Posts Tagged ‘China’s economy’

Don’t Call This “Trump’s Trade War” — Its Much Bigger Than That

April 23, 2018

The US objective is not to win trade concessions, but to force a change in China’s whole economic and industrial policy approach


South China Morning Post

Perhaps we should stop talking about US President Donald Trump’s US-China trade war. As last week’s developments demonstrated, the dispute between Washington and Beijing isn’t really about trade at all, nor even about Trump. It’s much, much bigger than that.

On Monday last week, the US Department of Commerce banned American companies from selling components to state-owned Chinese phone maker ZTE for a period of seven years. The move was intended to punish ZTE for failing to comply with the terms of an earlier US penalty. Last year, the Chinese company admitted to having sold products containing US-made chips to Iran in contravention of the US trade embargo in place at the time. As punishment, ZTE paid a hefty fine and agreed to comply with US regulatory restrictions.

Now, the US says that ZTE has reneged on that agreement, even rewarding the executives responsible for evading US export controls – hence the latest penalty.

Inevitably China will retaliate, most likely with tit-for-tat action against a US company. Beijing has any number of ways to make life difficult for US companies operating in China. But its retaliation appears to be taking a different form.

Washington has banned US companies from selling smartphone components to ZTE for seven years. Photo: Reuters

Last Thursday, China’s Ministry of Commerce confirmed that it had extended by up to six months its scrutiny of US chip maker Qualcomm’s proposed acquisition of Dutch semiconductor company NXP, complaining about “market competition problems”. If its action doesn’t block the deal entirely, it at least threatens to tie it up in knots for a long time to come.

Partisans on both sides claim their governments are merely following due process, and that their actions have nothing to do with the escalating economic tensions between Washington and Beijing. That’s nonsense.

Trump’s trade war with China is just his opening gambit

As the long-running US legal action against Standard Chartered demonstrated, US enforcement against companies for supposed breaches of sanctions against Iran are wildly inconsistent, and largely motivated by political considerations.

It’s latest move against ZTE is no different.

Beijing’s action against Qualcomm is similarly political. Up until last week the Chinese authorities had raised no serious competitive complaints about the proposed Qualcomm-NXP merger, and had signalled they would not object to the deal.

So what’s going on? Many observers assume that the US administration’s main goal is to wring deficit-reducing trade concessions from China that Trump can trumpet to his blue-collar voter base ahead of this year’s midterm elections.

Harley-Davidson motorcycles: an expensive American import. Photo: Reuters

But if that were really the case, it would make no sense at this stage for Washington to aggravate Beijing by suddenly springing a surprise, and surprisingly severe, penalty against ZTE.

And if Beijing was really the great champion of the established rules-based international economic system that it likes to claim, it would hardly be holding up a US company’s merger deal on trumped up competition complaints.

China has ‘nuclear options’ in trade war with US … really?

The willingness Washington displayed last week to disrupt global supply chains by prohibiting US suppliers from selling to ZTE proves that the administration’s main interest is not in fact trade.

Sure, Trump has long had a bee in his bonnet about the bilateral deficit with China. But the US business community and ascendant factions within the administration have other concerns.

US businesspeople and politicians have long complained about how China protects its domestic market, erecting barriers to entry, heavily subsidising state-backed champions and demanding technology transfers from foreign companies as a condition of doing business.

For years China defended these practices on the grounds that it was a developing country. However, now that China has grown to become the world’s second-largest economy, a consensus is building in the US that Beijing can no longer go on thumbing its nose at the international order by pursuing such blatantly mercantilist policies. Recently, this view has been reinforced by hardliners within the US national security establishment, who fear that continued forced technology transfers and generous Chinese state subsidies threaten to erode the US technological edge over China, and ultimately its military edge.

Liu Anqi, who has opened a bakery, uses flour imported from the United States. Finding a new brand would force her to raise prices. Photo: Reuters

The US objective, then, is not to win trade concessions, which would be meaningless against such a backdrop, but to force a change in China’s whole economic and industrial policy approach. Hence Washington’s preparedness to take actions like last week’s against ZTE that threaten to harm, not improve, the US trade balance with China.

Trump’s opening salvo in trade war with China misses the mark

Whether the US can succeed in its objective is extremely doubtful. Last week, Chinese state media reacted to the US ban on supplying ZTE by calling for redoubled efforts to build domestic chip making and other hi-tech industries in order to sever China’s reliance on US technology.

In short, Beijing shows every sign that it will react to US pressure by intensifying its Made in China 2025 import substitution programme, which promises to lavish vast state subsidies worth hundreds of billions of US dollars on favoured industries in order to seize the global lead in emerging hi-tech sectors like artificial intelligence and robotics.

Steel pipes at a factory in Zouping in China’s eastern Shandong province. China’s economy grew a forecast-beating 6.8 per cent in the first quarter, overcoming trade tensions with the US. Photo: AFP

In other words, Washington’s attempts to get China to open its markets and adopt international best practices are likely to achieve exactly the opposite. Instead of scrapping subsidies and opening up, Beijing will double down on centrally planned mercantilism.

Such a response, of course, will simply confirm the views of the hawks in Washington who want to punish China for its one-sided economic policies.

The result will be a self-reinforcing feedback loop that will inevitably exacerbate the escalating tensions between the two sides.

