China will continue on reform path despite trade woes

Source:Global Times Published: 2018/4/10 20:43:39

Editor's Note:

Amid concerns over a damaging trade war between the world's two largest economies, the annual Boao Forum for Asia (BFA) opened Sunday in Boao, a town in the island province of Hainan. The event, an occasion for China to outline even wider opening up of its market, provides much-needed hope for world trade. In a keynote speech at the forum on Tuesday, Chinese President Xi Jinping unveiled new measures for expanding reform and opening-up, according to the Xinhua News Agency. Insights from BFA speakers have restored faith in globalization. The Global Times selected some of them with a special interest in China-US trade relations and China's commitment to market reform.

Zhang Yuyan Photo: IC

Zhang Yuyan, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences

It has often been said that there would be no winner in a trade war between China and the US. Despite fears of escalated trade frictions, China is unlikely to resort to extreme measures such as selling off US bonds.

Offloading US bond holdings is a financial issue in terms of a reduction in foreign exchange reserves. If China dumped US assets, there could be a rise in dollar interest rates and the whole world would be affected, but I think this is unlikely to occur.

As for fluctuations in the yuan exchange rate, they are linked to trade. For instance, the yuan's recent appreciation against the dollar is related to the fact that China's trade surplus stayed comparatively high as the overall trade surplus declined.

Whether this will change depends in part on market expectations. China-US trade relationship and both countries' trade rhetoric would certainly give rise to speculation with regard to the yuan.

The two sides have put their measures on the table, but there are still two months before they come into force. A lot can happen in two months and the two sides can still talk.

Li Yang Photo: IC

Li Yang, chairman of the National Institution for Finance and Development

A trade war between two major powers benefits nobody and it's inevitable that trade frictions will have an impact on China's capital outflows, foreign exchange rate and the yuan's internationalization. But, the dependence of China's economy on overseas markets has fallen substantially. By the end of last year, China's current account surplus as a percentage of GDP stood at roughly 2.6 percent, so there won't be any huge impact on the economy.

In capital and financial account terms, capital flows into the country have mostly been accumulated through trade over a long period of time rather than debt, thus having little negative effect. Also, exchange rates won't be affected  too much. I believe there won't be a progression from a trade war into a currency war as world statesmen are supposed to keep cool heads.

Fan Gang Photo: IC

Fan Gang, director of the National Economic Research Institute

China will continue with reform and opening-up, no matter what. The country has benefited from it in the past and will continue to benefit in the future. Continued development calls for further opening-up.

The China-proposed Belt and Road (B&R) initiative also needs to proceed, with other countries keeping their doors open too. Likewise, China can open its door wider as institutional reform on all fronts has improved its capacity to withstand risks.

We used to be concerned by deregulation in some areas, such as the capital account, because we were weak in handling crises and withstanding risks. With reform continuing, domestic debt risks are being addressed and we have become capable of allowing more opening-up. The country will continue on the path of reform, regardless of trade wars or disputes. What matters is not how to cope with disputes in the short term, but how to continue development.

It needs to be pointed out that China's savings rate has remained at about 10 percent for around 15 years. The country has accumulated massive fortunes and capital, which needs to be utilized well.

Instead of investing in US Treasury bonds, the country should consider investing in tangible assets such as infrastructure projects in neighboring countries. If doing so can foster economic development in its neighbors, China will benefit from the bigger market.

Dai Xianglong Photo: IC

Dai Xianglong, former governor of the People's Bank of China, the country's central bank

China's development is globalized. Trade is multifaceted, involves a shared community, and should be beneficial for both China and the US.

Thinking about it in a frank and reasonable manner, I would argue China doesn't need such a big trade surplus.

Net exports currently contribute only 9 percent of economic growth. A decline in the surplus wouldn't necessarily have a big impact on the economy.

Besides, even if China stops imports from the US, it can still import from other countries.

So I think a lot of hype about trade friction is a reflection that there is insufficient understanding of mutual connectedness and complementarity in trade. It is regarded as a political issue.

I reckon there is good chance that the situation can be moved forward through negotiation.

Posted in: INSIDER'S EYE

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