• Trump's decision to invite China's Xi Jinping to his inauguration surprised many observers.
• China is the US' main geopolitical rival, jostling for dominance across a range of trade and diplomatic issues.
• Trump has long reveled in unpredictability, balancing confrontational China policies with praise.

When President-elect Donald Trump invited China's President Xi Jinping, the leader of the US' biggest geopolitical rival, to his January inauguration on Thursday, it came as somewhat of a surprise.

The sight of Xi, China's authoritarian strongman, seated alongside top US political and military officials in DC would be incongruous, to say the least.

But Trump has long reveled in unpredictability, and has often balanced his confrontational China policies with years of lavishing praise for Xi.

Some see Trump's invitation as the latest power play designed to imbalance Xi and reset US-China relations.

"I think it's a gimmick. It would be impossible for Xi to attend without giving the sort of sign that he's almost like a vassal," Kerry Brown, an associate of the Asia Pacific Programme at Chatham House and director of the Lau China Institute at King's College, London, told Business Insider.

Ali Wyne, senior research and advocacy adviser at the International Crisis Group, said the invitation also reflects Trump's faith in the personal, transactional relationships he's formed with strongman leaders.

"Trump's invitation reflects his desire to rebuild a rapport with President Xi, which he believes will be the decisive dynamic in shaping US-China relations during his second administration," Wyne told BI.

Reports on Thursday said that Xi would not attend the inauguration, and would instead send a top government official as envoy as an apparent gesture of goodwill.

If he did attend, it could be seen as an act of tribute to the democratic system China has sought to challenge, and the power of a state whose dominance it seeks to corrode.

"Going to Trump's inauguration makes Xi Jinping look like a supplicant to Trump, because this is a ceremony honoring Trump," Neil Thomas, a fellow on Chinese politics at Asia Society Policy Institute's Center for China Analysis, told ABC News.

Thomas added: "Xi would be attending to honor Trump's victory, I don't think that sits well with Xi's self-image and his political reputation in China as a nationalist strongman."

A tough road ahead

Even so, Trump's invitation is likely an audacious opening gambit as he eyes new discussions with Xi, and China is fortifying itself diplomatically and economically in anticipation, analysts told Reuters.

Trump has long championed policies that aggressively confront China, and is threatening to ratchet up tariffs further when he takes office again next year.

Future negotiations will likely be tough, with the US and China at loggerheads over a range of trade and diplomatic issues.

China has backed Russia in its war with Ukraine, is forming closer ties with an axis of authoritarian powers, and is menacing Taiwan.

"Trump is performing politics," said Brown. "This is going to be a hard, difficult, technical negotiation with the Chinese if they're going to get the things they want: better market access, better balance."

China is also in a different position to when Trump first took office in 2017. Back then, the US and Chinese economies were highly interlinked.

Although close ties remain, partly in response to Trump's first-term tariffs China has moved to diversify its exports away from the US and has spent billions on research and development.

It has become the world leader in solar-panel and electric-vehicle technologies, as well as quantum computing and AI.

The US-China rivalry is also intensifying over sophisticated chip and satellite technologies, as well as rare Earth metals.

This month, China launched an antimonopoly probe into US chip giant Nvidia, and it is imposing restrictions on the export of drone parts vital for Ukraine in combatting Russia's invasion.

"It's all part of what's going to be a great, big performance next year about Trump trying to say that he's going to deliver this fantastic new deal with China. And the Chinese are well prepared for this," said Brown.

Analysts told Bloomberg that the Nvidia probe and other trade moves are bargaining chips China can use in future discussions.

All of this makes it highly unlikely that Xi will want to come to the US to clap as Trump is sworn in as president.

• On Monday, Donald Trump threatened more tariffs on China, blaming Beijing for fentanyl.
• China criticized Trump's tariff threats, calling them ineffective and unjustified.
• Global markets have reacted cautiously, with companies adjusting strategies amid higher trade tensions.