Even worse than that, it threatens to lead to a new trans-Pacific economic cold war, as decades of globalisation go abruptly into reverse.

This is about far, far more than Trump’s obsession with the US trade deficit. 

Tom Holland is a former SCMP staffer who has been writing about Asian affairs for more than 20 years


 (Contains links to earlier related articles)


After a good run of growth, China’s economy braces for bumps

April 17, 2018

A trade war with America and the battle against debt at home cloud the horizon

JUST a few years ago Wuhan, a sprawling metropolis in the middle reaches of the Yangtze River, exemplified China’s economic woes. Municipal debt had soared. The most senior local official was known as “Mr Dig Up The City”, a reference to his zeal for grandiose construction projects. A movie theme park, intended as a landmark, closed after failing to draw crowds. It would take nearly a decade, it was estimated, to sell all of Wuhan’s vacant homes.

These days, the city of 11m stands as a monument to China’s resilience. Its economy has accelerated even as the government has controlled debt more strictly. Five subway lines were opened or extended in the past two years alone; they are jammed in rush hour. Investment is pouring into semiconductor production, biotech research and internet-security companies. The glut of unsold homes is almost cleared.

China’s economy, like Wuhan’s, is in much better shape than was the case in late 2015. Then, the country was reeling from a stockmarket crash, suffering from capital outflows and accumulating debt at an alarming rate. But figures reported on April 17th showed growth of 6.8% in the first three months of 2018 compared with the same period a year earlier. In nominal terms growth was above 10%. China’s total debt-to-GDP ratio has stabilised, a sign that the risk of financial crisis has receded (see chart).

The improvement in China’s fortunes can be traced to three factors. First, the government has started to tackle several ingrained problems. After a long period of overproduction of steel and coal, a campaign to close unused capacity restrained output and pushed up prices. To reduce the property overhang, local governments bought millions of unsold homes from developers and gave them to poorer citizens.

In the financial sector, regulators have taken aim at banks’ murky off-balance-sheet loans, and at heavily indebted borrowers such as property developers.

Wang Tao of UBS, a Swiss bank, notes that these efforts have given investors more confidence. Chinese shares listed in Hong Kong have risen in value by a third over the past two years. The government has also helped arrange behind-the-scenes rescues of troubled firms. Wuhan featured one of these. The big local steel company, bleeding cash, merged with its much stronger counterpart in Shanghai in 2016. The combined entity is profitable.

A second factor is that China’s economy is maturing. Growth is bound to slow over time as China gets richer, but structural changes are also making growth more stable. Thanks in part to a falling working-age population, which peaked in 2011, incomes are growing more quickly than the economy is. This, in turn, is rebalancing the economy. Excessive reliance on investment is giving way to consumption. And heavy industry is giving way to services, which now account for more than half of GDP, up from a third two decades ago.

At the same time, China is reaping returns on some big investments of the past decade, such as high-speed rail in densely populated areas. Qin Zunwen, a government economist in Wuhan, says that although local debt shot up, it was almost all tied to the construction of infrastructure—half a dozen subway lines, bridges spanning the Yangtze River, elevated expressways—that is now being used. “Yes, it’s much more than we had in the past. Has it exceeded our needs? No,” he says.

The final factor has been good luck. Robust growth in America and Europe has given Chinese firms a lift. After falling in 2016, exports have rebounded. The rise in global commodity prices has filtered into stronger industrial revenues in China, boosting miners and metal producers. That has helped them service their debts. And it has made the task of deleveraging for the broader economy less daunting. China has curbed outflows of hot money by tightening capital controls. It has also benefited from a weak dollar since the start of 2017, which has made the yuan more appealing.

China’s coming few quarters are likely to be bumpier, however. The biggest immediate worry is President Donald Trump. The American administration has announced tariffs on about $50bn of Chinese exports and may soon triple that. Exports to America are only a fraction of Chinese GDP, but a trade war between the world’s two biggest economies could wreak havoc on sentiment and supply chains.

The downsides of the campaign to control debt might also become more apparent. Last year regulators focused on the financial system, clamping down, for instance, on borrowing to buy bonds. This year their focus has shifted to government funding. That will have a more direct impact on the economy. China has tried before to rein in profligate local officials, but they have found ways around the rules. A popular recent trick has been to disguise debt in public-private partnerships. Policy this time seems stricter. Subway construction has been halted in cities whose finances were too weak. Tighter liquidity could also weigh on investment. Credit growth is the weakest since 2015.

Over the past decade China’s leaders have revved up investment whenever the economy has slowed beyond their comfort zone. But Xi Jinping, the powerful president, has often said that the quality of growth matters more than the quantity. Officials in Wuhan seem to be getting the message. At recent meetings they have stressed the importance of fostering innovation, cleaning up the environment and keeping a lid on debt. The test is whether they will still be singing that same tune as growth turns down.

How Long Until China Cranks Up the Debt Engine?

April 17, 2018

Its economy’s steady first-quarter growth masks some worrying signs

Cherry blossoms during their peak season earlier this month in east China's Jiangsu province. While the country’s economy grew this quarter, cracks are beginning to show.
Cherry blossoms during their peak season earlier this month in east China’s Jiangsu province. While the country’s economy grew this quarter, cracks are beginning to show. PHOTO: LIU SHUYI/ZUMA PRESS

Cherry blossoms are blooming in Asia—and so is the Chinese economy, at least on the surface.

