Daily Times

Chinese growth slowed only slightly in the second quarter as the impact of the deepening trade conflict with the United States was yet to kick in, according to analysts surveyed by AFP.

China is expected to announce that the world’s second-largest economy expanded 6.7 percent in April-June when it releases gross domestic product figures on Monday, a survey of 13 economists found.

That would be down 0.1 percentage point from the previous three quarters.

Economists said the months-long threat of tit-for-tat tariffs on tens of billions of dollars of trade goods between the world’s two biggest economies — which officially came into force last week — would not have a significant impact until next year, if the row continues.

The Trump administration implemented duties on $34 billion in goods on July 6, with China immediately taking dollar-for-dollar counter-measures.

Washington raised the stakes this week by threatening to impose fresh tariffs on another $200 billion in Chinese goods, with Beijing vowing it would retaliate once again.

Exports are still a significant chunk of China’s economy and the total tariffs implemented or announced by Washington target a vast range of goods, including cars, machinery, electronics and consumer appliances.

If Trump follows through with his latest threats, the US would have imposed tariffs on around half of China’s total exports to the country.

Capital Economics said the cumulative impact of the measures now on the table could potentially reduce China’s overall economy by 0.5 percentage points, but that the impact could deepen if the battle escalates.

With a smaller share of US imports to retaliate against, Beijing is seen ultimately as having a weaker hand.

Brace for impact

If a full-blown trade war develops, China may have to retaliate in services, investment, and by potentially erecting new hurdles for US corporations operating in China, said Liao Qun, chief economist with Citic Bank International.

“The real impact will start to show next year. And if it is a full-blown trade war, in the worst case scenario, China’s GDP growth could fall below five percent,” Liao said.

Tianjie He of Oxford Economics said the economic growth rate could shrink by 0.2 percentage points if the US were to go ahead with the additional $200 billion in tariffs and China retaliates.

“In addition to the impact on GDP growth, the added uncertainty is already dampening business confidence and delaying investment globally. Overall, the trade war will weigh on growth, confidence, financial markets and supply chains,” He said.

The key Shanghai Composite Index has already fallen 14 percent this year amid the turbulence.

Liao added that over the short term China — which has waged a campaign to discourage excessive credit amid fears of ballooning debt — is likely to shift gears slightly and loosen monetary policy to keep the economic growth rate up and may offer subsidise to exporters.

Over the longer-term, the China-US trade war could spur Beijing to super-charge its current push to encourage domestic demand as a proportion of the economy, a strategy taken in part to lessen exposure to the rise and fall of global export demand.

“The best case is that the US backs off. If the US shows an intention to back off, China would definitely compromise,” Liao said.

“But it is really hard for people to predict what the US will do.”

BRICS cooperation

China pledged Friday to boost cooperation with fellow BRICS countries in response to soaring frictions with the US, as it seeks to cultivate alliances to help it weather a bruising trade war.

China will enhance coordination on macroeconomic policies with fellow BRICS members Brazil, Russia, India and South Africa in response to the “challenges posed by the changing policies of certain developed countries,” said assistant foreign minister Zhang Jun.

The comment was an oblique reference to US President Donald Trump’s decision to plunge the US and China into a tit-for-tat trade war by imposing tariffs on billions of dollars worth of goods — and threatening to up the ante with $200 billion more. While the US has “no respect for rules of international law,” the BRICS countries all shared a clear stance towards global markets, Zhang said, echoing Beijing’s oft-stated position that China — which the US and others have accused of having a mercantile, protectionist trade policy — is a guardian of free trade.

“We all firmly support multilateralism and the multilateral trade regime,” he said. “We all oppose unilateralism and trade protectionism.”

The comments come as Beijing has instructed companies to look for imports beyond the US, seeking closer trade ties in Europe and elsewhere to offset potential losses from American tariffs.

President Xi Jinping will attend the 10th BRICS Summit in Johannesburg, South Africa from July 25 to 27.

Meanwhile, Trump has picked fights with key US allies such as Canada, sparking fears of an all-out global trade war.

Cash payments

Companies or individuals cannot refuse or discriminate against cash payments, China’s central bank said on Friday, but stressed the rules won’t apply to online payments and unmanned stores.

“Some shops in tourist spots, restaurants and retailers were found rejecting cash payments and this has damaged the legal status of the renminbi and hurt consumers’ rights,” the People’s Bank of China said in a statement on its website.

However, online payment or unmanned stores that are not in a position to accept cash will be exempted from the rules, the PBOC said.

In recent years, mobile payment firms such as Ant Financial’s Alipay, Tencent’s Wechat Pay have gained popularity, with some analysts speculating cash could soon become obsolete in China.

From unmanned grocery stores where customers can enter and purchase goods with their phones using QR codes to transportation and dining out, mobile payments are ubiquitous in China.

Published in Daily Times, July 14^th 2018.