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Commentary: China to seek opportunities for growth amid trade frictions

26.09.2018 3618
In its latest move, Trump administration decided to levy 10 percent tariffs on $200 billion worth of goods from China. The action was later followed by China's countermeasure to impose additional tariffs on about $60 billion worth of American products.

What are the impacts of the latest US tariff decision on China? To be objective, the largest impact brought by the US-initiated trade war would be shouldered by its export to the US, and to impose higher tariffs on imported commodities from the US may also increase burden for Chinese downstream enterprises and consumers.

Will China be able to withstand the trade war?

Former governor of the People's Bank of China Zhou Xiaochuan seemed positive on the current situation. He said on Sept. 7 that the trade war would not cause huge negative impact on China's economy.

Zhou predicted that the impact of trade friction on China's GDP would be less than half a percent, citing a calculation based on mathematical model.

Based on evaluation by professor Wei Jie at Tsinghua University, only 10 percent of China's economy depended on export in 2017, reducing from 70 percent in 2007, and the country's export to the US accounted for only one third of its total export. Wei's figures also supported the prediction that the trade war would not place huge impact on China's GDP.

However, Zhou warned that the trade war would affect China's market sentiment, and will likely weaken investors' confidence in Chinese enterprises and stock market.

He elaborated that what China really needed to stay alert against was the "Minsky Moment"-the collapse of asset value in the eyes of economist Hyman Minsky.

Minsky believed that a long period of stable economy might lead to an increase of debts and a higher leverage ratio, causing financial crisis from inside and dragging the country into long-term deleverage.

In other words, what China needs to do in face of the trade war is to well handle its own business.

China is the world's largest manufacturer and the only country engaged in all the industrial classifications listed by the UN. Given such advantage, China has no reason to fear the extreme trade measures that the US takes during the trade war, and these measures will only result in a large-scale cut-off of its own domestic supplies.

In addition, China should take the trade conflict as an opportunity to promote import substitution, domestic manufacturing and export-oriented advanced manufacturing, rather than worry about higher domestic commodity prices caused by its countermeasures.

The bulk cargos imported from the US have a low share on Chinese market, and most of these imports are primary commodities that can be easily replaced. Under such circumstances, China's countermeasures would not bring huge impact on the supply of related commodities, manufacturing, or employment.

The trade war is a wake-up call for China as it has exposed the country's problems including inadequate core technologies, financial security risks and domestic social crisis. To solve these problems, China must further deepen reform and opening up, find a solution to underlying problems, and seek opportunities for growth amid the "crisis".

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