Chinese officials vowed to provide greater support to exporters affected by tariffs from United States President Donald Trump. thus demonstrating the desire to strengthen one of the most important sectors of the Asian country’s economic system.
It is worth noting that Beijing currently denies any trade negotiations with Washington at the level of official rhetoric. At the same time, many companies, investors, and markets expect the start of the relevant process as a factor in de-escalating the current tensions between the world’s two largest economies. Negotiations, which are a theoretical possibility and do not yet belong to the category of facts of objective reality, will have consequences not only for China and the United States, but will also generate certain conditions and circumstances on a global scale.
On Monday, April 28, in Beijing, policymakers laid out policies to assist companies engaged in export activities. Among other things, this case implies measures to ensure that firms facing difficulties will receive the necessary loans and boost domestic consumption to absorb the impact of tariffs from the United States.
Also on Monday, the Chinese Foreign Ministry once again denied information that a tariff situation had been discussed between Beijing and Washington.
According to media reports, the statements that form the content of the current political discourse of the Asian country unequivocally signal that Beijing is not yet seeking to aggressively expand measures to stimulate economic activity and at the same time is in no hurry to begin negotiations with the United States on normalization of cooperation in the trade area. There is no clear answer to the question of why China chose such a strategy in the context of the present order of things in the geopolitical environment. It is possible that Beijing is looking for negotiations, but intends to wait for Washington to make the first move in this direction. Under the appropriate scenario, China will gain a kind of reputational advantage in the international arena, establishing itself as a strong geopolitical player that defies external pressure. It is also possible that Beijing is confident in its economic strength to the point of readiness for a protracted trade war of attrition. At the same time, China’s interest in the negotiation process is obvious against the background of objective facts. The Asian country’s economy relies heavily on exports. The opportunities to earn on external shipments of products are narrowing against the background of tariff confrontation. China can partially compensate for the drop in exports to the United States in other areas of foreign economic activity, but it will not be possible to completely avoid damage in this case. At the same time, these are just assumptions.
Probably, the implementation of the scenario of a protracted trade war of attrition will provide that Beijing will gradually expand economic stimulus measures, which cannot be dispensed with in such conditions.
The media notes that China’s current rhetoric signals that the Asian country is not afraid that reaching a peak level of escalation of tensions with the United States will actually stop bilateral trade. Beijing is also likely not afraid of the consequences for exports, which accounted for almost a third of the Asian country’s gross domestic product (GDP) growth last year.
China’s Foreign Ministry spokesman, Guo Jiakun, commented on a statement made by Donald Trump during an interview that he had a telephone conversation with the head of the People’s Republic of China, Xi Jinping. According to him, there have been no recent telephone conversations between the leaders of the two countries. Also in this context, Guo Jiakun separately emphasized that currently Beijing and Washington are not engaged in any consultations or negotiations on tariffs.
Currently, Chinese policymakers, as part of official statements, demonstrate confidence that in the present year, China will be able to achieve the target economic growth of around 5%. Beijing probably considers the support of exporters as one of the moves towards the corresponding goal. Also, the Chinese authorities have repeatedly vowed to prepare for external shocks. Obviously, in this case, the main outward factor of the impact is the tariff confrontation with the United States.
Sheng Qiuping, vice minister of commerce of China, said that since the beginning of the current year, the risks and challenges faced by the Asian country’s foreign trade development have increased significantly, especially due to the unilateral tariffs from the US. It was also noted that Beijing will adhere to a goal-oriented and problem-oriented approach to help foreign trade enterprises actively respond to external risks and challenges.
Chinese officials have announced measures to support exporters such as guidance for lenders to maintain loans to small and medium-sized trade firms, special credit tool to support the export of large equipment, assistance to companies to diversify markets, reducing costs for domestic trade (rent and streaming fees), and optimizing the exchange rate hedging tool for trade brands.
China’s benchmark CSI 300 Index of onshore stocks erased losses against the background of the mentioned statement. The yield on 10-year government bonds showed almost no changes. At the same time, the yuan has weakened tad along with most regional peers. The dollar gained.
Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group, assumes that both the timing, the size, and China’s approach to measures to support economic growth will be flexible in anticipation of the next move from the United States. The expert also noted that Beijing has a track record of offering exporters-specific support during the coronavirus pandemic and the global financial crisis.
One of the first signs of trouble for Chinese exporters was the sharp reduction in cargo shipments since the United States raised tariffs on China to 145%. As part of the retaliatory measures, Beijing has decided on 125% levies.
Recently, there are about 40 cargo ships stopped in Chinese ports and are now bound for the US. This figure is about 40% lower than the reading recorded in early April. The relevant information was published by the media, referring to data obtained as part of ship tracking.
Zhao Chenxin, Vice Chairman of the National Development and Reform Commission, highlighted the resilience of the Asian country’s economy in the first three months of the current year. In this context, special attention was paid to the stronger contribution of domestic demand to economic growth compared to the previous quarter.
According to media reports, in terms of the prospects for achieving the growth goal of China’s economy, the ability of consumer activity to offset export losses will be particularly important.
Experts from international banks, including UBS Group AG and Goldman Sachs Group Inc., have lowered forecasts for Chinese GDP increase in 2025. They expect the Asian country’s economy to grow by about 4% or lower.
Xi Jinping vowed to make boosting domestic consumption a top economic priority in the current year. The media notes that consumer confidence in the Asian country will remain weak, as the downturn in the real estate market has deprived households of a main source of wealth.
Yu Jiadong, Vice Minister of Human Resources and Social Security of China acknowledged the adverse effects of tariffs from the United States. It was also noted that some exporters are facing difficulties in business and this has a negative impact on some jobs. Yu Jiadong stated that the government of the Asian country will take measures to improve the skills of workers and prioritize youth employment.
Zou Lan, deputy governor of the People’s Bank of China, also said that Beijing will free up more cash for banks and cut interest rates at an appropriate time. It was also noted that the financial regulator of the Asian country will keep the stability of the yuan at a reasonable and equilibrium level. Moreover, in this context, it was highlighted that the resilience of the foreign exchange market strongly supports a stable yuan.
Returning to the topic of potential negotiations between China and the United States, it is worth mentioning the information published by the media that Beijing wants Donald Trump to show more respect before starting the relevant process. The Asian country, according to journalists, is also striving to ensure that the US names a point person for talks. Moreover, Beijing is interested in Washington signaling its willingness to address China’s concerns related to American sanctions and Taiwan, the self-ruled island that the Asian country identifies as its territory.
It is worth noting that despite the harsh rhetoric, China is reportedly considering exemptions from its 125% tariffs on US imports for some goods. This is evidence that Beijing is still ready for a certain de-escalation of tensions, albeit perhaps tacitly.
