Posts Tagged ‘US-China trade’

Pessimism Looms Over Prospect of a Sweeping China Trade Deal

January 22, 2019

As a critical round of talks with China kicks off next week, the Trump administration is increasingly pessimistic that Beijing will make the kind of deep structural changes to its economy that the United States wants as part of a comprehensive trade agreement, according to officials involved with the talks.

The United States is now weighing whether large Chinese purchases of American goods and more modest economic changes will be enough for a deal to end a damaging trade war between the two nations and help calm volatile markets.

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Donald Trump and guest Xi Jinping at Mar-a-Lago, April, 2017

A Chinese delegation led by Liu He, China’s vice premier, will meet with Robert Lighthizer, the Trump administration’s top trade negotiator, and Steven Mnuchin, the Treasury secretary, on Jan. 30 and 31. The two countries are racing to strike an agreement by March 2, a deadline set by President Trump and President Xi Jinping of China.

If no deal is reached by that date, Mr. Trump has said the United States will raise tariffs on $200 billion worth of Chinese goods.

By Alan Rappeport
The New York Times

Donald Trump and Xi Jinping at a dinner meeting on Dec. 1, 2018, in Argentina during the G20 summit. Photographer: Pablo Martinez Monsivais/AP

Mr. Trump has focused on narrowing the trade gap between what the United States imports from China and what it exports, but the administration is also pressuring Beijing to scale back subsidies of state-owned enterprises, drastically open its markets to foreign investment and end its longstanding practice of forcing American companies to hand over trade secrets.

For years, American companies, including technology firms and automakers, have been clamoring for such changes as they try to gain access to China’s growing market. But many are beginning to fear that if the continuing brinkmanship between the world’s two largest economies is not resolved, American companies will be left in an even worse position.

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Chinese Vice Premier Liu He is scheduled to lead the Chinese side in the next round of trade talks starting Jan. 30 in Washington

“I would have a hard time, especially considering what’s happening in Washington, believing that this will be wrapped up in a little bow by March,” said Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce.

Markets have been particularly sensitive to the state of the talks, with stocks gyrating as whispers of progress or setbacks trickle out.

Stock prices in the United States spiked last week after a Wall Street Journal report suggested that Mr. Mnuchin had recommended the removal of some tariffs to hasten a deal. They jumped again after Bloomberg News reported that China had offered to buy $1 trillion of American goods over the next six years.

Over the weekend, Mr. Trump expressed hope that a deal could be reached but dismissed suggestions that the United States would roll back tariffs in advance of concessions from China.

“We have taken in tremendous amounts of money in the United States because of the sanctions,” Mr. Trump told reporters on Saturday, apparently confusing sanctions and tariffs. “If we make a deal, certainly we wouldn’t have sanctions.”

In a tweet on Monday evening, Mr. Trump once again suggested that the United States had the upper hand in negotiations, saying China’s slowing economy should hasten a trade deal.

“China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies,” the president said. “Makes so much sense for China to finally do a Real Deal, and stop playing around!”

Donald J. Trump

@realDonaldTrump

China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around!

23K people are talking about this

Despite Mr. Trump’s optimism about reaching a deal, others in the administration and on Capitol Hill have been more circumspect.

“This is an ongoing process with the Chinese that is nowhere near completion,” a Treasury spokesman said, rebutting the suggestion that Mr. Mnuchin had recommended rolling back tariffs.

Last week, Senator Chuck Grassley of Iowa, the Republican chairman of the Senate Finance Committee, said that Mr. Lighthizer, who is leading the talks, had told him there had been no progress on the “structural” changes that the administration sought from China.

Mr. Lighthizer, a longtime China hawk, has been pushing to ensure that China fulfills promises that Mr. Xi made to Mr. Trump during a meeting in Buenos Aires last year. Mr. Lighthizer has expressed concern to colleagues and business groups that Mr. Trump could accept a watered-down deal that reduces the trade deficit but offers only symbolic structural changes to help end the trade war and lift the stock market.

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Nobody has worked harder for a successful business relationship with China that Apple’s Tim Cook

In an interview on the Fox Business Network on Friday, Larry Kudlow, the director of the National Economic Council, said he was hopeful that a deal would be reached but acknowledged that many details still needed to be determined.

“The technology stuff has not been dealt with, the enforcement stuff has not been dealt with,” Mr. Kudlow said. “The commodity stuff and the tariff rates, we’re moving on the right track.”

To those who see the negotiations as the best opportunity to rebalance the trade relationship between Washington and Beijing, the prospect of rolling back tariffs without sweeping concessions by China would fail to achieve Mr. Trump’s goal of ending what he has deemed its unfair trade practices.

“He wants to brag about what he got, not stop tariffs and be able to brag about nothing,” said Derek Scissors, a China expert at the conservative American Enterprise Institute.

A slimmed-down deal could also open Mr. Trump up to criticism from Democrats, who in some cases are more aligned with the president’s aggressive approach to pressuring China than many Republicans.

“Anything less than a full effort to secure a fundamental reset of the U.S.-China trade relationship is a betrayal of the American economy and the future of American workers, industry, consumers and innovators,” said Representative Richard Neal of Massachusetts, the Democratic chairman of the House Ways and Means Committee. “The Trump administration needs to stiffen its spine and get tough in these China talks.”

Trump administration officials have been debating whether they can push more tariffs on China without facing significant repercussions. China’s economy is already slowing, in part because of the tariffs, and any further weakening could hurt global economic growth and the United States economy, which is itself showing signs of cooling.

Mr. Mnuchin has been particularly interested in how big a role America’s trade actions are playing in China’s recent economic weakness.

