Amy Yuan Zhuang, Research Analyst at Nordea Markets, notes that so far the trade war has had limited impact in China but a possible escalation soon darkens the horizon.
Key Quotes
“The Chinese economy is still performing well. But the ongoing trade war with the US is starting to take its toll. The outlook is murky given the US could impose new tariffs very soon.”
“We do not expect any easy compromise to be reached, as the conflict is really about China’s ambitious “made in China 2025″ plan, which neither part will yield from.”
“Even with a significant trade war escalation, policymakers in Beijing have plenty of tools at their disposal to mitigate the negative growth impacts.”
“Fiscal policy has already been eased with a personal income tax reform, which is aimed to alleviate personal tax burden and stimulate consumption.”
“Moreover, the authorities are expected to re-open the tap for infrastructure investment in H2 this year.”
“Finally, an unexpected housing market rebound gives tailwinds to growth. Despite still strict polices, housing prices and sales have increased. Construction new starts have accelerated too.”
“The PBoC has stepped up its FX interventions in August and successfully stabilized the CNY against the USD. We expect the yuan to face more sell-off in the coming months but the downside is limited given the backing of the PBoC.”
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