Chinese officials are warning about the possible negative effects of global trade tensions yet again, while also considering additional measures to support economic expansion at home – as US trade talks appear to be faltering.
Kristian Rouz – A Chinese government official has warned the tensions in international trade could trigger a global recession in the coming months due to disruptions in supply chains and the slowing manufacturing output worldwide.
His remarks come as industrial production in China has cooled to its slowest since 2002 amid US tariffs, sluggish consumer demand in the EU, and elevated energy prices.
Chinese Commerce Ministry spokesman Gao Deng says a new recession could start either in the US or in another major economy and spread to the rest of the world. Gao pointed to a recent drop in US investment in China, as well as dwindling investor confidence stemming from the uncertainty produced by the faltering US-China trade talks.
“There will be no winner in the trade war, which could cause a recession in the United States and global economies”, Gao said during a recent news conference in Beijing.
According to a new report by China’s Commerce Ministry, US investment in the country was 7.5 percent in the January-May period – a sharp decline from 24.3 percent recorded between January and April of this year.
The data suggests US investment plunged in May – after reports the previous month claimed the talks on a trade agreement between Washington and Beijing fell apart without producing any meaningful results.
Additionally, China’s industrial output rose just 5 percent year-on-year in May – below the 5.4 percent expected earlier. Retail sales rose 8.6 percent compared to the experts’ 8.1 percent. Fixed-asset investment added 5.6 percent, below a median estimate of 6.1 percent.
“This is substantially weaker than expected”, Becky Liu of the Hong Kong branch of Standard Chartered Plc said.
Meanwhile, US President Donald Trump claims China has attempted to revisit several provisional agreements achieved over the previous months.
“We thought we had a deal, and unfortunately they decided that they were going to change the deal, and they can’t do that with me. But something’s going to happen and I think it’s going to be something very positive”, Trump said.
The US dropped to the sixth-biggest foreign investor in China in April, after being the third-largest just the previous month, data from China’s Commerce Ministry showed. China has not released the data on US investment in May, and it remains unclear whether such a report will ever see the light of day.
The Trump administration is preparing another package of 25-percent duties on $300 billion worth of Chinese goods – while similar tariffs on another $350 billion in Chinese goods are already in effect. Respective statements from Trump have hardly proven encouraging for the investment climate in China, and Beijing is preparing a response.
For one, China says it could slap steep tariffs on $60 billion worth of American goods, but Beijing’s firepower in terms of reciprocal tariffs appears to be limited.
This is why officials in Beijing are considering additional measures to stimulate economic growth at home by using internal resources. Chinese Vice Premier Liu He promised additional accommodation, and experts believe China could implement deeper cuts to bank reserve requirement ratios (RRRs), allowing banks to hold less cash in the vault and boost lending at business-friendly conditions.
Liu, however, didn’t specify what measures are currently on the table.
“At present, we do have some external pressures, but those external pressures will help us boost our self-reliance in innovation and accelerate the pace of high-speed development”, Liu said.
Experts agree China would need additional stimulus from either the central budget or the People’s Bank of China (PBOC) to keep its annual pace of economic expansion above 6 percent.