Trump administration officials have debated whether they should follow through with plans to raise tariffs to 25 percent, from 10 percent, on March 2 if China does not maintain the promises Mr. Xi made to Mr. Trump, like accelerating purchases of American goods and making structural changes to its economy.

Progress over the next six weeks could result in an extension of the March 2 deadline, even if a final deal is not reached, or some tariff relief as a reward for initial changes that China says it is willing to make. But the decision will ultimately rest with Mr. Trump.

One question bedeviling the talks is how to enforce any trade agreement with China, given its opaque business environment and largely managed economy. One option that administration officials have considered is “snapback” tariffs, which would be reimposed if China appears to be reneging on its commitments.

Mr. Trump has pointed to China’s economic weakness as a reason it should acquiesce to his country’s trade demands. But the trade war is also taking a toll on the United States economy, and the monthlong shutdown could lead to an economic contraction if it continues to drag on.

While business are hoping for greater access to China’s markets, the strategy of using tariffs as a negotiating tool has dented business confidence. According to a survey of 277 American companies by S&P Global this month, 43 percent said they had postponed investment because of the China tariffs.

Michael Pillsbury, a China scholar at the Hudson Institute who advises the administration, said that there were several important unknowns about the trade discussions that suggested a comprehensive deal was not near.

Michael Pillsbury Photographer: Mary F. Calvert/MCT via Getty Images

It remains unclear if there is a working text of a deal that the two countries are using to hash out an agreement. And it is unclear whether China will pressure the Trump administration to drop its efforts to extradite the chief financial officer of Huawei, the Chinese telecommunications company. The executive was arrested in Canada last year as part of a broader agreement. The complicated internal debates taking place within China’s government also make it difficult to predict its willingness to make concessions.

“We are a long way to a deal,” Mr. Pillsbury said. “Much work remains to be done, especially untangling the debate in China and pressure on Xi Jinping.”

But Mr. Trump is also under pressure and the window for him to use market-rattling tariffs as leverage is likely to shrink as his re-election campaign heats up next year.

“The damage to U.S. business, consumers and exporters is real and ongoing,” Scott Lincicome, a trade lawyer and scholar at the Cato Institute, said, noting that the risks of this approach only increased if negotiations with China dragged into 2020. “If you’re the Chinese, delay is your best friend.”

NYT:https://www.nytimes.com/2019/01/21/us/politics/china-trade-pessimism.html

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Asian markets turn lower, pound holds up against dollar

January 22, 2019

Asian markets edged down Tuesday as profit-takers stepped in following a recent run-up, while the pound maintained gains on hopes Britain will avoid crashing out of the European Union.

While there were few catalysts to drive business and Wall Street was closed for a holiday investors are keeping tabs on developments in various issues including the US government shutdown, Brexit and China’s stuttering economy.

The optimism surrounding China-US trade talks was jolted by a Bloomberg News report that said the two sides were struggling to reach agreement on the crucial matter of intellectual property, which is a key source of anger in Washington.

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While headlines regarding talks earlier this month were upbeat, and eyes turn to another meeting including China’s top negotiator Liu He at the end of January, the Bloomberg story, referencing unnamed sources, provided a reality check.

In early trade Hong Kong and Shanghai each dipped 0.5 percent, while Tokyo went into the break 0.1 percent lower.

Sydney also slipped 0.5 percent, Singapore shed 0.2 percent and Seoul was 0.4 percent lower while Wellington and Taipei were also well down.

Concerns about the outlook led the International Monetary Fund to lower its growth forecasts for the global economy, citing the trade row, Brexit and other problems.

On currency markets the pound edged up slightly against the dollar, having bounced on Monday after British Prime Minister Theresa May said she would try to hammer out changes to her Brexit deal that was roundly rejected by MPs last week.

While there is no plan in place to leave the EU on March 29, markets are confident lawmakers will avoid a damaging no-deal Brexit, with options being touted being a delay to the leaving date and another referendum.

The pound “has been helped by ongoing optimism that a hard Brexit will be avoided on 29th March”, said Ray Attrill, strategist at National Australia Bank.

He pointed out that MPs from both sides of the aisle had proposed a bill pushing for a delay if an agreement cannot be agreed in parliament by February 26.

“There’s a good chance this gets up. If so, it further flattens the tail risk of a hard Brexit on March 29, though note all 27 EU nations will need to agree to an extension, so it wouldn’t eliminate the risk completely.”

Oil prices extended Monday’s losses that came in response to data showing China’s economy grew last year at its slowest pace for almost three decades.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.1 percent at 20,706.66 (break)

Hong Kong – Hang Seng: DOWN 0.5 percent at 27,072.81

Shanghai – Composite: DOWN 0.5 percent at 2,598.59

Pound/dollar: UP at $1.2893 from $1.2892 at 2100 GMT Friday

Euro/dollar: UP at $1.1372 from $1.1370

Dollar/yen: DOWN at 109.57 yen from 109.63

Oil – West Texas Intermediate: DOWN four cents at $53.76 per barrel

Oil – Brent Crude: DOWN seven cents at $62.67 per barrel

London – FTSE 100: UP 0.03 percent at 6,970.59 points (close)

New York – Closed for public holiday

AFP

How China’s Growth Slowdown Could Rattle Stocks Around the World

January 21, 2019

China’s economic indicators signal trouble ahead

The collapse in consumption tax revenue is an ominous sign.

Photographer: Gilles Sabrie/Bloomberg

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China’s economy grew 6.4% year-over-year in the fourth quarter of 2018, confirming analyst expectations for the slowest expansion in a decade. What happens this year could reverberate through equity markets far away.

