The United States on Tuesday imposed visa restrictions on Chinese officials for the detention or abuse of Muslim minorities, angering Beijing, but a US official said high-level trade talks would still take place on Thursday and Friday as planned.
The State Department announced the visa plan just a day after the US Commerce Department cited the mistreatment of Uyghur Muslims and other predominantly Muslim ethnic minorities in China in its decision to add 20 Chinese public security bureaus and eight companies to a trade blacklist.
The State Department did not name the Chinese officials affected by the visa clampdown. Secretary of State Mike Pompeo said the restrictions "complement" the Commerce Department's actions.
China's Embassy in Washington denounced the move as "made-up pretexts" for interfering in China's internal affairs.
"#Xinjiang affairs are purely China's internal affairs that allow no foreign interference. We urge the US to correct its mistakes at once and stop its interference in China's internal affairs," the embassy said on Twitter.
Major US stock indexes added to losses after the State Department's announcement, with the S&P 500 index closing down about 1.6 percent. Investors feared the escalating tensions between Washington and Beijing could doom efforts to get the trade negotiations back on track.
Talks still on
The US moves cast a pall over US-China trade talks in Washington, where deputy negotiators met for a second day to prepare for the first minister-level meetings in more than two months on Thursday and Friday.
A spokesman for the US Trade Representative's office said that no meetings were scheduled for Wednesday, but that high-level talks involving Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin would take place as planned on Thursday and Friday.
A Chinese diplomat told Reuters that China wanted a deal, but it cannot be a "zero-sum game."
The diplomat added that it was important for the United States to accept the differences between the two countries' economic systems, particularly China's state-led development model. China needed to protect its sovereignty and right to develop its economy, added the diplomat, who is not directly involved in the trade talks.
China was motivated to improve intellectual property (IP) protections, as this was in its interests, but he said US allegations of IP theft by China were unfair.
Prospects for a breakthrough in the on-again, off-again trade talks sagged after the Commerce Department's blacklisting announcement on Monday. Hikvision (photo), which bills itself as the world's largest maker of video surveillance gear, was among the firms targeted.
The listing bars the firms from buying components from American companies without US government approval, a potentially crippling move. It follows the same blueprint used by Washington in its attempt to limit the influence of Huawei Technologies Co Ltd for what it says are national security reasons.
Washington is also moving ahead with discussions around possible restrictions on capital flows into China, with a focus on investments made by US government pension funds, Bloomberg reported.
Tit-for-tat tariffs imposed by the United States and China have roiled financial markets and slowed capital investment and trade flows.
International Monetary Fund managing director Kristalina Georgieva issued a stark warning about the state of the global economy, saying an economic deceleration could worsen without action to resolve trade conflicts and support growth.
"We are decelerating, we are not stopping, and it's not that bad. And yet, unless we act now, we are risking a potential more massive slowdown," Georgieva, who took over as IMF chief this month, said at an event to preview the IMF and World Bank autumn meetings next week in Washington.
Looming tariff hikes
The trade talks in Washington are taking place days before US tariffs on US$250 billion (RM1.049 trillion) worth of Chinese goods are slated to rise to 30 percent from 25 percent. President Donald Trump has said the hike will take effect on Oct 15 if no progress is made in the negotiations.
Trump, who has embraced protectionist policies as part of an "America First" agenda aimed at rebalancing global trade and boosting US manufacturing, said on Monday a quick trade deal with China was unlikely, and that he would not be satisfied with a partial agreement.
The two sides have been at loggerheads over US demands that China improve protections of American intellectual property, end cyber theft and the forced transfer of technology to Chinese firms, curb industrial subsidies and increase US companies' access to largely closed Chinese markets.
Trump launched a new round of tariffs after the last high-level talks in late July failed to result in Chinese agricultural purchases or yield progress on substantive issues. China quickly responded with tariff increases of its own.
With no signs of any significant momentum in the talks, the world's two largest economies could be braced for an open-ended trade dispute, an idea that is gaining currency in some circles.
"I can feel that Chinese society has low expectation for real breakthrough in the new round of trade talks. Most people think alternate trade war/trade talks will be a normal thing between China&the US," Hu Xijin, the editor of China's state-run Global Times newspaper, wrote on Twitter.
Another flashpoint in US-China relations erupted over the weekend when an official with the NBA's Houston Rockets wrote a tweet in support of Hong Kong democracy protests. The tweet, which was quickly deleted, sparked a backlash in China and a rebuke from the National Basketball Association, which in turn faced US criticism that it was allowing free speech to be censored for commercial reasons.
Police in Hong Kong have used rubber bullets, tear gas and water cannons against pro-democracy demonstrators in the former British colony, which has been plunged into its worst political crisis in decades.
Trump has called for a peaceful resolution to the protests and warned the situation had the potential to hurt trade talks.
Beijing views US support for pro-democracy protests in Hong Kong as interfering with its sovereignty.