Post-election, Donald Trump is amplifying his threats to slap higher tariffs on imports into the US — and China is unsettled.

On Monday, the president-elect took aim at Canada, Mexico, and China on his Truth Social platform, saying he was planning sweeping tariffs on imports from the three countries.

In particular, Trump doubled down on China, saying he'd sign an executive order on his first day in office to impose an additional 10% tariff on imports from China.

The tariffs, Trump said, are because China is to blame for "the massive amounts of drugs, in particular Fentanyl, being sent into the United States."

Beijing hits back

China has already been the target of Trump's tariff threats in his campaign trail. The presidential-elect previously said he planned to impose 60% tariffs on Chinese goods, so his Monday post against the East Asian nation elicited a familiar response.

"China's position against unilateral tariff increases is consistent," He Yadong, a spokesperson for China's commerce ministry, said at a scheduled news briefing on Thursday. "Imposing arbitrary tariffs on trading partners will not solve America's own problems."

China's foreign ministry did not address Trump's tariff threat, but Beijing took major issue with Trump's comments that it isn't doing enough to stop the flow of drugs to the US.

"China is one of the world's toughest countries on counternarcotics both in terms of policy and its implementation," China's foreign affairs ministry said in a Thursday statement.

China's state media rallied around Beijing's official position.

"The excuse the president-elect has given to justify his threat of additional tariffs on imports from China is farfetched," wrote China Daily in a Tuesday editorial.

Markets are muted as investors wait and see

Global markets were jolted following Trump's post on Truth Social on Monday, but the effects have been felt mostly in foreign exchange. The Chinese yuan — alongside the Canadian dollar and the Mexican peso — lost ground against the greenback.

China's equities markets came under some pressure on Tuesday following Trump's post. But they have largely recovered as investors take a wait-and-see stance while assessing if Trump's comments were simply bluster that he's using to extract concessions.

"The equity market reaction has so far been very benign, we would argue likely on the back of the transactional interpretation," George Saravelos, the global cohead of foreign-exchange research at Deutsche Bank, wrote on Tuesday.

US and Chinese companies are on edge

The business world isn't so relaxed.

Some US companies are already thinking ahead, front-loading imports to the US to avoid higher tariffs, economists from Goldman Sachs wrote in a Tuesday analysis of earnings calls and media reports.

The CEO of Shenzhen Lingke Technology, a Chinese lighting manufacturing that produces in several countries including China and Thailand, told Nikkei Asia on Wednesday that US importers have placed larger-than-usual orders since Trump's election victory.

"The thinking is that American clients want to lock in as many profits as possible before a new round of tariffs kick in," Wu Zhiqiang, the company's CEO, told the media outlet.

To be sure, global firms and Chinese manufacturers have already been diversifying their operations to manage concentration risks following Trump's first term and the COVID-19 pandemic.

Larger companies, like Taiwan's Foxconn — a key supplier to Apple — have moved some production work to other emerging countries like India and Vietnam, so they may have some breathing space.

"Clients may decide to shift production locations, but looking at Foxconn's global footprint, we are ahead. As a result, the impact on us is likely smaller compared to our competitors," Young Liu, the chairman of Foxconn, told reporters in Taipei on Wednesday.

However, some smaller companies reliant on Chinese manufacturing and plants in China are uncertain about the future of their businesses, Al Jazeera reported in early November.

It doesn't help that China's domestic consumption and overall economy have been struggling to recover following the pandemic.

Against the backdrop of economic gloom and a potential escalation of trade tensions with the world's top economy, China's homegrown firms are expanding overseas, particularly in emerging markets like Southeast Asia and Africa, and in China's Belt and Road partner countries.

Macquarie analysts wrote on Monday that they expect a wave of Chinese investment into Southeast Asia, focused on consumer goods, logistics, and technology.

• A member of China's highest military body is being slapped with a corruption investigation.
• Adm. Miao Hua is one of six members of an exclusive commission led by Xi that oversees China's military.
• He's the latest in a string of high-ranking defense officials to be purged from China's military.