ASIA MARKETS SNAPSHOT

  • Most stock indexes rose, with the Shanghai Composite up 0.6% and Japan’s Topix up 0.8%.
  • The U.S. dollar fell 0.2% against the Chinese yuan, to 6.7931.
  • Oil was roughly flat, with Brent crude trading at $62.70 per barrel.

What’s Happening

Despite widespread distrust of Chinese economic statistics, few contest that the country’s expansion is slowing, buffeted by trade tensions with the U.S. and a campaign to crack down on a boom in lending at home.

And after years of rapid growth, China’s economic heft is undeniable. On a purchasing-power parity basis, which adjusts for how much the same item costs in different countries, China accounted for 18.3% of world output in 2017, up from 12.2% at the time of the global financial crisis in 2008. It overtook the U.S. in 2013.

In many industries, China is even more important—it accounts for nearly half of all copper demand, for example, and has the world’s biggest car market.

Other data released Monday also signaled a regional slowdown. South Korean exports in the first 20 days of this month declined 14.6% from a year earlier. Exports to China and Japan fell 22.5% and 9%, respectively, but rose 16.9% to the U.S. and 4% to the European Union.

Workers remove cores of hawthorn fruits at a factory in Zibo in China's Shandong province. China’s economy grew 6.4% year-over-year in the fourth quarter of 2018.
Workers remove cores of hawthorn fruits at a factory in Zibo in China’s Shandong province. China’s economy grew 6.4% year-over-year in the fourth quarter of 2018. PHOTO: ZHAO DONGSHAN/ZUMA PRESS
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What It Means

Most companies in developed markets don’t make much revenue in China, but the knock-on effects from a slowdown would be meaningful, according to analysts at HSBC. A drop to 6% GDP growth in China from 6.5% would shave more than 3 percentage points of earnings growth from the MSCI All Country World Index this year, the bank estimates, cutting the overall increase in earnings per share to 7.1%.

International investors are also exposed to China through the small but growing presence of mainland shares in influential indexes, and through overseas-listed companies such as Alibaba and Baidu.

Much of what happens next depends on how Beijing responds: whether authorities maintain their deleveraging campaign, or open the spigots for a broad stimulus.

Chinese stocks are now cheap relative to their developed-market peers, based on their projected earnings. But that has caused some disagreement on whether the stocks present good value for investors.

Deutsche Bank analysts expect a 16% rise in the MSCI China index by the end of 2019, with tax cuts raising earnings, and a potential resolution to the tariff tensions that spooked markets in 2018.

Others disagree. Chinese stocks are probably cheap for a reason, according to Jonathan LaBerge, senior investment strategist at BCA Research, and there is a significant chance of a major earnings contraction later this year, based in part on a slowing Chinese economy.

Write to Mike Bird at Mike.Bird@wsj.com

https://www.wsj.com/articles/how-chinas-growth-slowdown-could-rattle-stocks-around-the-world-11548046167

See also:

China’s Economy Slows to the Weakest Pace Since 2009

https://www.bloomberg.com/news/articles/2019-01-21/china-s-economy-slows-to-weakest-pace-since-2009-amid-trade-war

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China Annual Economic Growth Rate Is Slowest Since 1990

January 21, 2019

Economic downturn deepened in the final months of 2018 — China’s economy is decelerating

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Shenzhen, China.
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BEIJING—China’s economic expansion languished to its slowest pace in nearly three decades last year, as a bruising trade fight with the U.S. exacerbated weakness in the world’s second-largest economy.

The 6.6% growth rate for 2018 reported Monday is the slowest annual pace China has recorded since 1990. The economic downturn, which has been sharper than Beijing expected, deepened in the last months of 2018, with fourth quarter growth rising 6.4% from a year earlier.

Adding to the gloom was the trade conflict with Washington. The uncertain outlook for Chinese exporters caused companies to delay investing and hiring and in some cases even to resort to layoffs—a practice often discouraged by China’s stability-obsessed Communist Party rulers. The official jobless rate ticked up to 4.9% last month from 4.8% in November.

Great StallAfter stabilizing, China’s economy isdecelerating again, slowed by debt and a tradefight with the U.S.Quarterly Chinese GDP growth, change froma year earlierSource: Wind
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In the southern technology and export-manufacturing center of Shenzhen, for instance, many private makers of electronics, textiles and auto parts furloughed workers more than two months before the Lunar New Year holiday, which begins in February, according to business owners and local officials. The neighboring city of Guangzhou saw growth slump to 6.5% last year—well short of the 7.5% annual target set by the city government—as trade tensions hit the city’s manufacturing sector hard.

Some economists and investors have said China’s economy is far more anemic than the government’s 6.6% rate of expansion for 2018. They note the government’s move on Friday, just ahead of Monday’s data release, to cut the 2017 growth rate to 6.8% from 6.9%, which they said provides a slightly lower base, giving a slight boost to the fresh 2018 data.

“The economy faces downward pressure,” said Ning Jizhe, head of the National Bureau of Statistics, at a news conference Monday. In particular, Mr. Ning pointed to “complicated and severe external environment” and acknowledged the pressure from the Beijing-Washington trade conflict. He sought to dampen those concerns, saying “the economy overall is driven by domestic demand.”

Monday’s data show consumption, including purchases by individuals, households and government, made up more than three-quarters of last year’s growth.

Still, a raft of data released by Mr. Ning’s office portrays an economy that is challenged. Big-ticket investments by both government and businesses are lackluster. Property sales, a long reliable source of growth, are weakening. And indicators from industrial output to retail sales slowed in recent quarters.

