Today’s Headlines: Important Visitors to Washington

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Today’s Headlines:  Important Visitors to Washington
September 29, 2015

A Busy Week in Washington

A very important visitor from abroad came to Washington, DC last week—and we aren't even referring to the Pope. Of course, il Papa's visit was important, as it included the first-ever papal address to a joint session of Congress. However, given all the attention to the Pope's tour of the United States, the other important visitor tended to get lesser notice than one might expect.

Xi Jinping, the President of China, began a week-long tour of the US in Seattle with a tour of Boeing facilities, followed up by meetings with US technology leaders, and concluded the week with meetings with President Obama and a state dinner at the White House. Wisely, President Xi waited until Thursday to arrive in Washington, after Pope Francis left town.

We Come Bearing Deals

Xi's trip began with commercial considerations. On Wednesday, China agreed to buy 300 aircraft from Boeing for a reported $38 billion, while Boeing completed an agreement with China's Commercial Aircraft Corporation to build a completion facility in China for 737 aircraft. The facility will rival one created by Airbus in 2008.

Boeing has projected selling 6,330 planes to the growing Chinese commercial aviation market over the next 20 years, which would bring in an estimated $950 billion to Boeing's coffers. Since Boeing was a primary recipient of assistance from the now-defunct Export-Import Bank, this deal provides Boeing with a huge boost in its battles with Airbus in the lucrative Chinese market.

Critics claim that the Chinese Boeing facility is part of an effort to intensify longer-term competition between Boeing and Airbus to squeeze prices—but what's wrong with that? It's a refreshing bit of true capitalism within the Chinese system. A greater concern is that China will be using both plants to eventually learn enough about manufacturing planes to ditch both Boeing and Airbus and create their own company. That's certainly possible over time, but it's a risk Boeing is willing to take in the short term.

Earlier in the day, Cisco Systems announced a $100 million joint venture with the Chinese firm Inspur to sell various networking products and technologies within China. Again, a US company decides the potential risk of intellectual property loss is worth the entry into the Chinese market, slowdown or no slowdown.

Clearly this flurry of economic good news set a positive tone for Mr. Xi’s visit, ahead of potentially contentious discussions with President Obama on such prickly items as theft of American intellectual property by Chinese hackers and human rights.

Superpower Engagement

President Obama has taken a lot of flak in certain circles for his engagement policy with China and failing to take a more aggressive stance on these and other contentious issues—including China's military expansion in the South China. Obama attempted to reverse that trend with a tough stance prior to and during the meetings.

Threats of economic sanctions in retaliation for Chinese governmental and industrial cyberattacks produced a series of meetings between senior officials of both countries to avoid an embarrassing announcement prior to Xi's arrival, likely laying the groundwork for the various agreements and understandings that followed.

The two presidents agreed that neither government would support hacking efforts to steal proprietary business information and corporate secrets, but did not extend that to traditional espionage between government organizations for intelligence reasons.

Climate change was perhaps the most significant area of agreement, at least in principle. President Xi announced a nationwide cap-and-trade system to provide economic incentive to move away from fossil fuels. China has been experimenting with pilot cap-and-trade programs in specific areas since 2012, but creating a nationwide cap-and-trade structure is a daunting task for an economy so dependent on fossil fuels.

The White House Fact Sheet on the visit touts other areas of agreement such as military air safety and crisis notifications, humanitarian assistance, and peacekeeping. Any mention of the South China Sea and China's expansion efforts was noticeably absent.

There is still considerable skepticism as to whether China will succeed in following up on their words, or even make a serious effort to try. In the words of President Obama, "The question now is: are words followed by actions?"

The Takeaway

The agreements about cyber espionage and the cap-and-trade announcement have potential for long-term economic effects, especially if China proceeds with a true cap-and-trade system. The cap-and-trade system may turn out to be like the claims of a 7% growth track, where economists take the numbers with a grain (or block) of salt while they try to see the real Chinese economic picture. Similarly, failure to take actions against cyberattacks and commercial espionage may result in sanctions that can prohibit US companies from doing business with some Chinese entities.

However, the shorter-term issue for investors to consider is the openness and capability of the Chinese market to buy American products. The deals with Boeing and Cisco will certainly improve their bottom lines, and while the other tech companies such as Apple, Google, and Facebook have had their issues with China, all realize that the Chinese market is essential to their growth.

Keep an eye on any of your holdings that depend on China and how they react over the next few months to any new trade agreements and developments in the Chinese economy, whatever the growth number turns out to be. Poor Chinese growth may affect your holdings, but it does not necessarily have to—for example, the Boeing and Cisco deals are likely to remain in place unless the Chinese economy tanks in spectacular fashion.

On the broader scale, it's useful to compare the two visits. Pope Francis left Washington with a stirring message of cooperation, compassion, economic justice, and consideration for both mankind and Mother Earth. Despite constant attempts to create political scorecards regarding the Pope's statements, many considered it relatively apolitical and a sincere plea for all to make the world a better place.

Meanwhile, the two Presidents laid out a series of tentative agreements that outwardly show cooperation, but are clearly rooted in questionable trust levels. We'll see whether the leaders of America and China, as well as Congress, can follow up on the Pope's inspiring message.


