Global Times - 30.07.2019

BIZBIZCOMMENTCOMMENT

B6 Tuesday July 30, 2019

By Liao Qun

T

he China-US trade row has seen
many ups and downs. It has
allowed people to witness the
capriciousness of the real world and the
nature of economics and trade issues.
The most unexpected move was
when the US upgraded the trade war
in May by announcing it would raise
tariff s on $200 billion in Chinese goods
from 10 to 25 percent, and threatened
to slap additional tariff s on another
$325 billion in Chinese products.
The US has been unpredictable
because its policy-making is based on
evaluating how the trade war impacts
their economy and is aimed at re-
electing US President Donald Trump
in 2020.
US economic growth reached a high
of 2.9 percent in 2018 from signifi cant
tax cuts. This year, the GDP growth rate
will inevitably decrease due to the dwin-
dling eff ects of tax cuts, government
debt and a peak in the stock market.
As the world’s most developed
country, the US economy appears to
be stable. Nevertheless, as short-term
cyclical forces remain irresistible and
economic bubbles accu-
mulated through years of
quantitative easing emerge,
great uncertainty still looms
over US economic growth
in 2020.
The trade war’s short-
term impact on the US
economy might be less than
on the Chinese side but
must not be ignored.
An escalation of the
trade war could drag the US
economy’s growth below
2 percent, lower than my
previous estimates of 1.9-2.4
percent next year, assuming
there won’t be a trade war.
Trump may be hoping
to reach a trade agreement
with China by the end of the
year to eliminate the threat
of a low growth rate in the
next year to concentrate on

domestic issues.

As the victim and passive receiver of

the China-US trade war, China hopes to

reach a trade agreement with the US as

soon as possible.

China has three bottom lines. First,

the US-imposed tariff s on Chinese

products must be abolished. Second,

China’s purchase of US products must

correspond to reality. Third, the agree-

ment must be fair on both sides.

This means the agreement should

not compromise China’s national

dignity, specifi cally on issues aff ecting

China’s domestic economic mecha-

nisms and policies.

The US has eight demands, includ-

ing reducing a $100 billion trade sur-

plus within one year and another 100

billion the following year, and halt sub-

sidies to the advanced manufacturing

industry included in “Made in China

2025,” according to media reports.

It is not diffi cult to see that there are

major confl icts between China and the

US, which means it is impossible to

reach a comprehensive and permanent

trade agreement in the near future.

However, we can expect a partial and

temporary trade agreement.

Trump can brag about a partial and

temporary trade agreement favorable to

the US and a major diplomatic and eco-

nomic victory, which provides him with

added leverage in his re-election bid.

China could temporarily end trade

war interference on the domestic

economy and market and give more

attention to fostering domestic reforms

and solving economic issues.

China and the US are expected to

reach a partial and temporary trade

agreement in the last quarter of 2019,

but major diff erences, such as elimi-

nating the tariff s, state subsidies, and

disputes on intellectual property protec-

tion will remain.

The author is chief economist with China

CITIC Bank International. bizopinion@

globaltimes.com.cn

Diversifying reserves is fi rst step in decoupling

Partial agreements expected in China-US trade talks despite major diff erences

By Hu Weijia

China’s massive foreign ex-
change reserves have drawn
attention as the country for the
fi rst time disclosed its rate of re-
turn on investment, which sug-
gested a further diversifi cation
of its reserve holdings.
The State Administration of
Foreign Exchange (SAFE) said
in a report published Sunday
on its website that non-US dol-
lar assets accounted for 42 per-
cent of China’s total reserves at
the end of 2014, higher than
the global average of 35 percent.
The share of the assets in the
US currency declined from 79
percent in 1995 to 58 percent in
2014.

Although the SAFE did not

provide more recent data, it is

believed that the fi gure has con-

tinued its downward spiral in

the following years.

A lower fi gure means Chi-

na’s reserve holdings bear less

risk as the prices of US dollar-

denominated assets fl uctuate.

In other words, the US will

have less infl uence on these as-

sets.

The diversifi cation of the re-

serves refl ects China’s eff orts

to develop greater economic

endurance against possible US

attacks.

The ongoing trade war

with the US is prompting

China to make strategic ad-

justments for a possible de-

coupling of its economy from

the US.

In an increasingly intercon-

nected world in which both

China and the US are impor-

tant players in global supply

chains, it is impossible to cut

economic links between the

two countries, but China is try-

ing to reduce its strategic de-

pendence on the US economy.

The key issue on the agenda is

to reduce the US presence in

the strategic sectors of the Chi-

nese economy and weaken the

irreplaceable role of the US in

certain supply chains.

Decoupling will no doubt

deeply aff ect the global econo-

my in a wide range of sectors

such as agriculture and inte-

grated circuits. Chinese tele-

com giant Huawei has been

creating “spare tires” that would

allow the company to survive if

the US cuts off its supply of key

components and parts.

Such concepts should be

adopted in other industries to

reduce China’s dependence on

US capital, technology, prod-

ucts and talent.

Decoupling is likely to in-

volve lots of countries in the

upstream and downstream seg-

ments of diff erent industrial

chains and countless compa-

nies.

It will not be easy and it will

also be a lose-lose situation for

China and the US to decouple

their economies from each oth-

er. But China must be prepared

for a worst-case scenario where

the US uses all possible means

to contain China including cut-

ting off links to China’s strate-

gic sectors.

The diversifi cation of Chi-

na’s reserve holdings is a mile-

stone in the process. It is still

too early to predict an outcome,

but the trade war highlights the

urgency of accelerating the pro-

cess.

The author is a reporter with

the Global Times. bizopinion@

globaltimes.com.cn

Page Editor:

[email protected]

E

YEONECONOMY

Illustration: Luo Xuan/GT

China and the US are

expected to reach a partial

and temporary trade agree-

ment in the last quarter

of 2019, but major diff er-

ences, such as eliminating

the tariff s, state subsidies,

and disputes on intellec-

tual property protection

will remain.