Indicators, including industrial output, portray a Chinese economy that is challenged. Pictured, an aerial shot of a plant on the outskirts of Shanghai, Jan. 12.
Indicators, including industrial output, portray a Chinese economy that is challenged. Pictured, an aerial shot of a plant on the outskirts of Shanghai, Jan. 12. PHOTO: QILAI SHEN/BLOOMBERG NEWS
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Softening wage growth and rising household debts are causing Chinese consumers to tighten their purse strings. Lu Bing, a manager at a tailor-made clothing shop in Yancheng, an industrial city in eastern China, said its sales dropped as much as 30% last year. “It was a terrible year, and it doesn’t look like things are getting any better this year,” said Mr. Lu. He said he reduced his personal spending and borrowed more to make ends meet.

China’s economy has been decelerating partly due to President Xi Jinping’s initiative of the past three years to contain debt and fend off financial risks. That campaign has curbed borrowing by local governments and businesses and caused a sharp fall in spending on new subway lines and factories. Beijing started reversing course on the debt-control effort in recent months, though the easing measures taken so far have failed to rejuvenate fixed-asset investment, which grew 5.9% last year, a sharp drop from 7.2% in 2017.

The U.S.-China trade conflict, coupled with declining global demand, also helped dampen China’s growth by reducing its sales overseas. That overall weakening trade shaved 8.6% from the growth of China’s goods and services produced last year, according to calculations by The Wall Street Journal, which are based on official data. By comparison, trade contributed about 9% to the country’s expansion in 2017.

China’s leaders have made it clear that arresting the slowdown is a priority for this year. At a December high-level meeting that mapped out the broad economic agenda for 2019, President Xi said growth must be maintained within “a reasonable range.” Advisers to China’s policy makers say that range, to be announced during the nation’s annual legislative session in early March, is between 6% and 6.5%.

That would mark a modest recalibration from last year’s objective of “about 6.5%,” suggesting Beijing wants more wiggle room to manage the economy, which is in a yearslong slowdown as the old debt-fueled growth model reaches its limits. Of the 20 provinces and municipalities that have disclosed their 2019 growth targets so far, 13 slashed their objectives and six left their goals unchanged.

China Trade Talks: Why the U.S. Wants to End ‘Forced Tech Transfer’

China Trade Talks: Why the U.S. Wants to End ‘Forced Tech Transfer’
As representatives from the U.S. and China try to hammer out an agreement on trade, the White House is seeking to stop what it calls “forced technology transfer.” WSJ’s Shelby Holliday explains.

The expected growth range for this year, still relatively high by global standards, is a long way from a pace of expansion that averaged nearly 10% annually for more than three decades until slowing in the past decade. The 6.4% growth rate in 2018’s final quarter is the slowest since the early months of the global financial crisis, which Beijing then countered with massive amounts of stimulus, leaving a legacy of debt the government is still grappling with.

For now, despite the gathering economic gloom, Beijing appears to be determined not to deploy a massive pro-growth package and is instead taking a path of gradual policy-easing. The central bank has been injecting more, and cheaper funds into the banking system to encourage lending; the central government has removed tightfisted controls on local borrowing; Beijing is planning more cut taxes for both businesses and individuals, particularly those involved in the technology sector.

Government advisers, however, said Beijing may have to step up stimulus measures should trade tensions with Washington worsen in the coming months. China and the U.S. are preparing for a new round of high-level trade negotiations at the end of this month, trying to reach a resolution by March 1, when a three-month cease-fire Mr. Xi and President Trump reached expires.

Write to Lingling Wei at lingling.wei@wsj.com

https://www.wsj.com/articles/china-annual-economic-growth-rate-is-slowest-since-1990-11548037761

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U.S.-China Disagreement Explained: Trump’s tweets turned ‘old friends’ hawkish against China

January 21, 2019

Hong Kong tycoon and US citizen says Beijing’s negotiators failed to pick up key points in early discussions and explains how Trump’s tweets influenced ‘old friends’ to turn hawkish

South China Morning Post

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Donald Trump and guest Xi Jinping at Mar-a-Lago, April, 2017

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PUBLISHED : Sunday, 20 January, 2019, 7:04pm
UPDATED : Monday, 21 January, 2019, 6:29am
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When the meeting was over, there was supposed to be an agreement.

In the early days of the administration of US President Donald Trump, Chinese Vice-Premier Wang Yang had gone to Washington for the annual strategic economic dialogue  to hammer out a deal on narrowing the United States’ trade deficit with China – the target of sustained Trump ire since taking office.

Some sort of joint statement on common ground – if only an agreement to meet again – should have been a formality.

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But the talks turned toxic and Wang’s trip ended without the customary press conference and joint statement.

The abrupt end to such a high-level mission sent the Chinese tacticians into a flurry of self-examination, according to Ronnie Chan Chichung, a Hong Kong property tycoon with extensive access to US politicians, think tanks and the Chinese government.

Did China Miscalculate? — Of Course Not

“They [Beijing] began to analyse did we do something wrong? Did we give them the wrong thing? Did we insist on too much? Did we send a wrong guy there? Were our tactics wrong, what’s wrong?” Chan said.

Donald Trump and Xi Jinping at a dinner meeting on Dec. 1, 2018, in Argentina during the G20 summit. Photographer: Pablo Martinez Monsivais/AP

In a wide-ranging interview with the South China Morning Post, Chan said Beijing was flummoxed. China had failed to pick up on several key points, leaving negotiators wrong-footed not only at the meeting but for the first 18 months of the Trump administration.

Chan knows both sides of the Pacific well. Not only is he the chairman of Hong Kong property developer Hang Lung, he is a US citizen, a co-chairman of the Asia Society, a member of the US Council on Foreign Relations, and a former adviser to the Chinese State Council’s China Development Research Foundation. He is also chairman of the Better Hong Kong Foundation, a pro-Beijing organisation actively engaging the US in recent years.

