China will likely wait out the trade war as it bets on its own economy

  • As trade tensions with the U.S. draw out, the world’s second largest economy will likely seek to beef up its domestic economy, which contributes more to growth than its exports, according to analysts.
  • “We describe China’s current strategy as ‘endurance’: the main goal is to preserve China’s economic resilience, while taking the higher US tariffs as a given fact,” Deutsche Bank economist Yi Xiong wrote in a report.
  • Meanwhile, China will also try to diversify its supply chains and accelerate its opening up to other countries – reducing its reliance on the U.S. in the longer term.

China’s best option in the trade war is to wait it out, experts say, as it’s huge domestic economy is increasingly being driven by the power of its consumers — not trade.

Playing the long game is “probably the best and only option” that China has, said Chung Man Wing, investment director at Value Partners.

As trade tensions with the U.S. draw out, the world’s second largest economy will likely seek to beef up its domestic economy, which contributes more to growth than its exports, according to analysts.

“The (Chinese) government is trying to buy time in terms of using the window to restructure the domestic economy … the domestic corporate sector,” Chung told CNBC on Thursday.

External trade make up only a “very small portion” of China’s economy — and form only about 20% of its gross domestic product, he said. “And majority of that is actually not to the U.S., so China can afford to play the long game, and play it well.”

China’s growth is domestically driven; consumption and infrastructure investment deserve more attention than exports.
ANZ

In fact, Deutsche Bank said in a Wednesday report that as much as 80% of China’s exports went to countries other than the U.S.

“We describe China’s current strategy as ‘endurance’: the main goal is to preserve China’s economic resilience, while taking the higher US tariffs as a given fact,” Deutsche economist Yi Xiong wrote in the report.

www.cnbc.com/2019/08/30/chinas-consumption-more-crucial-to-its-economy-than-trade-exports.html

 

 

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