Photo ©iStock.com/EdStock

  Conversation   |   32 Comments

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Owen | 09.29.15 @ 16:02
I think both visits were equally important.
Kamie | 09.29.15 @ 16:03
Never knew that Xi Jinping was in the US, I was more focused on the Pope.
Steffanie | 09.29.15 @ 16:04
I had heard he was here but am very cautious and not optimistic things will actually work out.
Daniel Dohlstrom | 09.29.15 @ 16:05
Seems the timing of his visit had him a bit over scored by the Pope. A good thing though hosting dignitaries and keeping relations good
Erin | 09.29.15 @ 16:05
I think it's hard to trust one another when there is so much secrecy and jockeying for power/dominance. Hopefully these trade deals benefit both countries equally.
Kathryn | 09.29.15 @ 16:08
They are both equally important but how one of them was treated is a different story. The media was completely bashing the pope and hardly had anything good to say about him.
Elaine | 09.29.15 @ 16:09
Personally I don't trust Xi Jjnping and dare you say it out loud...or the Pope.
Nancy | 09.29.15 @ 16:09
I find the difference in the amount of coverage in these two news stories very interesting.
Jo Ann | 09.29.15 @ 16:10
I knew that he was here, but I feel that any deals that were made are virtually written on thin air. Actions speak louder than words when it comes to dealing with the Chinese and I always heard keep your friends close, and enemies closer and I think this is more the case.
Christina | 09.29.15 @ 16:13
Funny - didn't hear anything about him visiting! Guess he didn't use an Austin PR firm like the Pope did ;).
Meredith L | 09.29.15 @ 16:15
I personally do not think this is a very good idea at all. Too many bad things coming out of China. Asbestos laced crayons, poison in our imported goods. They do not have safe working conditions or decent labor laws and are the current brain drain of the world. Buyer beware of anything coming from China.
Chelsey | 09.29.15 @ 16:16
Not real excited by either visit. I think the pope could have focused a lot more on the real reason he has his job. Our Savior. As far as the Chinese president, I don't believe a word that comes out of his mouth regarding cyber attacks. Praise for the deal with Boeing as that company is in my state here.
Britt | 09.29.15 @ 16:16
Both visits were very important and much needed.
Sara | 09.29.15 @ 16:17
Did not know that Xi Jinping was even in the US. Everybody was more focused on the Pope. That and I really do not watch news much.
Tina | 09.29.15 @ 16:17
Never once heard about the president of China coming. Wow.
Amanda | 09.29.15 @ 16:29
Never heard about Xi Jinping being here, I guess the Pope was more important for news to cover. I would have liked to have heard more about him being here as we are all important.
Ron | 09.29.15 @ 16:34
President Xi is a much bigger story with all that it entails in cyberterrorism, currency devaluation, etc. Pope Francis' visit was a spectacle.
Angie | 09.29.15 @ 16:41
I realized the Chinese president was in Washington, but didn't know he'd been here for days already and that such a large contract had been executed with Boeing.
Irene | 09.29.15 @ 16:43
Strange I had not even heard this mentioned on the news and I watch almost daily
Bobbie | 09.29.15 @ 16:44
I knew he was here, but the media attention was all on the Pope. Because I needed to know the Pope landed, and that the airplane doors were opened, and that he was walking down the stairs of the airplane. Too much.
Carla Truett | 09.29.15 @ 17:04
I knew the Pope was here but until now, never heard of Xi Jinping's visit.
trish | 09.29.15 @ 17:06
Wow. I missed that. Had no idea. I don't like that I'm admitting that
Stokes | 09.29.15 @ 17:12
Appropriate that all of the media coverage was focused on the Pope when President Xi's visit would potentially have more of an effect on our nation.
Heather | 09.29.15 @ 17:14
I had no idea the president of China was here. But that's great news for Boeing. I have friends that work for them.
Sarah | 09.29.15 @ 17:18
Well that's interesting. Unfortunate timing but hopefully it will still accomplish what it was intended to.
Alec | 09.29.15 @ 17:21
I didn't know President Xi was in the US but I knew the Pope was. It seems like President Xi's visit was good for the economy and the Pope's for the soul. I'm hopeful that the "peace" and economic talks with President Xi will work out well in the end as we know the Pope's did.
Steven | 09.29.15 @ 17:39
Did not even know that Xi Jinping was in the US. Would have been nice if they media would have focused some on that too.
Jonathan | 09.29.15 @ 17:41
It's nice to see these two superpowers working together instead of fighting with each other like Russia.
Zanna | 09.29.15 @ 17:49
So they've agreed that spying is okay, but hacking is not. How reassuring.
Rychana Vingia | 09.29.15 @ 18:06
Wow great article. I wish both people were reported on the same amount.
Andrea | 09.29.15 @ 18:23
Knew about the Pope. Couldn't tell you what was done or said, I don't watch or read the news.
Katie | 09.30.15 @ 01:24
The popularity of the Pope's visit really blew away the other visitor.. I wish I would have known before now that Xi Jinping was here for a visit.
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