His personal and professional ties span decades, cross international borders, and include close links to former US secretary of state Henry Kissinger and late former US president George H. W. Bush, both of whom congratulated him on being given the Dwight D. Eisenhower Global Leadership Award last year for his contribution to philanthropy, education and building bridges for global stability.

His background gives him a broad perspective, one that allows him to see that the self-criticism in Beijing after the July 2017 talks in Washington was futile – it was meaningless for the Chinese team to try to assess what they were doing wrong.

Chan said that what China did not understand was that Trump did not want a deal at the time because he was under no domestic pressure to reach one.

“Nothing’s wrong. You have to know who you are dealing with. You are dealing with a guy who doesn’t want a deal. If Trump doesn’t want a deal, there’s no deal,” he said.

No matter what China offered, it would be rejected, Chan argued.

“At the beginning for the first year and a half of Donald Trump’s administration, I think China had no idea what the whole issue is all about. Not just how to deal with him, but what the whole issue is about,” Chan said.

He said China was willing to make concessions to rebalance trade, but that was not the main issue between China and the US.

“Trade is insignificant. Anybody who worries too much about trade, as far as I am concerned, is not a serious observer in US-China relations. There are issues that are far more significant and serious that are lurking behind the causes of the deterioration of relations. Trade is just the surface.

“The bigger issue is technology, which leads to military and defence. That’s first and foremost, that’s the root of the problem of the trade war … Even secondary, perhaps, is the currency. So trade is really a tertiary issue.”

Trump Just Doesn’t Get It

There was also a broader level of misunderstanding about Beijing that had its roots in the Tiananmen Square crackdown in 1989.

Chan said that after former US president Richard Nixon’s visit to China in 1971, relations between the two countries were moving generally in a positive direction because the US needed China’s to help contain the Soviet Union.

However, “the ship reversed” after 1989, Chan said.

“So whatever sin that China had between 1971 and 1989 could be forgiven [by the US] because … the relationship was moving in the right direction,” he said.

“[But] the ghost of June 4 has never dissipated, as far as Americans are concerned … After 1989, any good would be minimised because it was in the wrong direction.

“That’s why I say everything before 1989, everything that’s bad was not that bad; but everything that’s after 1989, everything that’s good is not that good.”

Conditions between the two countries had deteriorated to “very poisonous”, a state due in no small part to Trump’s pronouncements on Twitter. In the process, Chan said, many of his “old friends” in US think tanks had changed from being friendly to China to hawkish.

“In the last two years, it [China-US relations] fell into an abyss. We know that, all these guys are friends of mine, these think tank people, the university people, Washington DC people – a lot of them are my friends. These guys are, as far as I am concerned, are – sorry to use the word – brain-dead,” he said.

“I asked [my friends], what did you find out today about China, that you didn’t know a year ago? What changed your mind? What did you find out? Anything more?

“Number two, did China become worse in the last year … What has changed? The only thing that has changed is Trump tweeting.

“The only thing that changed your mind is the tweets. So all the friends I talked to … whom I thought were thoughtful people, I realised they are not as thoughtful. They do not have independent thought. They were all influenced greatly by the tweets of Trump.”

He cited technology transfer as one issue on which opinions had changed dramatically.

“People said China has been stealing technology. Well first of all, everybody steals technology. And number two, three years ago, I had a discussion with [former CIA director] general David Petraeus and [former US secretary of state] Condoleezza Rice on this subject of stealing technology from one another. Is that something that happened in the last one year? Did it get worse? It didn’t get worse, so what changed your mind?”

One independent thinker Chan counts among his friends is Kissinger, the architect of China-US relations when Nixon visited Beijing in the 1970s.

Chan said he had met Kissinger four times in the last two months and they talked about China-US relations – though he declined to reveal the details of those conversations.

The 95-year-old former diplomat also met Chinese President Xi Jinping in Beijing in November.

“I am sure Henry is doing his best, but everyone has our own limitations. I don’t think Donald Trump listens to anybody. I think he only listens to people who agree with him … at least Henry gets to talk to him, but that in itself doesn’t mean Trump will listen.”

However Chan said Trump would need to reach a deal if he faced enough economic or political pressure at home.

“Maybe he makes a bad deal somewhere that puts him under pressure. He needs a deal. To make him look good, there will be a deal,” he said.

Chan said he also remained hopeful about the future of China-US relations.

“I am not negative about the US-China relationship. As long as China behaves rationally, and America does not behave further foolishly. I think we will be OK,” he said.

“I think the US-China relationship will not get out of hand. The only really serious stuff is if a war breaks out. But I don’t think anyone can afford a war today. Not even Trump would dare to start a war.”

He said he had long advocated for the US to choose to influence China as a friend rather than a foe.

“I believe it’s far better for America to work with the Chinese. You have far more influence as friends than as a foe. And the Chinese, they can withstand whatever you throw their way – anything short of an outright physical hard war, which nobody dares to start,” he said.

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U.S. President Barack Obama and Chinese President Xi Jinping walk the grounds at Sunnylands in Rancho Mirage, California, June 2013 Kevin Lamarque/Reuters
U.S. President Barack Obama and Chinese President Xi Jinping walk the grounds at Sunnylands in Rancho Mirage, California, June 2013 (Kevin Lamarque/Reuters)
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The two images were published side by side this week on the Twitter-like Chinese social media site Weibo.

The two images were published side by side this week on the Twitter-like Chinese social media site Weibo. Photo: REUTERS
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A Chinese coast guard vessel guards a China oil rig in the South China Sea near Vietnam in 2014. Reuters photo
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China’s economy grew at slowest pace in 28 years in 2018

January 21, 2019

China’s economy grew at its slowest pace in almost three decades in 2018, losing more steam in the last quarter as it battles to quell massive debt and a US trade war, official data showed Monday.

