The impact of the China-US trade war on the Chinese economy
Conference on Sino-US economic and Trade Relations in the Global Economy
Yu YongdingChinese Academy of Social Sciences
September 17, 2018
China’s macroeconomic imbalances
• Since 2016, the policy priority is – to deleverage– to rein in shadow banking activities
• Hence since 2016– Fiscal policy (increase in tax revenue Jan-May 15.8% )– monetary policy less pro-active
• Jun M2:8.3%, lowest since 1986, • Jun weighted average interest rate of interbank lending: 2.73%
– The tightening of Supervision and Regulation on financial activities
• Since 2016, leverage ratios started to fall. Since 2017,shadow banking activities shrank rapidly
Leverage ratios for all sectors are either stabilized or falling
As a result, overall leverage ratio is falling
The role of shadow banking activities is shrinking
Δ shadow banking finance/Δ social finance
Shadow banking finance: entrusted loans, trust loans, undiscounted bills of banks
New problems• credit crunch• Liquidity shortage• Burst bubbles (P to P platforms), interruption of financial
flows• Slowdown of growth
• Recently, the government decided to adjust macroeconomic policy and prudential policy
• What will be the result of the adjustment remains to be seen
• Talk to traders, my feeling is that the market sentiment is improving. The Share price is bottoming out
The long run impact of the trade war on the Chinese economy
• Trade war undoubtedly is a bad thing for China
• However, the trade war will inject new dynamism for China to speed up structural adjustment.
China’s international imbalance: twin surplus and accumulation foreign exchange reserves
An old story
With net foreign assets of $2-1.75 trillion, China runs investment income deficit for more than a decade
-4000
-3000
-2000
-1000
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7000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
货物 服务 投资收益 经常账户
亿美元
Very bad for an aging society
A problematic foreign assets structure
Despite all the problems, China’s external economy has become more or less balanced now
0%
2%
4%
6%
8%
10%
12%
30%
35%
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45%
50%
55%
国内总储蓄率
投资率
经常账户/GDP（右轴）
Current account surplus shrank to 1.4% of GDP
How the rebalance was achieved?
• Expansionary monetary and fiscal policy-facilitated massive infrastructure Investment and real estate investment since 2009
• consumer behavior has changed• RMB appreciation of some 48% from 2005 to
2015• Trade policy is shifting to neutral
– Export to GDP ratio falls from more than 30% of GDP to less than 20% of GDP
The declining trade dependence
64%
33%
35%
18%
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70%
trade/GDP export/GDP
Up to 2017
