China ETFs Climb On Hopes Of Better US Relations As State Department Confirms Blinken's Beijing Visit

Hope is building up across the Pacific as U.S. Secretary of State Antony Blinken prepares for a highly anticipated visit to China later this week.

The Department of State confirmed Blinken's diplomatic trip, which will span from Friday to the following Wednesday and will also include a brief visit to the U.K.

Official communications state Blinken will meet with "senior PRC officials where he will discuss the importance of maintaining open lines of communication."

Blinken's visit, which will be his first in five years and a first in his current role, was slated to occur in February but got suspended after the two countries entered a feud over the unauthorized appearance of a Chinese surveillance balloon over U.S. soil.

China said the event had no aggressive intentions and happened by accident: a weather surveillance balloon was blown off course. Blinken met top Chinese diplomat Wang Yi in Germany after the balloon incident, where he also raised other matters including China's involvement in the Russian invasion of Ukraine.

U.S.-China tensions have been on the rise in the first half of the year. The two countries' conflicts as natural competitors in the global economic arena have led to several points of friction.

The sovereignty of Taiwan, a country that China claims as part of its own territory and whose independence is of strategic importance for the U.S., has become central to the escalating rhetoric of both nations. Taiwan is home to Taiwan Semiconductor Manufacturing Company TSM, which produces the world's most advanced microchips, as well as many other companies in the semiconductor sector.

Both Beijing and Washington have launched measures aimed at hampering the other country's ability to dominate the semiconductor supply chain, which could turn out a key to maintaining global influence in the near future as chips become a commodity used in almost every product, from refrigerators to cars and military equipment.

Yet both countries continue to rely on each other a lot more than they would prefer. Despite President Joe Biden's call to "decouple" from China's economy at the latest G7 meeting, China and the U.S. continue to be each other's largest trading partners. Total U.S. goods and services imports from China reached a new record in 2022 at $564 billion, as per the Bureau of Economic Analysis.

The U.S. position has since slowly moved to align with Europe's strategy of "de-risk" but not "decouple" from China.

These and other issues are expected to come up in Blinken's upcoming meeting in Beijing with China's Foreign Minister Qin Gang. The Department of State said Blinken will raise "bilateral issues of concern, global and regional matters, and potential cooperation on shared transnational challenges." According to the Washington Post, Chinese President Xi Jinping could also be present at the meetings.

The ability to establish fluid communications between the two countries' militaries is also key, as a failure to interpret routine military actions in the Pacific as aggression could plunge the two countries into a much dreaded and easily preventable military clash.

On a Wednesday preliminary phone call with Qin Gang, Blinken raised "the importance of maintaining open lines of communication" to "avoid miscalculation and conflict," in the management of U.S.-China relations.

Yet, according to a communication by China's Foreign Ministry, Qin urged the U.S. to "stop interfering in China's internal affairs" and "stop undermining China's sovereignty, security and development interests in the name of competition."

The Chinese official's wordings continue to showcase a looming air of distrust for U.S. behavior overseas. 

Late last month, the Pentagon said it "believes strongly in the importance of maintaining open lines of military-to-military communication between Washington and Beijing to ensure that competition does not veer into conflict."

China ETFs reacted positively to the confirmation of Blinken's visit.

• iShares MSCI China ETF MCHI is up 1.5% on Wednesday at the time of writing.
• iShares China Large-Cap ETF FXI is up 1.3%.
• KraneShares CSI China Internet ETF KWEB is up 2.3%.
• Xtrackers Harvest CSI 300 China A-Shares ETF ASHR is up 0.9%.
• SPDR S&P China ETF GXC is up 1.6%

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