China's Xi wants to work out trade deal with U.S. but not afraid to 'fight back'

China wants to work out an initial trade pact with the United States and has been trying to avoid a trade war, President Xi Jinping said on Friday, but is not afraid to retaliate when necessary.

Economists warn that a prolonged dispute between the world's two largest economies is elevating risks to the global economy by disrupting supply chains, curtailing investment and curbing business confidence.

"We want to work for a 'phase one' agreement on the basis of mutual respect and equality," Xi told representatives of an international forum, according to a pool report.

"When necessary we will fight back, but we have been working actively to try not to have a trade war. We did not initiate this trade war and this is not something we want."

Xi was responding to questions from representatives of the New Economy Forum organized by Bloomberg LP at the Great Hall of the People in Beijing.

Global financial markets retreated this week on fresh fears that the trade talks could flounder, with U.S. President Donald Trump expected to sign into law two bills backing protesters in the Chinese-ruled city of Hong Kong.

Concerns of a broader deterioration in Sino-U.S. ties weighed on markets this week. U.S. Navy warships twice sailed near islands claimed by China in the South China Sea in recent days, angering Beijing.

Completion of a phase one trade deal could slide into next year, trade experts and people close to the White House have told Reuters, with Beijing asking for more extensive tariff rollbacks and Washington countering with increased demands of its own.

Delays would only bring more trouble, said Fred Hu, founder of China-based global investment firm Primavera Capital Group.

"The longer the time it takes, the more variables are there, such as the Hong Kong issue," Hu told Reuters on the sidelines of the Bloomberg forum.

Beijing and Washington should strengthen communication on strategic issues, the official Xinhua news agency cited Xi as saying on Friday.

"Sino-U.S. relations are at a pivotal moment amid various difficulties and challenges," Xi said during a meeting with former U.S. Secretary of State Henry Kissinger in Beijing.

"Both the United States and China should strengthen their communication over strategic issues and avoid misunderstanding and misjudgement."

More trade talks?

China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing, the Wall Street Journal said, citing unidentified sources. It added that Beijing hoped the talks could take place before next Thursday's U.S. Thanksgiving holiday.

U.S. officials have indicated willingness to meet but have not committed to a date, it added, and they would be reluctant to travel for the discussions unless China made clear that it would make commitments on intellectual property protection, forced technology transfers and agricultural purchases.

"My assumption is some tariff relief would be provided, in exchange for a phase one deal. And it seems to me as well that is the only basis on which any deal could actually be done, certainly from the point of view from the Chinese side," said former U.S. Trade Representative Charlene Barshefsky.

"Otherwise, this is an entirely one-sided exercise, and I've never known the Chinese to negotiate one-sided deals to their disadvantage," she said at a group interview on the sidelines of the Bloomberg forum.

Officials from Beijing had suggested Xi and his U.S. counterpart Donald Trump might sign a deal in early December.

Some experts said the next date to watch was Dec. 15, when U.S. tariffs on about $156 billion in Chinese goods are set to take effect, including holiday gift items such as electronics and Christmas decorations.

"As we always said, we don't want to start the trade war, but we are not afraid," Xi said.

Trump says deal 'potentially very close'

Trump said on Friday that a trade deal with China is "potentially very close" and that he stands with both the people of Hong Kong and Chinese President Xi Jinping amid massive protests in Hong Kong.

Trump, speaking on Fox News Channel's Fox & Friends, said he had made clear to Xi that "this can't be an even deal" because of China's trade surplus with the United States.

"We have to stand with Hong Kong but I'm also standing with President Xi," said Trump.

In Beijing on Wednesday, Vice Premier Liu He, China's chief negotiator in the trade talks, said he was cautiously optimistic on a phase one deal, Bloomberg News said, citing people who attended a dinner event ahead of the forum.

"The two countries should really ink the deal the sooner the better, at least a truce, and that will inject some certainty into the market and the economy," Hu said.

"Based on this, we can clear out a consensus on complicated structural problems, and strive for a comprehensive final agreement."