Ceasefire in US-China trade war but victory far

Posted In: News Date:Oct 21st, 2019

ISLAMABAD: With GDP growth numbers slumping to a three-decade low, it is apparent that the US-China trade conflict has slammed brakes on Chinese economic growth.

Its infrastructure-led growth model is no longer pragmatic as Chinese banks are not eager to finance unprofitable projects and economically viable ones are hard to find.

Last week, China’s central bank had to inject around $30 billion into its banking system in a bid to boost domestic demand. Historically, state banks would fund any number of non-productive mega projects in order to post high GDP growth but China’s domestic debt problem (300% of GDP) has led banks to tighten their lending standards since 2018.
This obviously has not worked well for China which needs strong growth to show that the trade war with the US has not affected its economy. The problem is that the loss of momentum in China’s export sector due to US tariffs is putting more pressure on its domestic sector to keep the GDP growth ticking up. There is little room to invest further in its manufacturing base as China already has excess capacity and rising labour wages mean it is losing competitive advantage to countries such as Vietnam and India.

In fact, Samsung’s recent announcement to pull its manufacturing plant out of China speaks volumes about the current state of affairs in China. This trend may accelerate if the US decides to impose more tariffs in December this year.

Phase-I of US-China trade negotiations, sealed with a handshake, ended with promise of an agreement that China would import $40 billion worth of meat and soybean products from the US.

Earlier, Beijing imposed 60% tariff on US meat products last year but data shows that despite that meat imports by China increased manifold in the past few months. This was mainly due to the spread of African Swine Fever (ASF) in China that wiped off more than 200 million livestock population.