China and the United States enter a second day of critical talks today (Jan 8) in an effort to ward off a trade war that has threatened to derail markets and economies worldwide.

Both sides want to work together to reach an agreement on trade, the Chinese Foreign Ministry said as talks got underway here yesterday (Jan 7).

Asian stock markets cheered the development, with most of them registering gains. The Nikkei ended 2.44 per cent higher, while Seoul's Kospi index bounced 1.34 per cent. The Straits Times Index (STI) was up 43.57 points, or 1.42 per cent, closing at 3,102.80 points.

The two-day trade talks began yesterday in the first face-to-face meeting between both sides since Chinese President Xi Jinping and US President Donald Trump met last month in Argentina.

Both presidents had then agreed to a 90-day truce in their bitter trade war which had resulted in tariffs levied on billions of dollars worth of goods from both sides.

The stand-off has seen the S&P 500 fall 13 per cent since October, while China's stock market was the world's worst performer last year.

Chinese Foreign Ministry spokesman Lu Kang said that both sides have agreed to work together to have "constructive talks".

"From the start, we have felt that the trade friction between China and the US is not beneficial to anyone, or the global economy. China is willing to resolve the dispute based on mutual respect and equal footing," he said.

The current round of negotiations is being held at the vice-ministerial level, with the US team of negotiators led by Deputy Trade Representative Jeffrey Gerrish.

These working-level discussions are not expected to yield a concrete deal, but are a substantial step for both sides to gauge each other's offers and demands before their top negotiators - Chinese Vice-Premier Liu He and US Trade Representative Robert Lighthizer - can sit down to thrash out a deal.

Mr. Trump said on Sunday that trade talks with China were going very well, noting that the weak Chinese economy was giving Beijing an incentive to reach a deal.

On its part, China has resumed purchases of US soya beans, suspended import tariffs on US cars and also released a draft foreign investment law banning forced technology transfers.

Asked about Mr. Trump's comments, Mr. Lu said the Chinese economy has adequate "resilience and potential", adding: "We have full confidence in the long-term fundamentals of the Chinese economy."

But even as the talks kicked off, the US riled the Chinese by sailing navy destroyer USS McCampbell near the disputed Paracel islands in the South China Sea. Beijing claims sovereignty over almost all of the South China Sea, which is disputed by the Philippines, Vietnam, Malaysia, Brunei and Taiwan.

Pacific Fleet spokesman Rachel McMarr told Reuters that the USS McCampbell was carrying out a "freedom of navigation" operation that was not about making a political statement. The latest operation comes about a week after the US signed into law the Asia Reassurance Initiative Act, which will beef up the US presence in the Indo-Pacific region.

Mr. Lu said yesterday that the US actions have violated Chinese and international law and that Beijing has lodged stern representations with Washington.

Asked if this would affect the ongoing talks, Mr. Lu said that the "appropriate resolution" of issues between the US and China held benefits to both sides and the world.

"So, both sides have the responsibility to create an enabling atmosphere for these talks," he said.