(Preview) Brussels and Beijing Make a Deal; Weak Holiday Spending Data; Xi’s Reported Rest Breaks; Peak Dove?

Andrew Sharp (0:04)

Hello, and welcome to Sharp China. I'm Andrew Sharp, and you are listening to a free preview of today's episode.

Hello, and welcome back to another episode of Sharp China. I'm Andrew Sharp, and on the other line, Bill Bishop. Bill, how are you doing?

Bill Bishop (0:21)

Doing great. Hi, everybody. Hey, Andrew.

Andrew Sharp (0:23)

It's good to be back. We missed last week an eventful week last week, a lot of different moving pieces, particularly between Europe and China. So that's where we will begin today. And to recap for anybody who hasn't been plugged in to the back and forth here, last week began with a letter from Friedrich Merz and Emmanuel Macron on behalf of Germany and France. Pushing the EU Commission to adopt several protectionary measures for EU markets, including a second strike tool that would shut off PRC exports entirely in the most extreme scenarios in the event of Chinese reprisal for EU trade barriers. And then by the end of the week, there was a deal struck between EU Trade Chief Maros Cefkovic and Chinese Commerce Minister Wang Wentao that will purportedly have Chinese exports of hybrid vehicles to the European market and cap those exports at 350,000 total hybrids sent into the EU market. So lots of moving pieces on the board. We've talked in the past about the ongoing deindustrialization of Europe.

What is your general reaction to what we saw last week? Did Brussels and Beijing avert a trade war or merely delay one? What do you think?

Bill Bishop (1:52)

So I think I would fall more in the likely delayed. Too early to tell, but this was, I think, a more positive outcome than a lot of people were expecting, given the rhetoric from the Chinese side.

People are still trying to really parse through these new restrictions on the plug-in hybrid electric vehicles and what it really means, because it looks like Chinese PHEVs that are produced outside of China potentially could go into EU under their own quotas from those individual countries. So there could be some significant loopholes. I think the question will be, there's this European Council meeting, sorry, I think it's-

Andrew Sharp (2:38)

Thursday and Friday, the EU Council meets.

Bill Bishop (2:41)

Thursday and Friday, and then we'll see how that meeting goes and sort of how those leaders, what they actually think of this deal and whether or not it really does move the needle. I mean, the agreement, I guess, includes that they'll reconvene in January, the Chinese and EU side. So it certainly bought several more months of time for various talks, which the Chinese are always happy to keep talking.

Andrew Sharp (3:04)

Yeah.

Bill Bishop (3:06)

But headline number does seem like this is a pretty significant positive for the EU in terms of reducing the number, getting China to effectively agree to a quota for these. And then I think there's a 6% growth rate per year.

But the EU also says that China, they have some agreement on rare earths. We'll see. The US thought it had some agreement on rare earths. And obviously, that is still not, from the US perspective, not being honored. So there's a lot still to work through. But in general, I think credit, it will be interesting because the EU deserves some credit for building up to the talks last week with this joint letter from Mertz and Macron showing, I think, a more sort of a tougher united front to China, which I think helped their negotiating position. Now, though, the question will be, does this apparent concession from the Chinese side, does that empower-

Andrew Sharp (4:08)

Allay broader concerns in Europe.

Bill Bishop (4:10)

Well, right. Does that empower folks, other EU leaders say, see the Chinese, this is all reasonable. We can just keep talking and everything works out. We don't have to push forward with any of the more tougher instruments we've been talking about, or does it actually strengthen the folks who are arguing that, see, if we just only are tougher with China, they'll make concessions? And I don't think we know the answer to that at this point.

Andrew Sharp (4:32)

Yeah, China only responds to aggression as opposed to negotiations. And yeah, I do think there will be hope that there are more negotiated solutions on the horizon between Europe and China, hope on the EU side. I am curious to see whether that's actually a reality that materializes at any point over the next 12 months or so.

Bill Bishop (4:56)

Well, both sides talked about making sure and here's the WTO rules, so they're both still talking about China loves the WTO.

Andrew Sharp (5:03)