Op-ed: Pessimism on trade war is unreasonable for China

All large economies rely on domestic demand to achieve economic boost. In the future, China will have the world’s largest group of middle-income earners and is expected to become the world’s largest consumer market. This will not only further lower the country’s external dependence, but also facilitate transformation and upgrading of the Chinese economy through consumption upgrading.

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By Ren Ping

China has a large economic aggregate and complete industrial system that allows it strong capability to deal with risks. Therefore, the country’s development will not be hindered by the current obstacles for a long time.

This point is also proved by the fact that China is the world’s second largest economy, largest manufacturer of industrial products, largest trader of commodities and largest holder of foreign currency reserves.

Domestic demand has become a major driving force of China’s economic growth, contributing over 90 percent to China’s economic growth in 2017. Meanwhile, the dependence of the economy on trade dropped to 33 percent, lower than the world’s average of 42 percent.

China Academy for Macroeconomic Research estimated that there would be limited impacts on China’s economy, even if the US imposed the additional 25 percent tariffs on $200 billion worth of Chinese goods.

Hence, the pessimistic rhetoric that the trade war will lead to a sharp decline of the Chinese economic growth lacks evidence and proves untenable.

Chinese enterprises, which have been deeply integrated into global industrial and value chains, take the pressure from the US-initiated trade war as the impetus for transformation and upgrading. Focusing on improving the capability for independent innovation, they’ve started to expand their markets in Africa and Belt and Road countries.

About 60 percent of Chinese commodities subject to the US additional tariffs are produced by foreign-invested companies in China, quite a proportion of which are American firms. The tariffs on exported Chinese goods will gradually impact the whole industrial and value chains and the eventual consequences will be jointly shouldered by exporting companies, material and part suppliers and US purchasers.

It is true that economic and trade frictions will affect China’s economic and trade environment in the short run. However, a generally growing world economy has provided sound conditions for China’s foreign trade to grow.

In the first half of the year, the year-on-year growth of China’s overall import and export volume was 7.9 percent, and that between China and Belt and Road countries stood at 10.4 percent. Countries under free trade pacts with China have become important export markets, sources of imports, as well as investment and cooperation partners of China.

In general, China is able to maintain a steady economic and trade environment. For instance, through expanding overseas markets, China’s tech firm Huawei has overtaken Apple to become the world’s second largest smartphone maker in the second quarter of the year, despite the exclusion from the US.

China’s high-speed railways, specifically the Fuxing bullet trains, which are built completely with Chinese technologies and have reached a world-class level, have been sold to many countries including Turkey, Indonesia and Russia.

China have established close trade relations with most countries in the world, and they can extend their trading space and conduct technological cooperation. To make it simple, China’s overall opening-up does not just rely on the US.

China’s GDP grew by 6.8 percent year on year in the first half of 2018, registering a steady medium-to-high growth rate between 6.7 and 6.9 percent in 12 quarters in a row. The surveyed urban unemployment rate remained below 5 percent in three consecutive months; consumer price index increased by 2 percent year on year; and market supply and demand was balanced.

These good fundamentals are a guarantee to the country’s economy, as well as the ballast stone to deal with external impacts, risks and challenges.

Emerging industries are vigorously growing and the upgrading of traditional industries is accelerated. The progress of internet enterprises serves as a window for the world to observe the profound changes of the Chinese economy.

Now, 9 of the world’s top 20 internet giants are from China, the second most after the US. While in the past, the top 20 seats were shared collectively by companies from 5 countries including Japan, Russia, South Korea, China and the US.

It indicates that through optimizing structure, improving efficacy, replacing old growth drivers with new ones and promoting high-quality development, China could not only raise the total factor productivity, but also enhance its innovation power and economic competitiveness, as well as boost its capability to cope with risks and challenges.

China became the world’s largest manufacturer in as early as 2009. Being the only country in the world with a complete industry classification system defined by the United Nations (UN), China has 39 major industry categories, 191 intermediate categories and 525 sub-categories.

The complete range with diverse industries allows mutual complementation and replacement between different departments, and demonstrates strong elasticity and resilience in addressing external impacts, which improves China’s capability to defend itself in the trade war.

“Consumption and services will come to dominate the economic landscape,” according to a 2017 report by Morgan Stanley titled “Why are we bullish on China?” The report said that China was shifting to an economy powered by higher value-added manufacturing and service industry.

All large economies rely on domestic demand to achieve economic boost. In the future, China will have the world’s largest group of middle-income earners and is expected to become the world’s largest consumer market. This will not only further lower the country’s external dependence, but also facilitate transformation and upgrading of the Chinese economy through consumption upgrading.

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