In Jan, the figure of China’s import and export is far beyond expection. Export increase by 7.9% increase YoY calculated by USD, and 15.2% increase if calculated by RMB. Import also increased dramatically, with 16.7% by USD and 25.2% by RMB. My advice is from now on to look at the combined values of both current account and capital accounts, roughly speaking trade and capital investment balances.
The biggest challenge for China today lies in its capital account. Since the Renminbi began its downward slide in 2015, the incentive to reduce foreign debts and increase overseas assets has intensified.Under the accuse of Trump’s claim that China is an exchange rate manipulation country, China can choose to apply a floating exchange rate policy. However, this policy would cost China large amount to maintain currency stability. Under this circumstance, China should try to increase foreign investment in order to maintain international control.
Morgan Stanley’s research did three scenario analyses, assuming the average tariff to be 15%, 30% and 45%, to see the effect on Chinese export and economy. Under the tariff of 15%, 30%, and 45%, Chinese exports to the US will decrease by 20.7%, 46.2% and 71.7% respectively, resulting in a total decrease of China export of3.7%, 8.2% and 12.8%. China International Capital Corporation claimed that it is relatively impossible for Trump to set 45% as average tariff. The research then predicted what China economy will be like if 30% was the average tariff rate.
Sino-U.S. trade volume grew from 2.5 billion U.S. dollars in 1979 to about 519.6 billion dollars in 2016, surging by 211 times within 38 years, according to MOC statistics. A report from the U.S.-China Business Council (USCBC) showed that bilateral trade and investment in 2015 created about 2.6 million jobs for Americans and contributed to about 1.2 percent of U.S. GDP that year.
Wilbur Ross, American Commerce Secretary on Wednesday stated that China is the most serious trade protectionist country. China is doing well in talking about free trade than actually doing it. When dealing with trade and protectionism issues, a country is always trying to find a balance between protecting the interest of producers’ vs protecting the interest of consumers’. But things get more complicated when policy makers need to find a compromise between making a country better off on average vs making everyone better off.
China’s State Council issued a notice aimed at “efficiently use foreign capital to further expand investment and create a fair competitive environment”. I believe it when I see it. The relevant policies and regulations are to relax the restrictions on access to foreign investment in services, manufacturing, mining and other fields.
When Trump announced that the U.S. infrastructure will be “second to none”, he was almost inviting China to exchange potentially worse trade conditions for better investment opportunity into the U.S. Black Swans are always opportunities if well understood: China needs to quickly move to value added manufacturing (China 2025) and having some trade issues with the U.S can, actually, only help China’s speed up its transition towards innovation.
Geraci on Al Jazeera said: “Without the US, TPP is dead. Alternative regional trade agreements are also unlikely amongst the remaining countries, because without the US covering their backs and opening its market, no country would have any interest in antagonizing China. While trade is beneficial on average for both countries involved, it is not beneficial for all the citizens. Trump may not be concerned too much about the average wealth or the average U.S. citizens, rather, he would probably be more concerned about the low income of the people who voted for him and supported him, and even if pulling out of TPP is detrimental to the overall US economy, it would be beneficial to the group of voters that support him, hence his anti-TPP stance.”