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Iris Pang, economist at ING, points out that on the same day that the US announces a possible increase of tariffs this Friday (10 May), the Chinese central bank, PBoC, cut the required reserve ratio (RRR) of smaller banks to divert even more liquidity to small, private companies.

Key Quotes

“We see this easing as part of the back-up for the economy and that the Chinese government is prepared for a long negotiation process.”

“We would want to see if Liu He, the head of the trade negotiators from China, will join the upcoming trip to the US for further negotiations. This will signal how serious China is and indicates that China and the US are going to talk further.”

“Whether China will speed up fiscal stimulus and continue with more monetary easings. These will become signs as to whether China plans a tougher stance and therefore longer negotiations with the US.”

“The higher tariffs do not only affect Chinese exporters but also US consumers unless the US can find substitutes for Chinese goods in a short period of time. The US policy response will also be a variable in the trade negotiation.”