In view of Amy Yuan Zhuang, Research Analyst at Nordea Markets, China’s charm offensive trade strategy is a stark contrast to the US as it has offered concessions and vowed improvement. In light of Trump’s unpredictability, the world may find China a more reliable partner and it strengthens China’s global clout, she further adds.
Key Quotes
“Trade negotiations with the US are ongoing. Both sides have shown goodwill, China by agreeing to buy more from the US (by up to USD 70bn, which equals 50% of total imports from the US last year), and the US by working on lifting the export ban on ZTE. However, China will not likely meet the US demand of reducing the bilateral trade gap by USD 200bn, so negotiations will take more time. Meanwhile, deadlines for trade tariffs and investment restrictions are drawing near (on 15 and 30 June, respectively).”
“Trump’s decision to impose tariffs on the EU, Canada and Mexico has upset its allies. His unpredictable trade strategy is making the world wonder if China would be a more reliable partner. To ride on the wave, China announced it will cut tariffs on 1,499 consumer goods from 15.7% to 6.9% from 1 July. Import duties on cars will also be slashed from 25% to 15%, which will benefit German and Japanese carmakers. The art of the deal is that most of these goods are not in conflict with China’s goal of developing high value-added industries.”
“Domestic demand has been resilient so far as PMIs remain high. But Beijing’s determinedness to cool down the housing sector will drag down industrial activity later this year and cause GDP growth to decline.”
“Early indicators suggest that momentum in the Chinese economy is starting to weaken. A slowdown later this year seems inevitable.”
“The CNY is set to weaken this year, especially if the USD resurgence lasts a while. Depreciation expectations have eased recently, which reduces the risk of depreciation followed by immediate capital flight.”
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