Growth was 6.8% in the first quarter, the government announced Tuesday, just a hair lower than in 2017 as a whole. Key indicators like electricity output and construction investment ticked up as companies took advantage of easing seasonal pollution restrictions.

But beneath the seasonal thaw, there are hints the long winter did real damage. Despite the apparently strong headline growth, China’s central bank unexpectedly late Tuesday cut the amount of funds some banks must hold in reserve, a move that could release nearly half a trillion yuan of liquidity.

The People’s Bank of China’s caution is understandable. China’s retail sales ticked up in March, but in services and construction, the purchasing managers’ employment index hit a five-month low. More worrying, real borrowing costs for industrial firms are rising quickly again.

Higher U.S. inflation and rates, slowing trade, and the potential for renewed debt defaults at home are posing a tricky problem for Beijing: Ease up on the “deleveraging” drive to help struggling firms stay afloat and keep growth around current levels, or allow borrowing costs to remain high to contain long term risks and capital outflows.

Upward BoundProducer price inflation adjusted ratesSource: CEIC, Thomson Reuters*Weighted average lending rate.
Bank loans*AA 1-year corporate bonds2016’17’18-5051015

The central bank had already begun to quietly moderate its hawkish stance. After the last two U.S. rate hikes, it has “pretend[ed] to follow the Fed,” raising interbank rates by only small amounts while actual market interest rates in China remain much higher, said Julian Evans-Pritchards of Capital Economics.

A quick look at China’s lending market shows why. Real yields on AA-rated corporate bonds—issued mostly by industrial and real estate companies—rose to nearly 3% in the first quarter, according to Thomson Reuters, while real bank loan rates likely hit 2%. Those rates are still far below the 7-10% levels seen when debt defaults peaked in early 2016. But if producer price inflation keeps slowing—it hit a 17-month low in March—real rates could be in that neighborhood by early 2019.

The key question appears to be how deep and effective China’s much-celebrated “supply side reforms” have really been. If enough excess capacity has been eliminated and housing inventory sold down, then producer price inflation will remain healthy and Beijing won’t need another massive stimulus to push prices back higher and stave off defaults.

Otherwise—and particularly if a true trade war seriously disrupts exports—the chances of another big debt splurge next year will rise significantly. That would probably mean a commodities buying opportunity, but be negative for China’s long-run prospects.

Either way, it’s likely to be a trickier next twelve months than indicated by Tuesday’s smooth growth figure.

Write to Nathaniel Taplin at

China first-quarter GDP grows 6.8% on private investment rebound

April 17, 2018

Groups’ record spending on fixed assets powers economic gains after 2017 slowdown

Image may contain: one or more people, skyscraper, sky and outdoor

China’s real estate investment accelerated in the first quarter, following a slowdown through much of last year © Bloomberg

Gabriel Wildau in Shanghai and Emily Feng in Beijing

April 17, 2018

China’s economy grew 6.8 per cent in the first quarter, above the government’s 6.5 per cent target, as a rebound in private investment compensated for a declining trade surplus.

An emerging trade war with the United States, in addition to Beijing’s efforts to restrain debt and runaway property prices, were expected to hamper growth this year. But the latest quarterly figure is unchanged from the fourth quarter and only a shade below 2017’s full-year pace of 6.9 per cent.

China’s economy is “highly resilient and has huge flexibilities”, said Xu Zhihong, a spokesman for the National Bureau of Statistics. “Trade frictions with the US will not affect the Chinese economy nor change its sound momentum.”

Since mid-2015, deflation and sluggish demand in the manufacturing sector have depressed appetite for investment by private groups, while the government relied on infrastructure investment by state-owned enterprises to keep the economy humming.

In the first quarter, growth of fixed-asset investment by private companies was the fastest in over two years at 8.9 per cent and outpaced investment by state groups for the first time in almost three years.

Meanwhile, investment growth at state-owned groups was the slowest on record amid a government deleveraging campaign focused on state factories and local governments, which often channel their infrastructure spending through state-owned investment vehicles.

Private companies have already passed through a period of deleveraging and are now regaining confidence. Prices for industrial commodities rebounded last year due to the government’s aggressive campaign to close excess capacity in sectors such as coal, steel and aluminium.

The rebound in private investment helped offset a 20 per cent decline in China’s visible trade surplus in the first quarter from the same period a year earlier. Last year’s strong trade provided a significant boost to last year’s GDP figure, but economists expect net exports to drag on growth this year.

“We take the tech-oriented friction between the US and China very seriously and think it will impact the global economy significantly in the coming decades. But we remain less worried about the short-term growth impact,” Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong, wrote on Tuesday.

Suspicion remains about the reliability of China’s economic statistics, especially the inflation-adjusted headline growth figure, which is much less volatile than the nominal figure.

Nominal growth slowed to 10.2 per cent in the first quarter from 11.1 per cent in the previous three-month period. With reported real growth slowing by only 0.1 percentage points over the same period, the combination implies an unusually sharp slowdown in inflation.

