While the ongoing trade dispute between China and the US has soured global market sentiment, it has had a very limited impact so far on China’s imports and gross domestic product, said E Zhihuan, chief economist at Bank of China Hong Kong.
US tariffs on US$50 billion worth of Chinese imports have already taken effect, but the actual impact remains quite limited as it only accounts 0.4 percent of China’s GDP and 2.2 percent of China’s total exports, E said.
However, it is affecting global market sentiment and, together with expected US interest rate hikes, it is triggering currency crises in Turkey and Argentina and a potential broader contagion among emerging markets, E added.
The yuan will face short-term downward pressure from the dispute even as China has put in place tools to support it. These include raising reserve requirements for forex settlements and re-introducing the counter-cyclical factor. But in the mid- to long-term, China’s currency will be relatively stable due to benefits brought about by monetary policy such as adequate liquidity.
On the other hand, China’s fixed-asset investments, a key driver of domestic demand, rose 5.5 percent year-on-year in the first seven months of this year, slower than the 6 percent year-on-year growth in the January to June period; it was dragged down by slower growth in infrastructure investment, National Bureau of Statistics data showed.
The slowdown in investment means a larger proportion of economic growth is driven by consumption - a healthy shift for the domestic growth engine, according to the chief economist. The burgeoning middle class has upgraded the consumption structure of the world’s second-largest economy, E said.
In terms of debt control, E said the total debt ratio had shown signs of falling due to the government’s multiple efforts such as debt securitization, debt-to-equity swaps and reform of State-owned enterprises. Also, tighter regulations to crack down on shadow banking in China have paid off since the government stepped up its deleveraging drive in March, said E.
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