billion to $10 billion in revenue a year beginning in 2024 or 2025, but that a final agreement with China Petroleum & Chemical Corp., known as Sinopec, will be negotiated next year.

"The deal is politically expedient, yet its nonbinding nature gives Sinopec the flexibility to quietly back away from the deal down the line, " said Hugo Brennan, an Asia analyst at consulting firm Verisk Maplecroft. AGDC didn't immediately respond to that characterization, and Sinopec declined to comment on it.

In another heralded deal, Chicago-based Boeing Co. said it would supply 300 aircraft, worth about $37 billion, to state-run aircraft-leasing company China Aviation Supplies Holding Co.

Boeing has a backlog of more than 1,000 orders from unidentified buyers, many of which are believed to be from China, according to aviation intelligence company FlightGlobal, suggesting that the orders unveiled during Mr. Trump's visit may not necessarily be new.

The company didn't immediately respond to questions about whether the new Chinese orders are among those previously announced.

Boeing typically times the announcement of large Chinese orders to coincide with important political events: when Xi Jinping visited the U.S. in 2015, the company announced a Chinese order for 300 jetliners worth $38 billion.

The signings included several new gas-export agreements, in line with the Trump administration's May announcement that it would encourage natural-gas export to China to help address the trade imbalance. Cheniere Energy Inc. signed an $11 billion memorandum of understanding on long-term sales of liquefied natural gas to China National Petroleum Corp.

Auto makers Ford Motor Co. and General Motors Co. were also part of the deal parade. Ford said it had confirmed plans to export nearly $10 billion worth of vehicles and auto parts to China from North America over the next three years. Ford said it would increase exports by 30,000 vehicles in that period to meet demand for imported cars from wealthy Chinese buyers.

GM confirmed that one of its local joint ventures, SAIC-GM, which GM operates with state-run auto maker Shanghai Auto, would import vehicles and parts worth $2.2 billion from the U.S. over the next three years.

In a reflection of the preliminary nature of some of the agreements, the two governments announced few details at the signing. The U.S. embassy later released information on some deals, though certain companies requested their agreements remain private, according to officials.

The focus on deals contrasts with the lack of visible progress expected during Mr. Trump's trip in negotiating deeper structural changes that American government and business leaders have long sought in gaining greater market access to China, and in curbing Beijing's ambitious mercantilist industrial policies.

Many economists and business leaders say the focus on deals will do little to advance Mr. Trump's goal of curbing the bilateral goods trade deficit of $347 billion that the U.S. had with China last year, and which appears to be growing even bigger this year.

That is partly because specific sales agreements don't address Chinese policies that aggravate American companies. Many executives fret more about broader issues such as the looming threat from the "Made in China 2025" industrial-policy initiative designed to displace foreign manufacturers in a wide range of sectors led by U.S. companies, such as robotics, medical equipment and driverless vehicles.

The U.S. trade deficit is driven by broader macroeconomic trends, such as the shortfall of savings in the American economy.

The contracts announced in Beijing this week will "have a negligible effect on our overall trade balance, which is largely determined by savings and investment behavior" says Phil Levy, senior fellow at the Chicago Council on Global Affairs who was a trade economist in the George W. Bush administration.

Other deals announced this week include:

--American Ethane Co. and Nanshan Group formally announced their $26 billion, 20-year binding agreement to deliver ethane gas from the Texas Gulf Coast to a new ethylene plant in China.

-- Caterpillar Inc. and China Energy Investment signed a five-year deal that outlined future agreements for mining-equipment sales and rentals. The deal didn't come with an investment figure.

--General Electric signed three deals worth a total $3.5 billion involving aircraft-engine orders and gas-turbine sales to Chinese companies.

-- Goldman Sachs Group Inc. and China Investment Corp. agreed to set up a $5 billion joint fund to invest in U.S. manufacturing companies.

Jacob Schlesinger in Washington, Chun Han Wong and Yang Jie in Beijing contributed to this article.

Write to Yoko Kubota at yoko.kubota@wsj.com and Eva Dou at eva.dou@wsj.com

(END) Dow Jones Newswires

November 09, 2017 06:57 ET (11:57 GMT)