IMF predicts robust growth for China despite trade fight with US
But the report warns of ‘vulnerabilities’ after mixed signals emerge from Beijing over the impact of the dispute with Washington
For a “middleweight” battling a “heavyweight,” China appears to be holding its own in the trade fight with the United States. In a report from the IMF, the world’s second-largest economy is predicted to post “robust” growth with a crucial caveat.
The International Monetary Fund review was rolled out on Friday just hours after mixed signals started to emerge from Beijing about the impact of the Washington dispute, with the state-owned media calling it a ‘David versus Goliath’ struggle.
Huang Libin, a spokesman for the Ministry of Industry and Information Technology, played down the effects of a conflict which has dragged on since the beginning of the year.
“Though some companies did report that their US clients have requested to suspend orders and shipments, such cases are not common,” Huang said. “The trade friction has had only a limited impact on the industrial sector in the first half.”
At China’s Ministry of Commerce, the tone was slightly less bullish after President Donald Trump thawed out relations between the US and the European Union following crucial White House talks earlier this week with EU Commission President Jean-Claude Juncker.
Trump confirmed that a proposed plan had been agreed for the EU to increase American imports worth billions of dollars alongside a pledge to work with the bloc to reform international trade rules.
“So, we had a big day, very big,” he told the media. “We agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods.”
If, and it is a big ‘if,’ the deal goes through, this will isolate China as both the US and EU have constantly complained about the speed of opening up the economy and the practice of “forced technology transfer” when doing business inside the country.
Ministry of Commerce spokesperson Gao Feng simply focused on the agreement to push ahead with World Trade Organization reforms.
“China is supportive of WTO reform, and hopes [it] will address the concerns of most members and reflect their needs,” Gao said at a press conference. “It is, of course, a good thing to avoid a trade war.
“It’s not only good for the EU and the United States but good for the whole world. China will pay close attention to [see] whether the deal will materialize,” Gao added, casting doubt on whether it will happen. “China has always been an advocate for the construction of open, transparent and mutually beneficial regional free trade arrangements.”
The last statement appeared to stretch the boundaries of credibility when you consider that key areas of the Chinese economy are still closed to foreign companies, while state subsidies are used to undercut overseas rivals.
Still, it appears Beijing is starting to feel cornered by the US and, in boxing parlance, is determined to come out ‘swinging.’ The Global Times, which is run by the Communist Party’s official newspaper, the People’s Daily, summed up the mood in an editorial:
“Both the US and Europe are developed societies, with a similar level of industrial and technological capabilities. They are also more or less of equal strength. China is a developing country … and it is unfair to ask China to assume the full responsibilities of a developed country.
“Trump’s core requirement is that Beijing and Washington must trade with each other under the exact same conditions. This is like making a middleweight boxer fight a heavyweight: China will be at a disadvantage.
“China is moving forward. But there are, indeed, certain areas that China cannot realize for now [sic]. No matter how much pressure Washington puts on Beijing, it will not give in.”
Despite its “middleweight” status, the economy is expected to grow this year by 6.6%, the IMF reported, down from the 6.9% in 2017. “China’s near-term outlook remains robust due to strong domestic momentum, recovering global trade and significant reform progress.”
But there are still enormous challenges ahead as the country switches from “high-speed growth” to “high-quality growth.”
With the economy slowing in the past two months, there have been calls to loosen monetary policy, a byproduct of President Xi Jinping’s three-year battle against rising debt in the corporate and local government sectors.
This has been questioned by the IMF. “Whether and how this shift is carried through will determine China’s development path for decades to come,” the report stressed. “[A] reversion to credit-driven stimulus would further increase vulnerabilities that could eventually lead to an abrupt adjustment.”
In layman’s terms, Beijing will need to demonstrate nimble ring craft in the next 12 months if the economy is to avoid a ‘bloody nose.’