“While we don’t think China’s economy is expanding as rapidly as the official figures claim, there is broader evidence to suggest that a recovery in industry did prevent growth from slipping too much,” wrote Julian Evans-Pritchard, China economist at Capital Economics in Singapore.

Despite the strong first quarter, monthly data also released on Tuesday suggest that the expected growth slowdown is imminent. Property sales declined in March, which is likely to cause developers to slow new construction. Factory output growth weakened sharply to a seven-month low.

Capital Economics predicts full-year growth of 6.4 per cent in 2018, while Nomura forecasts 6.5 per cent.

“Weaker March activity data support our view that there will be an economic slowdown ahead, driven by cooling investment growth, financing deleveraging, structural reforms which bring short-term pain, and rising trade protectionism,” wrote Wendy Chen, China economist at Nomura in Shanghai.

Follow @gabewildau and @EmilyZFeng on Twitter

China Fends Off Trade Trouble With 6.8% Growth — Entire supply chains have moved to China for automakers, others

April 17, 2018

Performance suggests that trade tensions with the U.S. are having little impact on Chinese economy

Image result for making autos in china, photos, factory

Chinese factory workers assembling cars at an auto plant of Jianghuai Automobile Co.

BEIJING—China’s economy expanded at a faster-than-expected 6.8% in the first quarter, bucking expectations for a slowdown, though flagging exports and factory output may prove a drag in the coming months.

The pace of growth matched the previous quarter’s rate and confounded the predictions of some investors and analysts that the economy would slow early this year amid a government debt cleanup that has begun to crimp investment in property, infrastructure and factories. Retail sales held up particularly well, rising 9.8% in the quarter from the year-earlier period.

A worker works at a furnace at a steel plant in Dalian, China, earlier this month.
A worker works at a furnace at a steel plant in Dalian, China, earlier this month. PHOTO: REUTERS

Unexpectedly strong exports in the first two months of the year, along with resilient domestic consumption and factory output, helped lift growth. And, so far, the simmering trade tensions between Washington and Beijing have had little impact on China, the world’s second-largest economy, though some officials and economists are concerned that a prolonged trade battle could change that.

“We’ll face some challenges on trade in the foreseeable future,” Xing Zhihong, a spokesman at the National Bureau of Statistics, said at a press briefing Tuesday. Still, Mr. Xing said healthy domestic demand will help offset any potential drop in foreign orders. “The U.S.-China trade friction can’t beat the Chinese economy,” he said.

The possibility of a bruising trade battle comes as signs emerge that shipments overseas, home sales and industrial output—all cornerstones of China’s economy—are starting to weaken. For instance, official data show Chinese factories are beginning to produce fewer goods for foreign markets.

That slowdown, economists say, is spurred by the anticipation of higher barriers to enter the U.S. market and by a softening of global demand after a year during which the world’s major economies grew in rare harmony. Such synchronized expansions are “coming to an end,” according to a new report by the Washington-based Institute of International Finance.

The U.S.-China trade friction can’t beat the Chinese economy

—Xing Zhihong, a spokesman at the National Bureau of Statistics

Washington and Beijing have been embroiled in a tit-for-tat trade spat since the Trump administration imposed new tariffs on China-made solar panels, washing machines, steel and other metals earlier this year. Both sides have threatened to impose new levies on lengthening lists of each country’s goods. The rising tensions have roiled global markets and raised worries that a full-bore trade war would drag down the global economy.

“There is some impact, for sure,” said Xia Aimin, a marketing executive at Longi Green Energy Tech, a large Chinese maker of solar panels. Mr. Xia said the company has managed to blunt the effect of the new U.S. tariffs by lowering production costs. The U.S. market remains “as important to us as always,” he said, and Longi still aims to double its revenue from U.S. sales this year.

Meanwhile, despite the strong headline performance in the first quarter, a sustained campaign by Beijing to curb rampant borrowing is biting into big-ticket investments, especially those by local governments and state-owned companies. The northwestern region of Xinjiang this month halted all government-funded industrial and infrastructure construction begun since January 2017, as officials launched an investigation into whether those projects have sufficient financing.

“We would rather have a slower rate of growth than more debts,” said a notice issued by the region’s economic-planning agency.

Such efforts, together with the anticipation of greater headwinds overseas, have led many economists and investors to forecast some deceleration in economic expansion during the rest of the year. A marked slowdown, they said, could weaken the leadership’s resolve to sustain the debt cleanup and an initiative to close unneeded smokestack factories—efforts that squeeze near-term growth.

“There must be a balance between controlling risks and maintaining growth,” said Zhu Baoliang, chief economist at the State Information Center, a think tank affiliated with the country’s top economic-planning agency. To spur growth, Mr. Zhu said, Beijing should lower reserve requirements for banks to unleash more funds for loans.

Economists and China analysts expect a switch in tack by the government should growth dip below 6.5%, the target the country’s leadership set for this year. A number of indicators for March—from exports and industrial output to fixed-asset investment—showed weakening momentum for expansion in the coming months.

China’s trade surplus with the U.S. continued to widen in the first quarter. But overseas shipments dropped last month, causing China to record a rare trade deficit with the rest of the world. Meanwhile, industrial production grew just 6% in March, compared with 7.2% in the first two months of the year, and 6.8% overall for the quarter. Investment in buildings, factories and other fixed assets grew 7.5% in the first quarter, below the 7.7% expected by economists polled by The Wall Street Journal.

