Core Viewpoint - The recent US-China economic negotiations mark a new phase in their trade relationship, characterized by a shift from cautious responses to strategic interactions, although significant structural challenges remain [5][7][12]. Summary by Sections Negotiation Outcomes - The US has made key concessions, including the cancellation of the 10% "fentanyl tariff" on Chinese goods and the suspension of 24% retaliatory tariffs for one year [8][10]. - The US will also pause the implementation of the 50% export control rule and the 301 investigation into China's maritime and logistics sectors for one year [8][9]. China's Response - China has adjusted its retaliatory measures, including suspending the 10% and 15% tariffs on US agricultural and energy products, and halting new export controls on rare earth materials for one year [9][10]. - Both sides have reached agreements on fentanyl cooperation, expanding agricultural trade, and addressing specific corporate cases [9]. Unresolved Issues - Despite the concessions, the US retains a 10% tariff and has not fully resolved the 20% cumulative tariffs imposed since the fentanyl issue began [10][11]. - The average tariff rate on US imports from China remains high, with estimates around 30% during the negotiation period [10][11]. Strategic Dynamics - The trade conflict resembles a repeated prisoner's dilemma, where both sides benefit from cooperation but risk mutual loss from conflict [13]. - The US's reliance on Chinese agricultural products and rare earth materials creates vulnerabilities that China can exploit in negotiations [15]. Future Outlook - The ongoing negotiations are expected to be prolonged and challenging, with significant differences in tariff and non-tariff barriers complicating discussions [17]. - China's economic resilience and technological advancements provide it with leverage in future negotiations, emphasizing the importance of internal strength in mitigating external pressures [18].

Core Points - The meeting between the leaders of China and the U.S. in Busan on October 30 focused on enhancing economic and trade cooperation, marking a new phase in U.S.-China economic relations [1][2] - The recent negotiations resulted in a series of mutually beneficial arrangements, temporarily easing tensions and indicating a shift from cautious responses to strategic interactions [1][8] Summary of Key Issues A. Outcomes of the Kuala Lumpur Economic Negotiations 1. The U.S. agreed to cancel the 10% "fentanyl tariff" on Chinese goods [3] 2. The U.S. will continue to suspend the 24% reciprocal tariffs for one year and extend certain tariff exclusion measures [3] 3. The U.S. will pause the implementation of the 50% export control rule for one year [3] 4. The U.S. will suspend the 301 investigation measures against China's maritime, logistics, and shipbuilding industries for one year [3] B. China's Corresponding Adjustments 1. China will adjust its countermeasures against the U.S. "fentanyl tariff" [4] 2. China will continue to suspend the 24% counter-tariffs for one year and extend certain tariff exclusion measures [4] 3. China will pause the implementation of new export control measures related to rare earths for one year [4] 4. China will also suspend its countermeasures against the U.S. regarding port service fees for one year [4] C. Unresolved Issues 1. The U.S. retains a 10% tariff on Chinese goods, despite reducing some tariffs [6] 2. The average tariff rate on U.S. imports from China remains high, with estimates around 30% [7] 3. The U.S. continues to impose restrictions on high-tech industries, including semiconductors and electric vehicles [7] D. Dynamics of U.S.-China Economic Competition 1. The trade conflict resembles a repeated prisoner's dilemma, where both sides benefit from cooperation but suffer from conflict [8] 2. The U.S. has shown weaknesses in its strategy, particularly in agriculture and rare earths, which are critical to its economy [10] 3. The ongoing negotiations are expected to be long-term and challenging, with both sides needing to strengthen their negotiating positions [11][12]

Group 1: Key Outcomes of the US-China Economic Negotiations - The US agreed to cancel the 10% "fentanyl tariff" on Chinese goods[6] - The US will continue to suspend the 24% retaliatory tariffs for one year and extend certain tariff exclusions[6] - The US will pause the implementation of the 50% export control rule for one year[6] Group 2: Remaining Issues in US-China Trade Relations - The US retains a 10% tariff on Chinese goods, despite the reduction of the fentanyl tariff[8] - The average tariff rate on US imports from China remains around 30% post-negotiation[9] - The US continues to impose restrictions on high-tech industries, including semiconductor sales to China[9] Group 3: Strategic Dynamics of the US-China Trade Game - China has shifted from cautious responses to a more assertive strategy in trade negotiations[2] - The ongoing trade conflict is characterized by a dynamic back-and-forth interaction between both countries[10] - Future negotiations will depend heavily on the bargaining power and economic resilience of both sides[15]