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The 6.6 percent growth comes in above the official target of around 6.5 percent and matches a forecast by analysts polled by AFP, but is down from the 6.8 percent chalked up in 2017, according to the National Bureau of Statistics (NBS).

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And in a sign of the struggle Beijing faces, growth in the last three months of the year clocked in at 6.4 percent, matching a low seen during the global financial crisis 10 years ago, with economists widely expecting the slowdown to deepen.

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“Everyone is widely concerned about the direction of the international situation where there are many variables and uncertain factors,” said NBS commissioner Ning Jizhe, noting trade protectionism was in vogue.

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“For the world’s second-largest economy, where trade accounts for one-third of GDP, this has an impact,” he said, adding “downward pressure” on the economy has increased.

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The slowing growth prompted Premier Li Keqiang last week to vow the government would not let the economy “fall off a cliff.”

The official China growth figures could be painting an overly rosy picture, analysts said. (AFP)

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Relations with top trading partner the US deteriorated sharply last year after President Donald Trump hit roughly half of Chinese imports with new tariffs in an attempt to force trade concessions.

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The trade war is on hold for now after President Xi Jinping and Trump agreed to a three-month cease-fire, with top negotiators set to meet in Washington at the end of this month as a March deadline for a deal looms large.

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“China-US economic and trade frictions do indeed affect the economy, but the impact is generally controllable,” said Ning.

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While analysts say the standoff has dented confidence — leaving the stock markets battered and the yuan weakened — they attribute most of the downturn to the government policies to tackle growing debt, financial risk and pollution.

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China hit the brakes on major projects such as subway lines and motorways and held off on mountain-moving endeavors to keep a lid on debt last year, with infrastructure investment rising by just 3.8 percent, down from 19 percent the year before.

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“Growth is falling at an accelerated pace,” Lu Ting, China economist at Nomura, said in a note.

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China’s exports to US and the world also fell in December, reinforcing the need for its legions of domestic consumers to fuel the economy.

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Li last week touted China’s “massive market” and vowed to spur on consumption, but the data shows difficulty ahead.

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Overall credit growth decelerated every month last year.

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“The slowdown in credit growth is causing economic momentum to falter,” said Mark Williams, chief Asia economist at Capital Economics, in a note last week.

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Slowing disposable income growth and tighter credit has hit consumer spending with car sales falling last year for the first time in more than 20 years.

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Retail sales growth slowed to 9.0 percent, down from a 10.2 percent increase the previous year. In December, sales grew 8.2 percent.

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Output at factories and workshops ticked up 6.2 percent for the year, down from 6.6 percent in 2017.

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The official figures could be painting an overly rosy picture, analysts say.

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Economists in China and abroad have long suspected data is massaged upward, often noting that full-year gross domestic product hits Beijing’s pre-set targets with suspicious regularity.

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“China’s GDP number is not an accurate gauge of economic growth,” said Raymond Yeung, economist at ANZ bank.

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The governor of northeastern Liaoning admitted in 2017 that the industrial province had falsified data for years.

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Even Li said in 2007, when he was Liaoning’s top political official, that results were often “man-made” and he used his own calculations to guide provincial policymaking, according to a confidential memo released by WikiLeaks.

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“The NBS is part of the government … that is why it is legitimate for the outside world to worry about potential adjustment of data on the economy,” said Louis Kuijs of Oxford Economics.

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The US-based Conference Board, a widely respected global business think tank, said its methodology indicates growth of 4.1 percent for 2018.

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On Friday, China revised its 2017 economic growth down to 6.8 percent from 6.9 percent — a move some analysts say may have been aimed at beefing up this year’s growth rate.

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“Skeptics will be forgiven for questioning whether NBS is trying to smooth GDP growth by shifting some of the recent weakness into the 2017 figures,” said Julian Evans-Pritchard of Capital Economics in a note.

AFP

Economic confidence nosedives in UK boardrooms

January 20, 2019

More than 70% of FTSE 350 company secretaries predict damage from Brexit

By Sarah Gordon, Business Editor

Economic confidence has nosedived and Brexit fears have escalated in the boardrooms of Britain’s largest listed companies, according to new research.

The most recent Boardroom Bellwether survey, conducted twice a year by ICSA, the governance body, in conjunction with the Financial Times, found that nearly three-quarters — 73 per cent — of FTSE 350 company secretaries predicted their company would be damaged as a result of Brexit, a sharp rise on the proportion last summer, when just 42 per cent thought this would be the case.

Meanwhile, sentiment around the prospects for the world economy have also deteriorated significantly, with just over one in 10 believing that global economic conditions are likely to improve over the next 12 months, down from a quarter in August. Half the company secretaries predicted a decline in economic conditions in their own sector, and only 2 per cent believed the UK economy would improve over the next year.

UK Prime Minister Theresa May (picture-alliance/dpa/House Of Commons)

The research, which was conducted at the end of 2018, before the prime minister lost the House of Commons vote on her Brexit deal last week, shows a marked worsening of the mood of UK plc. Continued uncertainty is making it extremely difficult for businesses to plan.

This is forcing many firms to prepare for a worst-case, no-deal scenario Matthew Fell, CBI Last summer a majority of company secretaries — 58 per cent — said the UK’s departure from the EU would have no affect on their business, and two-thirds said that Brexit was a risk but was not judged to be a “principal” one, in part because many FTSE 350 companies often have significant operations outside the UK.

Now the political chaos in Westminster, and with it, the heightened likelihood of a no-deal Brexit, has collided with growing worries about a trade war between the US and China.