A top-ranking admiral in China's Central Military Commission — the highest body commanding its forces — has been placed under investigation, the country's defense ministry said on Thursday.

Adm. Miao Hua, who's in charge of the Political Work department, was suspended and is being probed for "serious violations of discipline," said ministry spokesperson Wu Qian at a press briefing.

That accusation usually refers to corruption.

An investigation into a commission member like Miao is significant because the six-member committee, helmed by Chinese leader Xi Jinping himself, is the top body that oversees China's military forces.

However, Miao is not one of the commission's vice-chairmen, who are usually considered China's strategic leaders. Two People's Liberation Army generals, Zhang Youxia and He Weidong, hold those positions.

Xi, who has consolidated much of China's decision-making power under himself in the last 10 years, is the commission's highest authority as chairman.

Miao, 69, was an army political commissar based in Fujian in the 1990s and early 2000s, about the same time Xi was governor of the province.

The overlap between their rising careers led the two to be seen as having worked closely together. Two years after Xi became paramount leader in 2012, Miao was transferred to the PLA Navy to be its top political commissar.

The announcement of the probe into Miao comes as The Financial Times reported on Wednesday that Adm. Dong Jun, China's defense minister, was also placed under investigation. The report cited unnamed US officials.

That would make Dong the third officer involved with the defense ministership to be implicated in a string of corruption probes. His two predecessors, Li Shangfu and Wei Fenghe, were found guilty in June of taking bribes.

Beijing has denied the FT's findings, with a foreign ministry spokesperson dismissing them as "chasing wind and shadows."

Unlike those in the Central Military Commission, the defense minister holds a mostly diplomatic and symbolic role and has no real operational command over China's forces.

CNN reported that Miao "is seen as a political patron of Dong," with both men having served in the PLA Navy.

In China, top officials are almost always found guilty in corruption investigations, though some have received reduced sentences.

Two vicechairmen of the Central Military Commission have been investigated before, but only after they exited the commission. Both were in the top-ranking body until 2012 when Xi rose to power.

The probes into the careers of the pair — Guo Boxiong and Xu Caihou — were launched in 2014 and 2015.

Since his beginning as paramount leader, Xi has championed a sweeping crackdown against rampant corruption in China's central and local governments.

It has more recently involved purges in the military, including the ousting last year of several high-level generals and officials. The push has coincided with Xi's heavy emphasis on modernizing China's military and catching up in strength with US forces.

• China's defense minister, Dong Jun, is being probed for corruption, the FT reported on Wednesday.
• That would make him the third consecutive person related to the post to be investigated for graft.
• Xi Jinping and his leaders likely took at least two months to select, vet, and announce Dong in 2023.

Less than a year into his post, China's defense minister is now being placed under investigation for graft, according to a new report by The Financial Times.

The outlet cited unnamed current and former US officials saying that Adm. Dong Jun was caught in a broader probe into corruption within the People's Liberation Army.

That would make him the third consecutive person related to his office to be investigated. His predecessor, former Gen. Li Shangfu, was reported in September 2023 to be probed for corruption and was officially fired the next month.

Li had served seven months after being appointed by Chinese leader Xi Jinping in March 2023.

Wei Fenghe, the defense minister before Li, held the post for nearly five years. The appointment of Wei, who hailed from the PLA Rocket Force, had marked a pivot in tradition for the role since the defense minister previously always came from China's army.

Both he and Li were expelled from the Chinese Communist Party in June and stripped of their rank of general, with state media saying they had illegally taken gifts and money.

As for Dong, the FT provided no details on the current defense minister's investigation.

But he had only just been in Laos for a meeting of Asian defense leaders last week, making headlines for declining talks with US Defense Secretary Lloyd Austin.

When asked about reports of an investigation into Dong, Chinese Foreign Ministry spokesperson Mao Ning curtly dismissed them as rumors.

"Chasing wind and shadows. Next question," she told reporters at a Wednesday press briefing, using a Chinese phrase that means something is said or raised without merit.

