As the trade war between the United States and China intensifies, both countries are beginning to feel the heat. It is particularly worrisome for China as the world’s second largest economy slows down under the weight of economic tariffs on trade with the US.
According to analysts, China’s economic growth rate went down to 6.5 percent in the third quarter of last year; the lowest ever since 2009. Economist forecast for this year is even more gloomy; at 6.2percent. This is not to say that the United States is also not bearing the brunt of the conflict. Economists are less optimistic about U.S. expansion this year too, though they’re nearly unanimous in feeling a recession can be kept at bay until at least 2020.
What Donald Trump has done to hurt China is his policy of imposing high tariffs on Chinese goods, which has led to a plunge in Chinese imports into the United States. With no market to sell their goods, the Chinese are looking elsewhere, to Europe and developing economies.
All the signs on ground shows that things are not looking good in China as they did two years ago. Car purchases fell last year for the first time in more than two decades. iPhone sales also went down abnormally in China last year. Meanwhile, the stock market in Shanghai has still plunged by more than a quarter from its 2018 high.
Moreover, reports wafting into the media space this morning indicate that Chinese banks, although not insolvent, do not have enough money to fulfil their lending obligations unless they get some money from outside. Chinese Banks simply don’t have the ability to continue lending as much as they do without additional capital
This means China cannot loan out money to other countries as it used to. This is a source of worry for third world countries like Nigeria, which is leveraging Chinese funding to execute $3.4 billion worth of projects. In September 2018, President Muhammadu Buhari was in China to secure an additional $328 million from the Asian economic powerhouse.
Furthermore, China has been shuffling its securities regulators in the past three years. Banking veteran Yi Huiman was appointed the new chairman of the China Securities Regulatory Commission on Saturday, January 26.
Nevertheless, the Chinese economy remain strong despite the downturns. The Yuan is strong and growth rate remains high despite the decline. Analysts believe this current crisis is a test of the endurance of the evolving Chinese economy.
The Chinese know the trade war with the US is hurting them badly, that is why they have indicated reainess to renegotiate.
The U.S. and China will hold a pivotal round of talks this week in an attempt to end their trade war. The meetings are scheduled to commence on January 30. Bloomberg predicts 3 scenarios:
- The U.S. and China agree to hold more talks
- China comes to table with a game-changing offer
- Negotiations break down and Trump walks away “