June 11, 2018 / 10:25 AM / 5 months ago

Breakingviews - Trump-Kim parley has a downside for Xi

North Korea's leader Kim Jong Un waves before departing Pyongyang to Singapore on June 10, 2018. KCNA via REUTERS

HONG KONG (Reuters Breakingviews) - Success in Singapore this week could have a downside for China. Any breakthrough in Tuesday’s talks between North Korean leader Kim Jong Un and U.S. President Donald Trump, after years of nuclear threats, would be an economic win for Seoul and others in the region. The People’s Republic itself may profit from a détente. President Xi Jinping, though, might lose critical negotiating leverage as trade tensions escalate.

South Korean President Moon Jae-in and the country’s $1.4 trillion economy are perhaps the most obvious beneficiaries if any progress is made. He is already basking in approval ratings above 70 percent, and South Korean companies stand to benefit greatly if sanctions are lifted and infrastructure projects move forward. Past co-operation initiatives have not been financial hits: operations at the Kaesong industrial park were suspended in 2016. But hopes of a real opening have lifted shares in companies like $7.5 billion Hyundai Engineering & Construction Co, up around 80 percent since the White House confirmed the summit in March.

At first blush, Beijing would also seem a winner. It has sought to calm tensions and cooperated last year to impose a new round of sanctions on Pyongyang. Chinese companies - adept at working in challenging locations - should gain. A peace accord could lead to the eventual withdrawal of U.S. forces from the peninsula.

But the reality is more complex. China has long been viewed as an indispensable player for dealing with an opaque regime. It accounts for about 90 percent of the North’s trade, meaning it is an essential partner for sanctions enforcement. And it has parlayed that for leverage elsewhere, using it to ward off trade threats from the United States. Trump tweeted last year that he had demanded Xi’s help with North Korea, to get a “far better” trade deal.  

Progress in Singapore - perhaps leading to an American presence in Pyongyang - might then subtly undermine Xi’s position. Certainly, two meetings with Kim before the summit, and the loan of a plane, suggests at least some anxiety in Beijing at being sidelined. For years, foreign policy mandarins held that the United States would need to pull punches on trade in order to court’s China help with North Korea. A successful summit might start to chip away at that calculus.

Breakingviews

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