“The reality of a trade war has started to sink in,” said Brian Hilliard, chief UK economist at Société Générale corporate and investment banking. “The business cycle still has legs, but the best is behind us.” Separately, 56 per cent of companies are now reporting Brexit as a principal risk.

British business continues to believe that the UK government is more business-friendly than the opposition Labour party under Jeremy Corbyn. However, only just over a third of company secretaries — 35 per cent — said they considered the May administration to be business-friendly.

Two years ago, in winter 2016, the proportion was more than half. Just 4 per cent of company secretaries — albeit double the proportion six months ago — believe the opposition to be friendly to business. Peter Swabey, ICSA policy and research director, said the public lack of trust in business had been reflected in political rhetoric in recent years.

“This seems to have produced an own goal for the main UK political parties, with neither side now seen as particularly business friendly,” he said. Recommended FT Collections Brexit: The Meaningful Vote ICSA described company secretaries’ predictions for the UK economy as having “dropped off the scale”. In 2015, before the EU referendum, only 11 per cent of company secretaries believed that economic conditions in the country would deteriorate over the following year. Matthew Fell, chief UK policy director at the CBI, said last week’s vote meant business felt no deal was “hurtling ever closer”.

“Continued uncertainty is making it extremely difficult for businesses to plan. This is forcing many firms to prepare for a worst-case, no-deal scenario,” he said.

In October, the CBI found that four-fifhs of the companies it surveyed said Brexit had a negative effect on their investment plans — double the proportion a year earlier. Fifty-four company secretaries took part in the research.

https://www.ft.com/content/518bbe58-198f-11e9-9e64-d150b3105d21

China set to post slowest growth in 28 years in 2018, more stimulus seen

January 20, 2019

China is expected to report on Monday that economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising US tariffs, adding pressure on Beijing to roll out more support measures to avert a sharper slowdown.

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Growing signs of weakness in China — which has generated nearly a third of global growth in the past decade — are stoking worries about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.

With stimulus measures expected to take some time to kick in, most analysts believe conditions in China are likely to get worse before they get better. (Reuters)

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Chinese policymakers have pledged more support for the economy this year to reduce the risk of massive job losses, but they have ruled out a “flood” of stimulus like that which Beijing has unleashed in the past, which quickly juiced growth rates but left a mountain of debt.

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Analysts polled by Reuters expect the world’s second-largest economy to have grown 6.4 percent in the October-December quarter from a year earlier, slowing from the previous quarter’s 6.5 percent pace and matching levels last seen in early 2009 during the global financial crisis.

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That could pull 2018 gross domestic product (GDP) growth to 6.6 percent, the lowest since 1990 and down from a revised 6.8 percent in 2017.

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With stimulus measures expected to take some time to kick in, most analysts believe conditions in China are likely to get worse before they get better, and see a further slowdown to 6.3 percent this year. Some analysts believe real growth levels are already much weaker than official data suggest.

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Even if China and the US agree on a trade deal in current talks, which is a tall order, analysts said it would be no panacea for the sputtering Chinese economy unless Beijing can galvanize weak investment and consumer demand.

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Chen Xingdong, chief China economist at BNP Paribas, said investors should not expect the latest round of stimulus to produce similar results as during the 2008-09 global crisis, when Beijing’s huge spending package quickly boosted growth.

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“What China can really do this year is to prevent deflation, prevent a recession and a hard landing in the economy,” Chen said.

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On a quarterly basis, growth likely eased to 1.5 percent in Oct-Dec from 1.6 percent in the preceding period.

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China will release its fourth-quarter and 2018 GDP data on Monday, along with December factory output, retail sales and fixed-asset investment.

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Since China’s quarterly GDP readings tend to be unusually steady, most investors prefer to focus on recent trends.

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Surprising contractions in December trade data and factory activity gauges in recent weeks have suggested the economy cooled more quickly than expected at the end of 2018, leaving it on shakier footing at the start of the new year.

Reuters

CEOs Say Recession Is Top Worry for 2019

January 17, 2019

A year ago, recession ranked low on list of executive worries

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Image result for container ship at a port in Qingdao, China, photos

Workers moor a container ship at a port in Qingdao, China. China’s trade growth slowed in 2018 as a tariff battle with the U.S. heated up and global consumer demand weakened. Global trade ranked high as a top 2019 concern for chief executives from both the U.S. and China. PHOTO:ASSOCIATED PRESS
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The possibility of a global recession ranks as the top concern on the minds of corporate leaders as they head into 2019, according to a new survey of chief executives from the Conference Board, a business research group.

That is a dramatic reversal from a year ago, when executives were sanguine about the risk of recession, ranking it their 19th concern overall out of 28 issues, below issues like outdated infrastructure, workforce diversity and income inequality.

The survey of more than 800 CEOs from around the world was conducted in the fall, before a sharp decline in stock prices amplified worries that economic growth is stalling.

Given that CEOs sensed the possibility of recession before the markets’ recent decline, much of their sentiment stems from other challenges that ranked high on their list of external concerns, said Bart van Ark, the Conference Board’s chief economist. After recession, the top four risks were threats to global trade systems, global political instability, new competitors and declining trust in political and policy institutions.

“There are worries that the policy environment is just not ready to deal with the economic challenges we’re facing,” Mr. van Ark said.

In a separate report on global risks, the World Economic Forum, which produces the annual Davos confab of politicians, business leaders and academics, on Wednesday identified trade wars and rising political tensions as the biggest global threats. Cyberattacks and climate change were also high on that list.

The Conference Board ranked concerns by region. In Japan, China and Latin America, recession was the top external risk. In the U.S., where hackers have breached the computer systems of Facebook Inc., Marriott International Inc. and the country’s electric grid, it was cybersecurity, which Chinese CEOs ranked 10th.

European CEOs named global political instability as their dominant worry.

