China may buy less American farm products if US issues severe HK response

[BEIJING] China may reduce its imports of agricultural products from the United States if Washington issues a severe response to Beijing's push to impose national security laws on Hong Kong, three sources said.

China has pressed ahead with national security legislation for Hong Kong, raising fears over the future of the financial hub.

US President Donald Trump has vowed a tough response, and will hold a news conference on China later on Friday.

Sources said that if Mr Trump announces tough sanctions on Beijing, that could derail the trade deal the two countries have worked on for almost two years, as any worsening in relations could deter importers from buying US farm goods.

If the US countermeasures are really severe, China probably will reduce its buying of US products, said one source familiar with the government plan.

If the measures are mild, trade may not be affected, the source added.

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Under their initial Phase One trade deal reached in January, China committed to buying a further US$32 billion worth of US agriculture products over two years, above a baseline based on 2017 figures.

Soybeans were the top US farm product shipped to China in 2017, with cargoes worth US$12 billion, and traders have said they expected China to step up purchases of US cargoes of the oilseed.

"Commercial buyers are still inquiring about US new (soybean) crop, making preparations to import American beans," said a source with a major trading house.

"But this could change because of any political hiccups... Commercial buyers are very nervous at the moment," the source said.

China has already bought some US soybeans and corn in several rounds of purchases this year, but the typical peak period for Chinese purchases of US crops comes after harvest in the fall. Those purchases may now be in doubt.

"The tensions between the US and China mean private companies are less inclined to buy American products," said Darin Friedrichs, Senior Asia Commodity Analyst at broker INTL FCStone.

"US soybeans don't just have to be price competitive, they have to be price competitive accounting for the big US-China political risk," Mr Friedrichs said. Crush margins for American shipments after September are increasingly economical for crushers compared with rival supplier Brazil as the US harvest approaches, traders said.

Whether China will continue to buy US beans probably "depends on US reaction to HK," said a trader with a state owned firm.

REUTERS