Market Overview - On July 3, the Hang Seng Index fell by 151 points or 0.6%, closing at 24,069 points, while the Hang Seng Tech Index dropped by 0.7% to 5,233 points[1] - The total market turnover was over HKD 231.2 billion, with a net outflow of HKD 3.05 billion from the Hong Kong Stock Connect[1] Sector Performance - The biopharmaceutical sector remained strong, while sectors like brokerage, non-ferrous metals, consumer electronics, and new energy vehicles showed positive performance[1] - Notable stock rebounds were observed in companies with operations in Vietnam, such as Shenzhou (2313 HK) and Jingyuan International (2232 HK), with increases ranging from 2.1% to 6.1%[1] Trade Relations - The U.S. announced a trade agreement with Vietnam, imposing a 20% tariff on imports from Vietnam, while Vietnam will exempt all U.S. goods from tariffs, reducing uncertainty in the market[2] - The easing of restrictions on U.S. chip design software exports to China indicates a potential thaw in U.S.-China trade relations, with upcoming negotiations expected to focus on "technology-resource" agreements[2] Industry Dynamics - In the consumer sector, major stocks like Lao Pu Gold (6181 HK) and Pop Mart (9992 HK) saw declines between 1.9% and 4.4%[3] - The healthcare index rose by 2.6% due to supportive measures for innovative drug development, with stocks like Kangfang (9926 HK) surging by 14.3%[3] Water Supply Sector - China Water Affairs (855 HK) reported a 29.9% decline in net profit to HKD 1.07 billion for FY25, primarily due to expected credit losses and a drop in connection and construction revenues[5][6] - Despite the profit decline, water supply sales volume increased by 7.4% to 1.5 billion tons, with operational revenue rising by 6.5% to HKD 3.53 billion[6] Capital Expenditure - The company's capital expenditure decreased by 36.2% to approximately HKD 3.4 billion for FY25, with a projected further reduction of 41.2% to about HKD 2 billion for FY26, supporting a high dividend policy[7] Stock Rating Adjustment - Following a sustained increase in stock prices, the rating for China Water Affairs was adjusted from "Buy" to "Add," with a target price revised down to HKD 6.80, reflecting a 13.0% upside potential[8]

Group 1 - The U.S. has lifted export restrictions on Electronic Design Automation (EDA) software to China, indicating progress in the trade agreement framework between the two countries [1][2][3] - The three major EDA suppliers—Synopsys, Cadence, and Siemens—have resumed services to Chinese clients, collectively holding over 74% of the global EDA market and more than 70% of the Chinese market [2][3] - EDA software is crucial for chip design, often referred to as the "mother of chips," and is essential for the design and testing of next-generation semiconductors [2][3] Group 2 - In the 2024 fiscal year, the Chinese market is expected to contribute 16% and 12% to the total revenues of Synopsys and Cadence, respectively [3] - Following the announcement of the export ban, Synopsys suspended its financial guidance for the third quarter and full year of fiscal 2025, leading to a stock price drop of over 11% in late May [3] - The U.S. government has also lifted restrictions on the export of ethane to China, which were previously imposed in response to China's export controls on rare earth materials [6]

Core Viewpoint - The recent lifting of export restrictions by the U.S. government on EDA software for China is expected to impact the semiconductor industry positively, allowing companies like Synopsys and Siemens to resume sales and operations in China [1]. Group 1: Export Restrictions and Market Dynamics - On July 2, Synopsys received a notification from the U.S. Department of Commerce that export restrictions related to China have been lifted, effective immediately [1]. - Siemens also received a notification on the same day, allowing them to restore full access for Chinese customers to their EDA software and technology [1]. - The domestic EDA market is currently dominated by three international giants: Synopsys, Cadence, and Siemens EDA, while local companies have made some breakthroughs but have not yet formed a competitive landscape [1]. Group 2: Industry Preparedness and Future Outlook - A Shanghai semiconductor company confirmed receiving notifications from overseas EDA firms about the lifting of sales restrictions, indicating prior preparations by the company to secure three years of EDA software licenses [1]. - An industry insider noted that forming a complete toolchain will take a long time, as currently, multiple domestic companies are working separately on what a single overseas company can provide [1]. - The Chinese Ministry of Commerce expressed intentions to approve export applications for controlled items that meet conditions, signaling a potential for improved U.S.-China trade relations [1].

