China and the United States have substantial room to expand cooperation in services, capital flows and artificial intelligence, building on their intertwined high-tech manufacturing supply chains, said a senior economist and executives of multinational corporations.

As the exchange of visits between the two heads of state within six months marks a historic milestone, Zhu Min, former deputy managing director of the International Monetary Fund, told China Daily that understanding the composition of Sino-US bilateral trade is essential for assessing its prospects.

China's exports to the US are concentrated in high-tech manufactured products, equipment, heavy-duty machinery and capital-intensive goods, he said, highlighting their role as inputs in further production.

US exports to China also focus on high-tech manufactured products — including intermediate goods — alongside energy, said Zhu, who is also a former deputy governor of the People's Bank of China, the country's central bank.

This means that many Chinese exports to the US are assembled in the US before being exported to markets worldwide, including China, he said, adding that similarly, US products enter production processes in China before being exported to other markets, including the US.

"I think that is the nature of China-US trade," Zhu said, emphasizing that when high-tech manufacturing supply chains are closely linked, raising the cost of imports and exports could hurt companies and economic activities in both countries.

"In that context, high tariffs don't make any sense. I think US companies clearly see that, and more and more US politicians are also seeing it that way," he said.

Beyond goods trade, China's demand for imported services — alongside its opening-up policies in sectors such as healthcare, education, biotechnology and telecommunications — offers a large market for US companies, given the strength of the US service economy, Zhu said.

China's outbound capital flows, including direct investment, could also create opportunities for the US, he said. "There are a lot of ways we can work together. So I'm very much looking forward to seeing the two leaders meeting and talking," Zhu added.

Supply chain access

Iris Cui, vice-president of Asia procurement and operations at Apple, said that China remains central to the US tech giant's global supply chain.

More than 80 percent of Apple's 200 major suppliers worldwide operate manufacturing facilities in China, while work on its newest product — the iPhone Duo — was carried out exclusively in China, from early-stage product development to final assembly, Cui said.

Zhu, the senior economist, highlighted the complementary approaches to AI development in the two countries. While China places greater emphasis on improving efficiency through applications, the US focuses on pushing the technological frontier, he said.

This creates scope for cooperation because US models need customers and commercial applications to generate more revenue and cover costs, he noted.

Zhu said that the rising awareness regarding AI security amid the rapid advancement of the technology opens up another potential avenue for cooperation — putting in place safety guardrails.

Such efforts could deliver tangible benefits not only for the two countries, but also for the wider world, he added.

Chen Liren, president and CEO of US tech company InterDigital, said that as China and the US are the world's most important innovative economies, companies from the two countries have already formed long-term and deep connections in areas such as technology and global standards.

"We hope both sides will continue to maintain communication, enhance mutual understanding, and create more space for companies to carry out normal and practical commercial and innovation cooperation," Chen said.

Addressing concerns about so-called "overcapacity" in China, Zhu said that recognizing the nation's role as both a producer and a market, alongside its overseas investment, could broaden the scope for cooperation between China and the rest of the world.

"We should not overemphasize goods exports," he said, referring to China's services trade deficit and financial account outflows as important parts of its broader external accounts. These reflect China's demand for services supplied by other countries and the scope for investment cooperation overseas.

Zhu pointed to the US government's heavy debt burden and high interest costs as sources of global concern.

"We really encourage the US to try their best to maintain the stability of the (US) Treasury market," said Zhu.

Concerns over the US dollar's credibility, US fiscal conditions and the increased use of the dollar as a geopolitical weapon highlight the need for a more balanced global currency system, including a greater role for the renminbi, Zhu said.

The Global South, in particular, needs a currency that better represents its growing economic weight, he added.

(Source: China Daily)