Chinese advisers expect limited economic hit from trade rift

Chinese advisers expect limited economic hit from trade rift

Mon, 09/04/2018 - 15:50
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Beijing has blamed the United States for the trade war escalation, saying negotiation is impossible under current conditions. Photo: Reuters

Chinese state researchers and media have talked down the likely impact of U.S. trade measures on the world's second largest economy and described the Trump administration's posturing on trade as the product of an "anxiety disorder".

The comments from various government advisers came as U.S. President Donald Trump predicted on Sunday that China would make concessions in the face of rising trade tensions, though China has vowed to not back down in any trade war.

Following the comments from advisers, China's Foreign Ministry laid the blame for the trade war squarely at the feet of the U.S., saying it was impossible for negotiations to take place under current conditions.

"Under the current circumstances, both sides even more cannot have talks on these issues," Chinese Foreign Ministry spokesman Geng Shuang told reporters at a regular news briefing.

"The United States with one hand wields the threat of sanctions, and at the same time says they are willing to talk. I'm not sure who the United States is putting on this act for," Mr Geng said.

The trade frictions were "entirely at the provocation of the United States", he added.

Chinese Vice Commerce Minister Qian Keming said at the Boao Forum for Asia in the southern province of Hainan, that Beijing did not want to fight a trade war, but was not afraid of one.

Focus this week will be on the forum, with President Xi Jinping and International Monetary Fund Managing Director Christine Lagarde delivering speeches on Tuesday.

The various statements referred to the trade spat between the world's two largest economies as Washington's reaction to China's fast economic growth.

On Monday, a researcher with China's state planning agency said China's economy will see little impact from the trade dispute, as the country's vast domestic market can compensate for any external impact.

"As China's economy is stable and improving...the China-U.S. trade friction will impact our economy, but the impact will be limited," Wang Changlin, a researcher at the National Development and Reform Commission, wrote in a post on the commission's official microblog account.

Even with the U.S. tariffs, China can still reach its 2018 GDP growth target of around 6.5 percent and the impact on employment will be limited, Wang wrote.

Fan Gang, an influential economist and adviser to China's central bank, on Sunday flagged the possibility of a U.S. trade war as the U.S. economy faces pressure from China's rapid development.

The Chinese Communist Party's official newspaper on Monday described U.S. trade policies as a populist tilt by Trump ahead of the U.S. mid-term elections but that the steps would ultimately end up hurting U.S. households through higher consumer prices.

"In the world's perception, the U.S. is overshadowed by an anxiety disorder and is very keen to show its anxiety," the People's Daily said in a commentary Monday.

Focus this week will be on high level comments at the Boao Forum for Asia, an economic conference in Hainan province, with President Xi Jinping and International Monetary Fund Managing Director Christine Lagarde delivering speeches on Tuesday.

Discussion of the trade dispute also touched on the possibility of China leveraging its massive holdings of U.S. government debt, which has been dubbed the "nuclear option".

Zhang Yuyan, a researcher at the Chinese Academy of Social Sciences, a government think-tank, said China was unlikely to sell off its holdings of U.S. Treasury bonds as a tactic in its trade dispute with the United States.

"On whether China will reduce its foreign exchange reserves, how policymakers think, I don't know. I personally believe this possibility is very small," Mr Zhang said on Sunday in Boao.

However, in separate comments, central bank adviser Mr Fan on Monday said China should make better use of its capital reserves by investing in real assets, rather than U.S. debt, reiterating a long-standing call from economists for China to diversify its holdings.

"We are a low income country, but we are a high wealth country...we should make better use of the capital. Rather than investing in U.S. government debt, it's better to invest in some real assets," Mr Fan said in Boao.

China held around $1.17 trillion of Treasuries as of the end of January, making it the largest of America's foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve.

A Chinese vice finance minister said last week that China is a responsible investor of its foreign exchange reserves and that it follows market rules in investing its reserves.