China’s Piling Woes

China’s Piling Woes

The escalating trade conflicts between the world’s two largest economies, namely the U.S. and China have led to problems on multiple fronts in both countries. However, due to the huge trade imbalance – the U.S. imports of Chinese goods in 2017 totals US$506 billion while the Chinese imports of U.S. goods in the same period is only US$130 billion, China is inevitably placed in a disadvantaged position in its head-on clash with the U.S.

To date, the U.S. has announced tariffs on Chinese goods worth US$250 billion. In retaliation, China also announced tariffs on U.S. goods worth US$110 billion. If Trump was to go ahead with the threatened additional tariffs of US$267 billion, China will have to resort to other retaliatory measures as its total imports of U.S. goods is only US$130 billion. With guidance from your economics tutor in your economics tuition class, discuss the various options available for China.

Worst Performed Stock Market

Despite the Chinese government’s firm stance against the U.S., Chinese stock markets tumbled to a four-year low, reflecting the widespread negative market sentiments about its economic prospect in the face of the trade war with the U.S.

Chinese stock markets are among the world’s worst performers, with trillions of dollars wiped out from its peak in January 2018, almost the total market capitalization of Russia, India and Brazil. It is believed that the national funds in China have already stepped in to help stabilize the stock markets. Shanghai Composite rallied on 19 October 2018, Friday afternoon and closed with a 2.6 per cent gain, amidst the country’s weaker than expected economic growth. A country’s economic performance and its stock market performance are related in many ways. In consultation with your economics tutor in economics tuition, explain why and how they are related. A knowledgeable economics tutor should be able to help you understand more using real life events. Mr Edmund Quek, Principal Economics Tutor of Economics Cafe Learning Centre, one of the most acclaimed economics tuition centres in Singapore, is known for incorporating real life events into his teaching of economics tuition. Sign up for his economics tuition class today to benefit from his vast knowledge.

Weak Economic Growth

China’s Third Quarter economic growth slowed down to 6.5 per cent year on year, the lowest level since the 2009 subprime mortgage crisis. Quarter on quarter, China’s GDP grew marginally at 1.6 per cent. Industrial output growth fell by 0.3 per cent from the previous month, to 5.8 per cent in September 2018. Chinese growth is expected to weaken further to below 6 per cent benchmark in 2019.

The only bright spot is retail sales. China’s September retail sales climbed 9.2 per cent, beating Reuter’s 9 per cent forecast. Fixed asset investment for the first 9 months in 2018 also increased by 5.4 per cent as compared with the same period last year. Moving forward, it is believed that the Chinese government will come up with a slew of stimulus measures to boost its economy, including lower central bank reserve ratio and a $1.35 trillion yuan special bonds to upgrade its infrastructure. The People’s Bank of China has cut the reserve ratio four times this year, in an attempt to inject liquidity and boost economic growth in the midst of the escalating trade war with the US. Discuss with your economics tutor in your economics tuition class why China must resort to increasing domestic consumption and government spending to boost its economy.

External Challenges

To make the problem worse, external conditions are not favourable for China either. The International Monetary Fund has cut its forecast for global growth for the first time in 2 years. Among the risks cited are higher tariffs resulting from the US-China trade war. Rising interest rates in the U.S. coupled with a stronger dollar will lead to hot money outflows in China.

In conclusion, it is in China’s best interest to resolve the trade conflicts with the U.S, amicably. However, most do not expect substantive talks to take place before the U.S. mid-term elections in November.

Linda Geng

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