Principled realism means no decoupling

China will continue to pursue a comprehensive trade deal with the US, phase by phase

People in China often say that China's economic reform has entered "deep water". Since it implies huge uncertainties, this analogy can also be applied to the relationship between China and the United States at the time being.

China, which is the second-largest economy in the world and one of the fast growing economies, is now deeply intertwined with the global economy. This makes any possible deficiencies and distortions in China's economic system of global concern as they may have repercussions for other countries.

Over the past few years, confrontation between China and the US has intensified and rhetoric about decoupling is spreading-a technology cold war may even have started-but it is still unimaginable to kick China completely out of the global economic system, as it would be too costly for everyone.

No matter how the Sino-US relationship may evolve in the future, the two countries will still trade with each other and compete in third-party markets as important players, at least for many civil use products.

This justifies the argument that the US and China will continue to pursue a comprehensive trade deal, phase by phase. In fact the presence of US pressure may tip China's domestic politics and economy in favor of market-oriented reforms and help release the innovation energy of the private sector, therefore creating a virtuous circle.

What's more, this will also lay the ground for reform of the current multilateral trade mechanism.

In the past few years, due to many political changes, the bilateral relationship between the US and China has deteriorated rapidly, mutual trust and good intentions have dissipated and given way to growing mutual suspicion, which seems to be self-fulfilling. It is striking and concerning that the two countries cannot even cooperate in face of the global pandemic.

Against this backdrop and huge economic difficulties caused by the pandemic, China is still committed to fulfilling the "phase one" trade agreement, as formally announced in the government work report to the annual National People's Congress in May, and economic reform is still gathering pace. This may provide a window of opportunity for reaching a phase two agreement and resolving some key thorny structural issues.

As for the technology decoupling, China has never been fully accepted and integrated into the Western world in terms of the high tech sector, as evidenced by the export control regime in the US. As a consequence China was forced into a parallel universe for sensitive technology and had to independently develop its own technology path and standards. Past experiences have shown that China's isolated tech sector has not been crushed and it has even made some impressive achievements.

As their mutual strategic suspicions have deepened rapidly, security concerns have grown relentlessly. What is more worrying is the definition and scope of security is being expanded beyond the traditional defense field, to possibly include ventilators and power plant equipment, for instance. An overstretched security-driven decoupling is a double-edged sword for both, reinforcing the mutual suspicion further. Where to strike the balance and how to manage the process is a big challenge.

Some people claim that Sino-US relationship will never return to the past, which may be true to some extent. But even the US official policy document calls for principled realism in dealing with China, acknowledging that there are still important common interests, climate change, terrorism, nuclear proliferation, to name just a few.

But just as the pandemic vividly shows, without minimum mutual trust and good intentions, it may be impossible to pursue and grow our shared interests.

Although severely damaged, trade is still the ballast for the bilateral relationship. A comprehensive trade deal will serve to strengthen that ballast and help boost mutual trust, which is of great importance.

Since there are always opposing forces domestically and competing interests globally, the handling of Sino-US relationship has never been easy, and the ongoing paradigm change makes it even harder.

The two countries are in an uncharted deep water zone, which calls for able helmsmen to maintain a delicate balance between competing interests and opinions to avoid shipwreck, and navigate the bilateral relations on a safe course.

The author is chief economist at Essence Securities and a member of the China Finance 40 Forum, a non-governmental think tank dedicated to policy research on economics and finance. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.