With the escalation and continuation of U.S.-China economic and trade frictions, the impact of trade friction is also gradually affecting the Chinese economy. In the market, many "bad things" are happening, for instance, the tariff barriers have disrupted some of China's foreign trade system. China's stock market has continued to fall, and the renminbi has continued to depreciate. Many foreign companies have retrenched their employees or relocated abroad. Confidence seems to be pessimistic as well. So, how much influence do U.S.-China trade frictions have on the Chinese economy? How long will this impact last? These are all issues that worry the market.
Anbound's chief researcher Mr. Chan Kung has analyzed the relevant issues in an interview with a major European newspaper. Some basic points of view of Mr. Chan Kung are as follows:
First, the trade war certainly has an impact on the Chinese economy, but there is now cacophonic news about this, making it hard to distinguish which factors are the trade wars and which are the problems of China's economic growth itself. Specifically, (1) the trade war has an impact on the Chinese stock market. It is logically clear that the U.S.-China trade war will affect the size of China's market and therefore naturally affect the company's profits and stock prices. (2) China's investment will be affected, but not in a prominent way; this is because manufacturing investment is only a part of the total size of Chinese investment, and infrastructure is a major investment area in China. China can transfer its investment to areas such as rural revitalization and urban streets, as well as public welfare and people's livelihood; because of this the investment will feel the impact but it will not be a large one. (3) The impact on the depreciation of the renminbi is relatively large. The value of the renminbi depends in part on the international balance of payments, which is affected by the trade war; this can be seen by the continued depreciation of the renminbi since April this year. (4) Some of the impacts of relevance, especially the depreciation of the renminbi, will be relatively large and will affect the price of RMB-denominated assets.
Second, concerning retrenchment in China, this is less affected by the trade war than by the Chinese economic environment. China's economic environment itself is shrinking, and this is popularly known as the "new economic normal". The economic growth rate has dropped from the 13% in the previous years to about 6.5% in recent years; such a situation is unlikely to lead to retrenchment. In addition, the cost in China's economic environment has risen too fast, and it seems that this cannot be effectively curbed; therefore retrenchment is almost inevitable, especially in the manufacturing industry which is already facing difficulty, and layoffs would certainly happen. However, the relationship between the increase in layoffs and the trade war is really small.
Third, the problem of China's financial industry is not caused by the trade war. The Chinese domestic financial industry has recently had some problems, mainly because the Chinese government has finally realized that the domestic financial system is not ready for mixed operations, this is particularly true for banking system where it is not yet adequately prepared. The Chinese government is also aware of the seriousness of the problem, so it has begun the cleaning up. Under the financial consolidation policy, some financial products are forbidden to be issued and traded, such as P2P and some adjustments of wealth management products, which led to the reduction of financial institutions' business and the adjustment under the contraction of business. Therefore, the financial industry is also experiencing layoffs.
Fourth, there are various quantitative estimations for the U.S.-China trade war, but the credibility is not high. The reason is that it is difficult to distinguish between China's economic environment and the impact of trade wars. If it is purely from the trade war, the impact on the Chinese economy is roughly estimated to be around 0.5%; this result is likely to disappoint President Donald Trump. The most important thing is that the real problem of the Chinese economy is not at all in the trade war, but in the Chinese economy itself. Whether or not there is a trade war, these problems will occur and have a big impact.
Fifth, there is the problem in the Chinese economy. Frankly speaking, China faces two major challenges. One is the high cost caused by development strategy mistakes. The excessive development of real estate has pushed up the total cost of the whole society. This cost increase is almost unstoppable and has a huge impact. This impact affects all walks of life and now close to reached the peak of the problem. There are two outcomes of this; either there will be a financial crisis or a decline in economic growth unless China undergoes major structural reforms. The other is the problem of the market economy. China's current economic resources are mainly concentrated in state-owned enterprises, which tend to be government investment entities, and the status of private enterprises has regressed significantly since 2008, which usually means a shrinking market size. Currently, private enterprises are generally pessimistic about the future, and there are no signs of improvement. Other issues such as debt seem to be very serious, but they are actually related to the first two issues, and themselves are not the main issues. China is not a structurally stable economy like developed countries. China is a transitional economy; this means that there are many uncertainties. For this reason, we cannot use the usual research scale to see China's economic problems.
Final Analysis Conclusion:
The U.S.-China trade war does indeed have an impact on the Chinese economy, but the impact purely caused by the trade war is limited, and its influence on the financial sector exceeds that of the trade sector. The bigger problem of the Chinese economy stems from its own, not the trade war. The high cost caused by the mistakes in development strategies and the backwardness of China in the direction of developing the market economy are the two major challenges faced by the Chinese economy.