Government efforts to prevent speculative home buying—and cool a torrid housing market—also are starting to hit residential sales, which slowed to 11.4% in the first quarter, from 15.7% in the first two months of 2018.

Write to Lingling Wei at


China’s Economy Grows, and Its Trade Gap With the U.S. Widens
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The New York Times
APRIL 16, 2018Image may contain: one or more people and shoesA production line making carbon fiber in Lianyungang, China. China once focused on final assembly of parts imported from elsewhere, but the country has developed its own supply chains and reduced what it must bring in from elsewhere. Credit Agence France-Presse — Getty Images

SHANGHAI — China’s economy grew at a healthy pace in the first three months of this year, propelled by strong household spending and heavy government investment in infrastructure.
It was also helped — albeit much more modestly — by a factor that could exacerbate the country’s tense relations with Washington: China is selling a lot more to the United States, and its purchases from America aren’t keeping up.China’s National Bureau of Statistics announced in Beijing on Tuesday morning that the economy had expanded 6.8 percent in the first quarter compared with the same quarter last year. That was well ahead of the pace necessary to hit the government’s target of 6.5 percent growth for the entire year.The country’s quarterly growth figure has become so implausibly smooth and predictable in recent years that economists generally look for other ways to gauge China’s economic health. One of those is trade, which at one time was a major driver of Chinese growth, though over the last decade it has been far eclipsed in importance by Chinese investment and household spending.

The latest figures show exports to the United States are growing considerably faster than China’s purchases of American goods. That could provoke more ire from President Trump, who had threatened to impose $150 billion in tariffs on Chinese products.

The trade figures present a mixed picture of how painful those tariffs could be for China. Over all, trade is not as important to China’s economy as it was a decade ago, suggesting the country could better weather a trade fight. But the data also suggests China’s exports to the United States, specifically, have become more valuable to China’s economy as it increasingly makes most — or even all — of the parts that go inside what it sells abroad.

Mr. Trump has focused on China’s trade surplus with the United States, or the difference between what it sells to America and what it buys. And in the first three months of the year, the trade surplus for goods hit a new high of $58 billion, according to Chinese data. Trade in services, in which the United States is stronger, is tiny compared with the trade in goods, and offsets only about a tenth of the deficit in goods.

China’s surplus on goods with the United States last year totaled $375 billion, according to Washington, or $276 billion, according to Beijing. The United States includes Chinese goods shipped by way of Hong Kong, a Chinese city that operates under its own laws, while Beijing’s statistics do not. Either way, China’s surplus has been rising.

The United States and China have different measures of Chinese exports to America because of the ways they treat goods that travel through Hong Kong, a Chinese city that operates under its own laws.

Mr. Trump wants China’s annual trade surplus to shrink by $100 billion — a reversal that could lower China’s entire economic output by nearly a full percentage point if the Chinese factories producing those goods simply shut down.

Xing Zhihong, the spokesman for China’s statistics bureau, said on Tuesday that China did not try to have a trade surplus with the rest of the world, and noted that it was narrowing overall. He also dismissed the idea that trade frictions with the United State could stymie growth.

“Sino-American trade frictions cannot cause a slowdown in the Chinese economy, nor change the good momentum in China’s economic development,” Mr. Xing said.

Strictly by the numbers, China’s trade surplus with the United States helps Chinese economic growth figures, though the reality of the relationship between the countries is more complex. Many American consumers and companies benefit from Chinese-made goods, and a number of economists doubt that Mr. Trump’s focus on lowering the trade surplus with a single country will help the United States.

On their face, the numbers suggest that American businesses have become dependent on China. And in fact, China’s trade surplus with the United States is growing even as its surplus with the rest of the world has shrunk.

Chinese reliance on manufactured goods imported from the United States has shrunk as entire supply chains have moved to China.

China was once famous for assembling goods made from parts that had been bought elsewhere. A smartphone that is made in China, for example, might have a screen from Japan, memory chips from South Korea and a main processor from the United States. In fact, those parts and components long accounted for a sizable chunk of what China bought from the United States.

Today, China can do all that entirely within its own borders, making everything from advanced electronic components to car parts and assembling the final product.

“In the last 10 years, you’ve seen China become considerably more developed and sophisticated in terms of its own supply chains,” said Gordon Styles, the founder and president of Star Rapid, a company in Zhongshan, China, that does rapid prototypes and low-volume test manufacturing runs for everything from auto parts to medical equipment.

“It is now easier than it ever was before to produce the entire product here,” he said.

Global automakers and other multinational companies have moved much of their supply chains to China to avoid Chinese tariffs, tap the country’s vast work force and move closer to a big new market.

Brad Setser, a Council on Foreign Relations economist, calculated that imports of manufactured goods from the United States are becoming steadily less important to the Chinese economy. He estimated that China now produces within its borders up to four-fifths of the value of each dollar of exports. That share had been as little as two-thirds in 2011.

Nadim Ahmad, the head of the trade and competitiveness statistics division at the O.E.C.D., said that China has been expanding in areas like research, design and development that had previously been done overseas. “You’re basically creating a lot more in the economy” as goods are manufactured, he said.