If the Conference Board had surveyed CEOs in December, after the Dow Jones Industrial Average fell more than 10% from its October level, recession “would probably have been first in the U.S. and Europe too,” Mr. van Ark said.

Global trade ranked especially high for executives from the two countries at the center of the most contentious trade dispute, the U.S. and China. In China, CEOs ranked it their second-biggest external concern. In the U.S., it was fourth.

Those worries are starting to show up in corporate earnings and statements from chief executives. Earlier this month, Apple Inc. cut its quarterly revenue forecast for the first time in more than 15 years because of slowing sales in China, where growth is under pressure in part because of trade tensions with the U.S.

Internally, executives in every region identified their ability to attract and retain top employees as their primary challenge. Other top concerns are creating new business models to adapt to disruptive technologies, developing the next generation of leaders, aligning compensation and incentives with business performance and reducing costs.

CEO FEAR FACTORS

Top executives cited worries about a global recession and the war for talent as their top concerns in 2019.

EXTERNAL HOT-BUTTON ISSUES:

• 1. Recession risk

• 2. Threats to global trade

• 3. Global political instability

• 4. New competition

• 5. Declining trust in political institutions

INTERNAL HOT-BUTTON ISSUES:

• 1. Attracting and retaining top talent

• 2. Creating new business models to adapt to disruptive technologies

• 3. Developing the next generation of leaders

• 4. Better alignment of compensation with business performance

• 5. Reducing baseline costs

Source: The Conference Board

Write to Lauren Weber at lauren.weber@wsj.com

https://www.wsj.com/articles/ceos-say-recession-is-top-worry-for-2019-11547672460

China’s Economy Struggles — GDP Actually Worse Than Reported, Experts Suspect

January 16, 2019

China’s GDP growth may be significantly slower than official estimates suggest and its economy more vulnerable to external shocks than widely believed, a global business think tank has warned.

Data due next week is expected to show the world’s number-two economy expanded around 6.5 percent last year, its slowest rate in almost three decades as a global slowdown and the US trade war bite.

But even that is well above the 4.1 percent the US-based Conference Board, which provides research to member-businesses and organisations worldwide, says its methodology indicates.

Economists in China and abroad have long suspected data is massaged upward, often noting that full-year gross domestic product hits Beijing’s pre-set targets with suspicious regularity.

The governor of northeastern Liaoning admitted in 2017 that the industrial province had falsified data for years.

Even current Premier Li Keqiang said in 2007, when he was Liaoning’s top political official, that results were often “man-made” and he used his own calculations to guide provincial policymaking, according to a confidential memo released by WikiLeaks.

The Conference Board, whose research is widely tracked by investors and policymakers, began making its alternative China figures public in 2014.

David Hoffman, its senior vice president for the Asia-Pacific, said Chinese data reporting problems do not factor into the Board’s calculations.

– Heightened vulnerability –

Its numbers differ mainly because it looks at industrial output and service-sector growth using different methodologies intended to reduce distortions in official pricing mechanisms.

Its data indicates growth in China, now a vital component of the world economy, may have been more volatile and vulnerable to outside factors than official readings let on.

For example, the National Bureau of Statistics (NBS) says growth dipped to 7.8 percent in 1998 during the Asian financial crisis, from 9.2 percent in 1997.

But The Conference Board’s calculations show 1998 growth may actually have been 2.3 percent, half that of the previous year.

AFP / STR   China’s leaders are attempting to transform the country’s economy away from a reliance on manufacturing, exports and government investment to one driven by domestic consumption

Subsequent shocks may also have been smoothed over, most recently the 2014-2015 oil and commodity price deflation cycle.

The Conference Board estimates 2015 growth fell to 3.8 percent, from 6.3 percent the previous year. Official numbers, however, show a relatively small dip to 6.9 percent, from 7.3 percent.

Economic growth is a sensitive topic for the Communist Party, which has based its ruling legitimacy largely on delivering constant expansion and rising living standards.

Hoffman said if the Board’s numbers are correct, “it makes the case for substantive economic reforms (by China) all the more urgent, especially in the face of intensifying external factors such as trade conflict and slowing global demand”.

Some believe China’s growth may be even lower.

Xiang Songzuo, a finance professor at Beijing’s Renmin University and former chief economist of domestic consumption, said in a lecture last month that 2018 growth may have been as low as 1.67 percent, or even contracted.

Video of Xiang’s lecture was widely circulated online until government censors moved to block it.

– Data crackdown –

The NBS did not respond to a request for comment but acknowledges the data problem.

Last week it said it would launch a “first-ever” crackdown on falsification this year and implement a “unified” nationwide system of calculating growth.

It may not like what it finds in 2019.

AFP / Lillian SUWANRUMPHA  A confidential memo released by WikiLeaks shows Premier Li Keqiang said in 2007 — when Liaoning’s top political official — that results were often ‘man-made’

Last year, the China-US trade battle may actually have boosted Chinese exports temporarily as manufacturers rushed out shipments ahead of the onset of US tariffs.

But that has ended — December exports fell 4.4 percent year-on-year — and The Conference Board’s senior economist Gao Yuan said external pressures on China’s economy “are likely to show up more significantly” over the next 12 months.

That further complicates Beijing’s efforts to address its economic slowdown, clean up worrying debt levels, and the larger goal of transitioning away from an economic model based on exports, manufacturing and investment to one more reliant on domestic consumption.

Such priorities require a cushion of solid growth to execute, economists say, but The Conference Board sees China’s growth slowing further to an average 3.8 percent for 2019-2023, and 3.4 percent in 2024-2028.

China’s economy is “slowly decelerating, similar to the official data, but at a lower level of growth”, Gao said.

AFP