A US/China heart to heart

Key takeaways

  • US and China presidents Biden and Xi meet in California for talks.
  • Both agree to opening a direct line of communication, military contact, and a clamp down on fentanyl.
  • Taiwan remains a sensitive geopolitical issue, with Xi reaffirming the need for resolution.

A US/China heart to heart

On Wednesday US President, Joe Biden, met with China’s President, Xi Jinping, to discuss their nations’ relationship and various contentious issues. The meeting provided the opportunity for Biden and Xi to address levels of collaboration and communication, as well as geopolitics and narcotics. Though some conflict was evident, it seemed to be a productive meeting, which markets received positively.

Many headlines reported the agreement of a closer relationship between the two nations, with a direct line to be established between each of the leaders. It was suggested by Xi that the US and China could co-exist in a world big enough for the two of them, though Biden, when asked by the press, did later confirm his view that the Chinese leader was indeed a dictator of a communist regime – something that may not go down well when it comes to mutual respect.

On the request of Biden, the two agreed to resume military contact after China had initially stopped this line of dialogue following Nancy Pelosi’s visit to Taiwan last year, which strained relations over the still contentious issue of unification. Xi firmly believes that Taiwan needs to be unified with China, and though he agreed that a peaceful unification was the way forward, he was clear that the use of force was not off the table. In his own geopolitical interests, Biden encouraged Xi to use his influence with Iran to stop provoking the US in the Middle East.

President Biden was also keen to address the issue of fentanyl and the chemicals required to make it, in a bid to curb the supply of narcotics in the US, with the Chinese leader agreeing to target companies that make its input chemicals.

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Despite trade and investment between the two nations falling over recent years, a healthy US/China relationship is a good thing for global stability and economic harmony. At a time when tight monetary policy has started to bare its teeth, it is important for these superpowers to collaborate where possible – productive and frank talks are part of this.

Global equity markets were up 1.04% on Wednesday, with broad US and China equity indices up 0.80% and 4.13% respectively (all in sterling terms), and it is pleasing to see positive momentum in risk markets, with the Chinese index moving away from its October lows.

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