The signing of the largest ever liquified natural gas (LNG) long-term contract between Chinese and US companies could create goodwill ahead of a virtual summit between US President Joe Biden and China’s leader Xi Jinping, but it is unlikely to smooth over long-standing disagreements concerning the phase one deal, analysts say.
Sinopec, China’s state-owned oil giant, signed a contract with the US Venture Global LNG to buy 4 million tonnes of LNG annually for 20 years at a ceremony in Shanghai on Thursday, according to a statement from the company on its official WeChat channel.
“This is by far the largest LNG long-term agreement signed by China and the US,” state-owned Xinhua News Agency said on Thursday.
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In a separate deal, Sinopec’s subsidiary Unipec agreed to buy 3.8 million tonnes of LNG from the American company, the statement said.
Details of the Sinopec-Venture Global agreement were revealed last month in documents on the US Department of Energy website, but the official signing ceremony was held at the annual China International Import Export in Shanghai this week.
China’s purchase of American energy products is an important part of the phase one trade deal with Washington, which is set to expire on December 31.
Although the new deal is small in relation to China’s overall LNG imports of 67.1 million tonnes last year, the agreement will be viewed as a positive step for US-China relations ahead of a virtual meeting later this year between Biden and Xi, analysts say.
“China’s performance in implementing the agreement is blameless,” Zhou Xiaoming, former deputy permanent representative of China’s Permanent Mission to the United Nations Office in Geneva, wrote in a commentary for Chinese news portal Guancha.cn on Thursday.
Zhou criticised the US for failing to reciprocate China’s good will in meeting its purchasing commitments under the phase one deal.
China committed to buying US$52.4 billion in US energy in 2020-21 above 2017 levels.
Sinopec did not link the deals to the US-China trade talks or phase one agreement.
“[The deal] shows a high degree of consensus between the two companies to help the global energy transformation, and is of great significance to realising the carbon-peak and carbon-neutrality goals,” the Chinese company said.
Although China has made progress towards its phase one commitments, by September its imports of covered energy products from the US totalled US$24.5 billion, only 51 per cent short of the target, according to a report from the Peterson Institute for International Economics published last month.
The country’s purchases of all covered US goods were also still about 40 per cent lower than commitments, the research showed.
“China may not fulfil the phase one trade deal deadline,” Lu Ting, chief China economist at Nomura, said in a note on Tuesday.
“Conclusion: lower your expectations on a major conciliation/agreement on cutting tariffs between US and China,” he added.
US-China trade conflicts are likely to erupt again, with one of the triggers being the two sides have different views on implementation of the phase one deal, Zhou said.
“The current ceasefire might be the silence before another battle,” he wrote.
He said Washington now appeared to have no intention to conduct phase two trade talks and, as China’s strength and resilience has improved, the US would struggle to get the results it wanted in future negotiations.
Beijing should be wary of Washington taking up action again under Section 301, the same statute used by the previous administration to impose widespread tariffs on imports from China, Zhou said.
The Biden administration could also join forces with Western allies to take advantage of World Trade Organization reforms to sideline China in discussions on a new global trade system, he added.
Taiwan might be leveraged to force Beijing to make concessions on trade too, Zhou said.
“Any overestimation of the goodwill of the US toward China will hurt ourselves,” he said.
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