That means China gets more bang from its buck from its exports to the United States — and suggests American tariffs could be more painful than trade’s shrinking share of the economy suggests.

China’s economy slows in first quarter

April 15, 2018


© AFP/File / by Lillian DING, Ryan MCMORROW | China’s economy is expected to have grown 6.7 percent during the January through March period

BEIJING (AFP) – China’s economy slowed slightly in the first quarter as the government battles debt and financial risk, with US trade frictions threatening to further hobble growth, analysts surveyed by AFP said.The world’s second largest economy is expected to have grown 6.7 percent in the January to March period, down from 6.8 percent in the fourth quarter of last year, according to the poll of 13 economists ahead of the release of official figures on Tuesday.

Analysts link the deceleration to Beijing’s efforts to rein in the country’s massive debt pile and financial hazards, as well as a slowing property market.

Fears of a trade war with the US have also roiled markets in recent weeks, with Washington and Beijing exchanging warnings of tit-for-tat tariffs on a significant portion of their bilateral trade.

But the tensions — stoked by US President Donald Trump’s threat last week to target an additional $100 billion in Chinese goods — have yet to cause real harm to the economy, analysts say.

“The trade tension has not impacted on GDP growth yet … and the trade data is still robust,” said Ligang Liu, chief China economist at Citibank.

“If the tensions continue, China’s trade competitiveness may be undermined, weighing on GDP growth,” Liu added.

Trade data released by Beijing on Friday reinforced that message with China’s trade surplus with the US surging by a fifth in the first three months of the year.

There are also signs economic growth could come in above the 6.7 percent forecast by AFP’s survey. The figure is above the government’s official target of around 6.5 percent for 2018.

“China will release its economic quarterly data which are even better than expected, that shows a good sign for this year,” central bank chief Yi Gang said Thursday.

“The global outlook continues to improve,” Yi said at a Beijing forum on China’s massive Belt and Road trade infrastructure initiative.

– Trade worries –

President Xi Jinping this week struck a conciliatory note on trade, promising to cut tariffs on cars — a key point of US anger — and other imports, as well as further open up the economy, which drew a warm response from Trump.

But China’s commerce ministry later reiterated that no negotiations were underway between the two capitals as Washington had not shown enough “sincerity”.

Trump, however, said “we’re having some great discussions”, though he showed no sign of backing down on his threat to impose tariffs on a total $150 billion worth of Chinese goods.

The threatened levies would dent economic growth on both sides of the Pacific, analysts say.

“The implications of such a wide-ranging tariff war would be significant,” wrote economists at Fitch Ratings in a report, adding that gross domestic product in both countries could be pulled down by two percentage points over two years.

Only $3 billion in goods have been hit with tariffs in the escalating spat so far, with the US targeting steel and aluminium while China takes aim at pork, wine and other American products.

– Financial risk –

Along with exports, debt-fuelled investment has driven China’s economy over the last decade — but with fears growing over a possible credit crisis, officials in Beijing are stepping up their battle against debt and financial risk.

However, analysts say the battle will take a toll on growth.

“China is committed to a serious financial deleveraging over the span of 2018-2020, with a focus to crack down on financial excesses in local governments and state-owned enterprises,” said Hao Zhou, an economist at Commerzbank.

“The overall economic policy has become less favourable for economic growth.”

by Lillian DING, Ryan MCMORROW

China’s Economy Isn’t Opening — It’s Closing… new ides, interaction and competition is discouraged…

April 14, 2018

By Christoper Balding

An advanced economy requires ideas, interaction, and competition – all things that Beijing is shutting down and turning away from

South China Morning Post

President Xi Jinping’s speech to business leaders at the Boao Forum, in which he announced the further opening up of the Chinese economy, seems to have calmed markets’ fears of a potential trade war with the United States.

His speech at the forum, which is often referred to as “Asia’s Davos”, follows his widely lauded address to the World Economic Forum (the “real” Davos) in 2017, when Xi with the support of Chinese state media encouraged the world to see China as the new global defender of openness. But away from media events with global CEOs, the reality of Chinese openness appears radically different.

Despite the rhetoric, China remains a closed economy. A February IMF study on measures of trade and investment openness found that China was not only more closed than the average developed economy, but more closed than the average emerging market economy.

Trump versus China: is this the dawn of a second cold war?

These are realities foreigners deal with every day. Though agreeing to let Visa and Mastercard enter China as part of its World Trade Organisation membership, China has delayed doing so seemingly infinitely. After losing a WTO case to the Obama administration in 2012 and telling US President Donald Trump they would be allowed to operate in China, the world is still waiting for Beijing to approve their entry.

Beijing has agreed to let Visa and Mastercard into China – but has delayed doing so. Photo: AP

Even the so-called investment negatives list that tells foreigners where they can invest, while shrinking moderately last year, remains sizeable. If not required to have a majority Chinese partner, foreigners remain restricted or prohibited across a wide range of industries, most of which have no national security implications. For a country selling itself as the new leader of openness, there is no indication it is willing to let foreigners in. FDI flows have increased this decade by an average annual rate of just 3.1 per cent compared with 9.2 per cent the previous decade.

Just this week it was announced that all scientific data generated in China would need to be vetted by the government before it could be published. If Beijing is seeking to attract high-quality research and development investment while demanding to control scientific data generated in China, it may want to rethink its openness mantra.

