China needs to stimulate economy amid US pressure

By Li Hong Source:Global Times Published: 2018/7/29 22:03:40

Illustration: Xia Qing/GT



 

Facing a relentless trade assault from the US, China's policymakers must keep cool and be ready to replenish their toolbox so they can inject sufficient stimulus to bolster the economy, if it displays any sign of faltering.

Only when Beijing is prepared for the worst and has ample ammunition in store will the odds of weathering the ugly trade dispute increase, with the hoped-for minimum impact on the economy.

Expanding at a healthy 6.8 percent rate in the first six months of this year, the world's second-largest economy is due for a bumpy ride in the second half, as US President Donald Trump's administration has increased the pressure by threatening to impose 10 percent tariffs on $200 billion worth of Chinese imports at the end of August.

Partially affected by the trade tension, business activity in China has eased since April, and second-quarter growth was at a slightly slower pace of 6.7 percent. Under constant pressure from the Trump administration's escalating tariffs and coercion, Chinese stocks have tumbled, shedding some 20 percent from their highs last year.

Beijing needs to reconsider its ongoing financial sector deleveraging and be ready to inject more liquidity to maintain adequate capital in the market. Some leeway should be given to the People's Bank of China, the central bank, being ready to cut benchmark interest rates to stave off any shocks that a trade war might cause to the economy.

It is important for the government to shore up investors' confidence in the resilience of the Chinese economy. Beijing needs to have a plan for fiscal stimulus to expand effective investment, in particular to finance new infrastructure projects and boost the high-technology industry's growth. Such an approach would give a major lift to the weak capital market.

At the same time, the central government needs to take resolute measures to boost domestic consumption, and to reassure investors and the public of its determination to further reduce the proportion of exports in the nation's GDP. In 2017, exports of goods and services contributed about 9 percent of GDP growth.

Tax breaks - specifically, a plan to raise the personal income taxation threshold from 3,500 yuan per month to 5,000 yuan - should be approved and put into effect quickly. Only when the huge number of middle-class households have more money in their pockets will they feel secure in spending.

Retail sales in June provided a bright spot, growing 9 percent, faster than in May. Experts suggest the government shall trim taxes further for both households and companies to expand consumption.

China has weathered previous economic tests very well. The rich experience the nation built up during the Asian financial crisis in 1997, the global financial crisis in 2008, and the economic blockade by Western countries in the early 1990s, will help the country resist and counter the punishing trade tariffs doled out by the US.

The most powerful weapons to simultaneously fight the unprecedented trade war and ensure rapid economic growth will be China's ability to continuously reform and open up, to drive both investment and domestic demand, and to align more closely with the numerous economies scattered in Asia, Africa, Europe and Latin America through solidifying the massive Belt and Road initiative. Many less-developed markets are waiting to be unearthed as their economies evolve and boom.

The global trade wars initiated by the Trump administration will prove to be very damaging to the world economy as well as the US itself. By all accounts, the US cannot come out of it unscathed.

Public unease in the US increases with every tit-for-tat exchange from China, Canada, Mexico and the EU, with many in the American hinterland complaining of diminished export markets, lower investment, lost jobs, rising prices and probably higher inflation around the corner.

It is ostensibly true that US trade partners may have more to lose than the US, because their economies - like China's - are far more export-oriented at the current stage, but losing less is not the same as winning more for the US.

It is not impervious to the man-made interventions or disruptions that the Trump administration is pursuing. The trade wars will boomerang back to hurt the US.

The author is an editor with the Global Times. bizopinion@globaltimes.com.cn



Posted in: EXPERT ASSESSMENT

blog comments powered by Disqus