Core Viewpoint - The U.S. government has lifted export restrictions on chip design software for China, allowing companies like Siemens to restore full access to their technology for Chinese customers [1][3]. Group 1: Export Restrictions and Compliance - The U.S. Commerce Department's Bureau of Industry and Security had previously instructed leading EDA providers to halt shipments to Chinese customers, which included semiconductor design software and related chemicals [4]. - Siemens AG has confirmed that it received a notice from the U.S. government regarding the lifting of these export restrictions, enabling the company to fully resume its operations in China [3][1]. - Cadence and Synopsys, other major EDA software manufacturers, have also been affected by these restrictions, with Synopsys suspending its financial forecasts and operations in China until further clarity is provided [2].

Group 1 - The Taiwanese government has added Huawei, SMIC, and several subsidiaries to its list of "strategic high-tech goods" requiring export licenses, indicating a shift towards tighter technology trade controls [1][2] - This action is perceived as a political maneuver to align with external forces and disrupt cross-strait industrial cooperation, potentially harming Taiwan's semiconductor industry [1][2] - The list includes 601 entities, marking the first time core Chinese tech companies are explicitly named, which aligns with the U.S. strategy to curb technology exports to China [1][2] Group 2 - The Taiwanese semiconductor industry may face significant risks, including losing access to the mainland market and hindering its development due to increased compliance scrutiny [2][3] - The Taiwanese government’s actions are criticized as detrimental to free market principles and are seen as a sacrifice of local industry for political gains [2][3] - Taiwan's reliance on the mainland for 40% of its chip production capacity below 14nm indicates that a forced decoupling could lead to substantial financial losses for Taiwanese companies, with MediaTek alone facing over 30 billion NTD in losses [4]

Group 1 - The first meeting of the China-U.S. economic and trade consultation mechanism took place in London on June 9-10, involving key representatives from both sides, including China's Vice Premier He Lifeng and U.S. Treasury Secretary Yellen [1][4] - The meeting aimed to implement the consensus reached during the phone call between the two countries' leaders on June 5, and is seen as a significant step towards stabilizing China-U.S. economic relations and contributing to global economic recovery [1][4] - He Lifeng emphasized that the essence of China-U.S. economic relations is mutual benefit, stating that there are no winners in a trade war and that both sides should resolve differences through equal dialogue and cooperation [1][4] Group 2 - Despite the positive dialogue, there are ongoing challenges, including new discriminatory measures imposed by the U.S. against China, such as restrictions on AI chip exports and the halting of sales of chip design software [2][5] - The U.S. government has been reluctant to engage in serious discussions regarding export controls, focusing on unilateral concessions from China while neglecting its own obligations [5][6] - The complexity of the economic relationship is underscored by the presence of structural issues that cannot be resolved in just a few meetings, and external factors such as Taiwan and South China Sea issues may further complicate negotiations [6][7] Group 3 - The U.S. has indicated a willingness to explore the possibility of easing restrictions on certain exports to China, including semiconductor manufacturing software and components for aircraft engines [5][6] - The ongoing trade tensions and high tariffs could lead to significant declines in trade, potentially sacrificing hundreds of billions in exports and tens of thousands of jobs in the U.S., which could destabilize the American economy [6][7] - Both sides are encouraged to utilize the established consultation mechanism to find mutually beneficial solutions through pragmatic cooperation [7]

Group 1 - The core focus of the negotiations between the US and China in London includes topics such as rare earths, technology, and tariffs [2][4] - The US delegation has increased in size with the inclusion of Commerce Secretary Raimondo, highlighting the importance of export controls in the discussions [4] - The negotiations are seen as critical for the US to achieve trade agreements, especially as the deadline for the "reciprocal tariffs" approaches [5][7] Group 2 - The US aims to restore China's rare earth exports to pre-tariff levels, recognizing the strategic importance of these resources in the trade negotiations [8][11] - China dominates the global rare earth market, accounting for 61% of mining production and 92% of processing, making it a crucial player in the supply chain [11] - The US is increasingly dependent on Chinese rare earths for both civilian and military applications, with about 70% of its rare earth compounds and metals imported from China [11][13] Group 3 - The negotiations are characterized by a shift in power dynamics, with China's rare earth resources providing it with significant leverage over the US, altering the previous "strong US, weak China" narrative [13] - The atmosphere of the talks is reported to be positive, with both sides expressing optimism about potential outcomes [13]