The logo for Beijing ByteDance’s Jinri Toutiao (Today’s Headlines) mobile app at the company’s headquarters in Beijing. Photo: Bloomberg

The closing of China is apparent in mundane ways with even domestic firms who want to be compliant. Toutiao – which aggregates news and videos from hundreds of media outlets – was shut down by censors for a few days this week. CEO Zhang Yiming said he would permanently shut down humour content app Neihan Duanzi. This came despite Toutiao already employing 6,000 censors and planning to hire 4,000 more. The so-called openness being touted at the Boao Forum seems far from the reality of business in China.

While Beijing may complain about American protectionism, Chinese regulators have done more to shut down Chinese investment abroad. Beijing’s words ring hollow regarding foreign intervention when it blocks most proposed outward investments by Chinese investors.

A nasty US-China fight is inevitable. But it needn’t be terminal

What makes this closing of the Chinese economy so unnecessary is its competitiveness. China has produced innovative tech giants at the cutting edge of technology. From robotics to consumer goods, China does not need the protectionism Beijing wants to hobble the economy with.

The closing of the Chinese mind is harmful for the evolution of the Chinese economy and China as a rising power. To be an advanced economy, it requires ideas, interaction, and competition – all things that China is shutting down and turning away from. 

Christopher Balding has lived in China for nine years and has worked as a professor at Peking University Shenzhen Graduate School

Moody’s, Fitch see limited impact of US tariffs on Chinese economy

April 11, 2018


The world’s major economies started to pick up steam last year, breaking from years of sluggish post-crisis growth, but lately the comeback has been listless. A tugboat guides a cargo ship into the port of Long Beach in California. Photographer: Tim Rue/Bloomberg
The world’s major economies started to pick up steam last year, breaking from years of sluggish post-crisis growth, but lately the comeback has been listless. A tugboat guides a cargo ship into the port of Long Beach in California. Photographer: Tim Rue/Bloomberg PHOTO: TIM RUE/BLOOMBERG NEWS

BENGALURU: Global rating agencies Moody’s Investors Service and Fitch Ratings said on Wednesday the proposed US tariffs will have limited direct impact on China’s economy and a negotiated solution is most likely.

Chinese President Xi Jinping had pledged on Tuesday to open the economy further and lower tariffs on products including cars in a speech seen as a conciliation amid rising trade tensions between the top two economies.

Moody’s said it expects the US and China will prevent a significant escalation in their trade dispute going by the negative impact the restrictions will have on both economies.

“Trade has made a smaller contribution to China’s GDP growth in recent years and, combined with a changing trade structure, China’s direct vulnerability to potential trade shocks has declined,” Moody’s said in a report.

Last week, Washington threatened China with tariffs on $50 billion in Chinese goods aimed at making Beijing address what the US calls deeply entrenched theft of US intellectual property and forced technology transfers from its companies.

“The currently implemented US trade measures will impact only a relatively small portion of Chinese exports to the US, and we expect them to have a direct but contained effect on China’s economy,” Moody’s said.

A full-blown trade war between the countries can create risks for corporations in the Asia Pacific region, Fitch said.

US President Donald Trump has been critical of China’s trade policies, criticizing China on Monday for maintaining 25 percent auto import tariffs compared to the US’ 2.5 percent duties, calling such a relationship with China not free trade but “stupid trade.”


Donald Trump’s Moves on North Korea and China trade shows he’s no idiot — Trump has taken the U.S. where no other president was able to go to achieve US goals

April 4, 2018

Michael Chugani says despite heavy criticism, the US president’s gun-slinging diplomacy has got the US where it wants to be – around the negotiating table with nuclear-armed North Korea, and outplaying China on trade

By Michael Chugani
South China Morning Post

PUBLISHED : Wednesday, 04 April, 2018, 4:38pm
UPDATED : Wednesday, 04 April, 2018, 5:07pm

Donald Trump a moron? Hardly. Far from being a moron, the US president is actually a pretty smart cookie. A smart cookie is what Trump called North Korean strongman Kim Jong-un. Recent events, unimaginable just months ago, show both are smart in very different ways.

Kim is a calculating chameleon who can order the ruthless murder of his uncle and brother yet charm Chinese leader Xi Jinping into thawing the chill between them. Trump is no murderer but is cocksure smart, a cowboy-style leader with his finger on the trigger. He figuratively shoots first and asks questions later. Kim shoots first and doesn’t ask questions.

Former US president Jimmy Carter last week indirectly called Trump a jerk during an American TV interview. I agree. But that doesn’t mean jerks can’t be smart. It was big-time jerk Harvey Weinstein’s smarts that elevated him to the dizzying heights of Hollywood from where he took sexual advantage of women.

Trump-bashing, led by America’s liberal media, is now a global sport. Despite daily bashing, Trump’s poll numbers show his voter base remains solid. How come a narcissist, misogynist, bigot and bully can command such loyalty? Smarts, that’s how.

Let’s give credit where credit’s due. Do you honestly think Kim’s sudden charm offensive sprang from a heartfelt desire to be a peacemaker? He would still be testing missiles if Trump hadn’t threatened fire and fury with a nuclear button that he said was bigger than Kim’s, who he mockingly called “little rocket man”.

