President Xi pledges lower tariffs, eases trade tension

President Xi pledges lower tariffs, eases trade tension

Tue, 10/04/2018 - 11:43
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President Xi speaks at the Boao Forum in Hainan Province. Photo: Reuters/Damir Sagol

Chinese President Xi Jinping promised to open the country's economy further and lower import tariffs on products including cars, in a speech that struck a conciliatory tone amid rising trade tensions between China and the United States.

Mr Xi also said China would raise the foreign ownership limit in the automobile sector as soon as possible and push previously announced measures to open the financial sector.

"This year, we will considerably reduce auto import tariffs, and at the same time reduce import tariffs on some other products," Xi said at the Chinese Boao Forum for Asia in Hainan province.

Mr Xis' speech comes amid rising trade tensions between China and the United States following a week of escalating tariff threats sparked by U.S. frustration with China's trade and intellectual property policies.

The comments prompted a rapid and largely positive reaction in financial markets, which have been rattled over the past week on fears the tit-for-tat U.S.-China tariffs will explode into a full-scale trade war in a blow to global growth.

"His comments seem to have covered all the major issues U.S. have raised, including intellectual properties and liberalisation of domestic markets," said Yoshinori Shigemi, global market strategist for JPMorgan Asset Management in Tokyo.

"Mr Xi threw the ball into the U.S. court but it appears China is laying the groundwork to achieve an agreement with the U.S."

In stock markets, U.S. S&P 500 E-mini futures rose by as much as 1.5 percent and were last up 1 percent.

The MSCI's broadest index of Asia-Pacific shares outside Japan recovered from early losses and advanced 0.7 percent.

Japan's Nikkei share average climbed 1.1 percent, led by sharp jump in the transportation sector. Toyota Motor Corp and Honda Motor Co, which have operations in China, rallied 1.9 percent and 2.1 percent, respectively.

National Australian Bank senior forex strategist Rodrigo Catril said the speech had done a good job of soothing market concerns over trade.

“Mr Xi did all that without even mentioning Trump,” Mr Cartil said.

“He said it was in China's own interest to have an open economy, and that trade is good for everyone, he significantly acknowledged the intention to lower tariffs for some industries.

“So he's essentially touched on all the major concerns from President Trump.

"If you want to be critical, Mr Xi did not mention the timeframe for any of this.

“That could be a source of unresolved tension in coming days. But overall it was good news. The Aussie (dollar) in particular is benefiting from it.”

Mizuho Bank senior Asian forex strategist Ken Cheung said Mr Xi mainly wanted to express that China would continue to open its economy

“All the measures he mentioned in the speech were to shrink down other countries' trade deficit with China, including opening up markets, lower import tariffs, and the IP protection,” Mr Cheung said,

“Mr Xi was responding to the Trump administration's accusation against China.

“Mr Xi expressed his position today - he does not want a large-scale trade war with the United States.

“Indications for the financial markets are that chances for a full-blown trade war are not high. I think he eased market tension.

“Major currencies like yen and euro have reacted to his speech, the market is back to a risk-on tone.

"For the Chinese yuan, it is likely to stay stable."

Daiwa securities senior strategist Yukino Yamada said the speech was quite a surprise, particularly because of rising concerns that the US-China trade friction was unsolveable.

“Lowering tariffs on autos is significant, given it is one very big industry and given difficult issues surrounding EVs,” he said.

“We now have to see how Mr Trump will react, but markets will surely react positively on rising hopes that a trade war will be averted."

 

(Additional reporting by Hideyuki Sano and Ayai Tomisawa in TOKYO, Christina Martin in BENGALURU, Swati Pandey in SYDNEY and WINNI ZHOU in SHANGHAI Compiled by Vidya Ranganathan in SINGAPORE Editing by Shri Navaratnam)