U.S., China will seek to limit rising tensions amid domestic challenges, risk analyst says

China’s President Xi Jinping and U.S. President Joe Biden will strive to keep a lid on tensions between the world’s top two economies next year, as they focus on domestic challenges.

The two leaders met last week on the sidelines of the Asia Pacific Economic Cooperation leaders’ meeting in San Francisco after the global rivalry between the world powers came to a head earlier this year.

Their first meeting in a year capped months of diplomatic work aimed at normalizing their shaky bilateral relationship derailed by a suspected spy balloon over continental U.S. early 2023 and ex-House Speaker Nancy Pelosi’s Taiwan visit in August 2022.

“You’ll see in coming months, the U.S. and China are trying to put a ceiling on their tensions for very pragmatic and domestic reasons,” Steve Wilford, partner and Asia Pacific head of global risk analysis at Control Risks, told CNBC Monday.

Xi and the Chinese Communist Party are grappling with slowing growth in the world’s second-largest economy that has been roiled by a crisis in its real estate sector.

“Xi Jinping wants to fix his economy, he doesn’t need the problem exacerbated by a continued spiral of trade and technology tensions with the U.S.,” Wilford said. “And similarly, the Biden administration has an election to deal with and they don’t need to be distracted by Beijing.”

Biden, 80, is facing underwhelming approval ratings, and is trailing Donald Trump in polls in a potential rematch at the U.S. presidential elections in November 2024. Many have cited Biden’s age and his handling of the economy as two of his greatest weaknesses.

Xi told a gathering of American business executives last week that the U.S. and China have to choose between being adversaries or partners — comments that contrasted with Biden’s approach of pursuing strategic competition with Beijing by restricting exports of advanced U.S. tech to China, while looking for areas of cooperation.