Trump-bashers pounce on every opportunity to pummel his crass language and swagger as unpresidential. But being presidential got predecessors Bill Clinton, George W. Bush, and Barack Obama nowhere. Trump wasn’t far off when he said their conventional diplomacy bought Kim time to fine-tune his nuclear know-how.

What scares people is Trump’s brash unpredictability. You never know if he really means what he says. At least with poker-faced card players, you can risk calling a bluff. But dare you assume it’s a bluff when a mercurial leader with his finger on the button of the world’s most potent nuclear arsenal makes a threat?

People say that’s what makes Trump such a dangerous idiot. But this dangerous idiot got Kim to send his sister and athletes to the Winter Olympics in South Korea, to stop further nuclear missile testing, to set up a summit with South Korean leader Moon Jae-in, offer to meet Trump, and to travel to Beijing to break the ice with Xi.

If you think all of that happened by accident, then you are the idiot, not Trump. It happened because no one dares to call his poker cards. Trump’s detractors claim Kim has already acquired the nuclear arsenal he needs to pose a threat to the US and is now ready to talk with a strengthened hand. What nonsense.

Kim knows that if he dares aim just one missile at the US and its allies, he and his country would be reduced to dust. So he used his own smarts to sell himself as the leader who is ready to talk, to flatter Xi to get the Chinese on his side, to ease Trump’s destructive sanctions, and to charm Moon into thinking rapprochement is possible between the north and the south.

Again, let’s call a spade a spade. Do you really think it’s by accident that China now promises to further open its markets and pledge it will no longer demand foreign firms hand over hi-tech secrets if they want to do business on the Chinese mainland? It was Trump’s threatened trade war that rattled Xi enough to send envoys to the US to discuss market opening. Xi is expected to make a market-opening speech at next week’s Boao Forum.

I am not an apologist for Trump. I sat out the 2016 election. His victory horrified me as an American. But I have to grudgingly admit his gun-slinging diplomacy has taken us where no other president dared go to achieve US political goals.

China pledges to open markets — Beijing scrambles to avert a trade war

March 27, 2018

Image may contain: 1 person, eyeglasses, suit and closeup


Premier makes promise even as Beijing calls on WTO members to unite against US moves

BEIJING • Chinese Premier Li Keqiang said China and the US should maintain negotiations and he reiterated pledges to ease access for American businesses, as Beijing scrambles to avert a trade war.

Mr Li made the comments yesterday even as China called on World Trade Organisation (WTO) members to unite to prevent the US from “wrecking” the WTO.

He told a conference that included global chief executives that China would treat foreign and domestic firms equally, would not force foreign firms to transfer technology and would strengthen intellectual property rights, repeating promises that have failed to placate Washington.

“With regard to trade imbalances, China and the United States should adopt a pragmatic and rational attitude, promote balancing through expansion of trade, and stick to negotiations to resolve differences and friction,” Mr Li said at the the China Development Forum, according to state radio.

The US asked China in a letter last week to cut a tariff on US cars, buy more US-made semiconductors and give US firms greater access to the Chinese financial sector, The Wall Street Journal reported yesterday, citing unidentified sources.

Alarm over a possible trade war between the world’s two largest economies has chilled financial markets as investors fear dire consequences should trade barriers go up due to US President Donald Trump’s bid to cut the US$375 billion (S$491 billion) trade deficit with China.

US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer listed steps they want China to take in a letter to newly appointed Vice-Premier Liu He, who oversees China’s economy, the Journal said, quoting sources with knowledge of the matter.

Despite a steady stream of fierce rhetoric from Chinese state media lambasting the US for being a “bully” and warning of retaliation, Chinese and US officials are busy negotiating behind the scenes.

China has offered to buy more US semiconductors by diverting some purchases from South Korea and Taiwan, the Financial Times reported, citing people briefed on the talks.

Chinese officials are also working to finalise rules by May – instead of the end of June – to allow foreign financial groups to take majority stakes in Chinese securities firms, the Financial Times said.

“I anticipate that for political reasons it would be logical for China to respond,” Blackstone Group chief executive Stephen Schwarzman told Reuters yesterday on the sidelines of the China Development Forum.

“That is why I view this more as a skirmish, and I think the interests of both countries are served by resolving some of these matters.”

Fears of a trade war mounted this month after Mr Trump imposed tariffs on steel and aluminium imports, and then last Thursday specifically targeted China by announcing plans for tariffs on up to US$60 billion of Chinese goods.

A US inquiry had found China guilty of intellectual property theft and unfair trade, by forcing US investors to turn over key technologies to Chinese firms. Last Friday, China responded to the US tariffs on steel and aluminium by declaring plans to levy additional duties on up to US$3 billion of US imports.

Yesterday, Beijing’s envoy Zhang Xiangchen told delegates at the Geneva-based WTO that Mr Trump’s plan to impose tariffs on Chinese goods under Section 301 of the 1974 US Trade Act broke WTO rules. “The US is setting a very bad precedent by bluntly breaching its commitment made to the world. WTO members should jointly prevent the resurrection of 301 investigations and lock this beast back into the cage of the WTO rules,” he said.

“Unilateralism is fundamentally incompatible with the WTO… The WTO is under siege, and all of us should lock arms to defend it.”