The Chinese Foreign Ministry did not respond to a request for comment sent by Business Insider.

A selection process of up to 4 months

In a separate report on Thursday, Reuters cited two US officials who also spoke of an investigation into Dong. One said that the probe originally involved the strategic rocket forces but was expanded to include the military and procurement.

Another senior US official told Reuters they had doubts about the accuracy of the FT's original report. All three were not named.

Notably, it likely took Xi at least two months to vet, select, and announce Dong for the defense ministership after Li was officially removed. That process could have taken as long as four months — Dong's predecessor had disappeared from the public eye in September 2023, and he was appointed at the end of December 2023.

China's defense minister doesn't typically have operational command of combat forces but is instead a diplomatic and public-facing figure representing the military.

Those in charge of China's fighting capabilities are in the Central Military Commission, a small group of senior leaders led by Xi.

Dong is not part of that commission, although his predecessor, Li, was a member during his tenure as defense minister.

All of this comes as Xi has, in recent years, placed heavy emphasis on developing China's military into a modern fighting force, focusing on its rocket weapons systems and nuclear capabilities.

At the same time, his long-standing anti-corruption crackdown, recently expanded to the military, has ousted nearly a dozen PLA generals, as well as several top officials from the prized rocket forces.

The firings have raised international speculation about Xi's confidence in his military's operational readiness at a time when China is trying to match the US in strength.

• The comments were made by Kurt Campbell, the US deputy secretary of state.
• China may fear the alliance could bring US allies in East Asia closer together.
• North Korea is providing crucial support to Russia in Ukraine, and is getting favors in return.

China is increasingly concerned about the alliance between Kim Jong Un's North Korea and Vladimir Putin's Russia, according to Kurt Campbell, the US deputy secretary of state.

The US believes that more than 11,000 North Korean troops have deployed to Kursk in Russia, where Putin is attempting to take back territory that Ukrainian forces captured.

Meanwhile, Russia is providing North Korea with economic and diplomatic support.

"The topic that is becoming increasingly uncomfortable for Chinese interlocutors is the DPRK [North Korea] engagement with Russia," Campbell said at a talk for the Center for Strategic and International Studies last week, according to The Guardian.

"In some of the discussions we have had, it seems we are informing them of things that they were unaware of with regard to DPRK pursuits, and they are concerned that Russian encouragement might lead the DPRK to contemplate either actions or military actions that might not be in China's interests."

He added that China has not directly criticized Russia, "but we do believe that the increasing coordination between Pyongyang and Moscow is unnerving them," he said.

Russia and North Korea are among China's closest international allies, but analysts say Beijing is wary of the potential impact of an alliance between the authoritarian powers.

The support Russia is giving North Korea could upset the delicate balance of power on the Korean peninsula, where North and South Korea have for decades been locked in a frozen conflict.

South Korea has already threatened to hand weapons to Ukraine in response to North Korea's support for Russia, and the tensions could spill into East Asia.

The Russia-North Korea alliance could weaken China's influence in East Asia, and draw US allies in the region closer together.

Some observers also believe that President-elect Donald Trump could seek to drive a wedge between China and Russia, the US' two most powerful rivals, when he takes office in January.

"China likely regards deepening ties between Russia and North Korea with some wariness," Ali Wyne, an analyst with the Crisis Group, told Business Insider in June.

"It worries about the possibility of Russia's providing military assistance that could advance North Korea's nuclear and missile programs."

However, China has considerable leverage over both Russia and North Korea. It provided the Kremlin with crucial economic and diplomatic support in the Ukraine war and has maintained close economic and political ties with North Korea for decades.

If it chose, it could likely use that leverage to restrain the North Korea-Russia alliance, say experts.

Others believe that the alliance benefits China. "Officially, they might not really welcome it; they might see it as an alarming situation," Jagannath Panda, head of the Stockholm Center for South Asian and Indo-Pacific Affairs, previously told BI.

"But the Chinese are waiting for an opportunity where North Korea, Russia, and China can come stronger together, and I think North Korea sending the troops to Russia is a testimony to that."

Panda said that China's strategic goal is to build an authoritarian nexus that would undermine the current world order. The growing alliance between North Korea and Russia, he said, is a step toward that.

• Chinese Xi Jinping was unusually candid with US President Biden in their last meeting as their countries' leaders.
• Xi outlined China's "red lines" for the US, including the country's rights to development.
• Beijing was setting ground rules for the incoming Trump administration and its China hawks.

Chinese leader Xi Jinping is gearing up for Trump 2.0 with some ground rules for the administration's China hawks.

Last weekend, Xi met US President Joe Biden at the 31st APEC Economic Leaders' Meeting in Lima, Peru. He told Washington not to cross "four red lines" — which analysts say is a clear message for the incoming Trump administration.

The four hot-button issues are Taiwan, democracy and human rights, China's path and system, and the country's rights to development.

"These are the most important guardrails and safety nets for China-US relations," Xi said, according to a readout from the Chinese foreign ministry.

Xi's explicit message is notable because it appears to be the first time these "red lines" were issued at the presidential level, said Igor Khrestin, a managing director of global policy at the George W. Bush Institute, a think tank.

"This is an attempt to 'set the floor' for US-China relations, in light of the uncertainly surrounding the second Trump Administration," Khrestin told Business Insider.

To be sure, it's not the first time Beijing has mentioned "red lines" in diplomatic settings and the four no-go zones are consistent with China's position on the issues. Foreign Minister Wang Yi has warned about not crossing Beijing's "red lines" in the past.

The remarks show Beijing is paying close attention to the nomination of China hawks in Trump's administration, including Florida Sen. Marco Rubio — who has been sanctioned by Beijing — to the position of Secretary of State.

Xi's language raised some eyebrows, with analysts calling it "harsh" and deeming China's foreign ministry readout "strikingly negative" in some sections.

As Jersey Lee, an international affairs analyst, wrote on the think tank Lowy Institute's website on Tuesday, Xi's sentence that the US "always says one thing but does another, it will be detrimental to its own image, and undermine trust between China and the United States," is "surprisingly frank."

Xi named Taiwan President William Lai

Of the four "red lines," Taiwan is the most sensitive issue between the two countries, as Xi has repeatedly said over the years.

Beijing claims Taiwan as its territory and has said recently that it will never commit to renouncing the use of force over the island. The area is strategically important to the US as a leader in semiconductor production and as a key security hub.

The sensitivity over Taiwan is even more apparent because last weekend was also the first time that Xi reportedly called Taiwanese president William Lai Ching-te of the Democratic Progressive Party — whom Beijing branded as a separatist — by name. Chinese leaders rarely mention Taiwanese leaders by name in public.

"If the US side cares about maintaining peace across the Taiwan Strait, it is crucial that it sees clearly the true nature of Lai Ching-te and the DPP authorities in seeking 'Taiwan independence,' handles the Taiwan question with extra prudence, unequivocally opposes 'Taiwan independence,' and supports China's peaceful reunification," according to Chinese ministry readout.

However, the White House's readout of the same meeting did not mention Lai. That prompted Tsai Ming-yen, the director of Taiwan's National Security Bureau, to question if China's state media and its foreign ministry were using cognitive warfare tactics.

Rockier times ahead of US and China

In 2018, Trump said he had an "incredible relationship" with Xi. But things could change dramatically with the President-elect calling for 60% tariffs.

Beijing seems to prefer a more conciliatory approach with Trump's new team in the short term to avoid dramatic developments, Khrestin said.

"Since the start of the full-scale invasion of Ukraine in February 2022, Xi Jinping has consolidated in his view that the United States and its allies have become intractable impediments to China's rightful rise as the dominant global power," Khrestin said.

Trump 2.0 doesn't change that long-term calculus, and the US-China relationship is likely to worsen in the long run because Beijing is inflexible in its "red lines," he added.