Why the gloom? As ‘dealmaker’ Trump pivots on China, things are looking up
‘If the region as a whole does well, China is well-placed to benefit’
Given the critical tone towards China that was evident in US President Donald Trump’s campaign rhetoric, it might have appeared a far-fetched notion that a few months into a Trump presidency China-US economic relations would still be on an even keel and the broader outlook for the Chinese economy seem relatively rosy. But such is the case.
The Florida summit between Trump and his Chinese counterpart Xi Jinping appears to have gone smoothly. Indeed only last week Trump, who had previously been very vocal about China’s policies towards the yuan, said China were “not currency manipulators”, a stance confirmed in an official report from the US Treasury on April 14.
In fact, Friday’s publication of the US Treasury’s latest semi-annual “Report to Congress on the Foreign Exchange Policies of Major Trading Partners of the United States” actually acknowledged that “China’s recent intervention in foreign exchange markets has sought to prevent a rapid [yuan] depreciation that would have negative consequences for the United States, China and the global economy”.
The US “Treasury estimates that from August 2015 through February 2017, China sold around US$800 billion in foreign currency assets to prevent rapid [yuan] depreciation”.
But the report also added that the US Treasury “will be scrutinising China’s trade and currency practises very closely, especially in light of the extremely sizeable bilateral trade surplus that China has with the United States”.
Nevertheless, it would seem the currency issue has again been parked.
As for trade, although the US Treasury report again re-emphasised that “China currently has an extremely large and persistent bilateral trade surplus with the United States,” the recent Trump-Xi summit resulted in both sides committing to a 100-day time frame to examine trade imbalances.
In the meantime, China’s March trade data showed a 16.4 per cent upsurge in exports compared to the same time in 2016, far above the 3.2 per cent rise that had been expected by economists polled by Reuters, and helping to shape a trade surplus of US$23.9 billion for China last month.
The Asian Development Bank may be predicting that economic growth in China will continue “to moderate as the government implements measures to transition the economy to a more consumption-driven model” but it still sees economic growth of 6.5 per cent this year and 6.2 per cent in 2018, while the World Bank opts for 6.5 per cent and 6.3 per cent respectively. Economic growth last year was 6.7 per cent.
Yet the World Bank also believes “the outlook for developing East Asia is expected to remain broadly positive in the next three years”, while the ADB states that “growth is picking up in two-thirds of economies in developing Asia … making the region the largest single contributor to global growth at 60 per cent”.
If the region as a whole does well, China is well-placed to benefit given the scale and direction of its existing “One Belt, One Road” infrastructure and trade development strategy.
At a bilateral level, the albeit belated opening of an oil pipeline, from the Bay of Bengal through Myanmar to Kunming, will both deliver financial benefits to Myanmar’s economy while also providing China with an alternative route for its oil and gas imports, even if the pipeline’s capacity can only currently supply 6 per cent of China’s crude oil import requirements.
At a multinational level, on April 11, the Association of Southeast Asian Nations and China reaffirmed their commitment to forging closer co-operation, noting that “China remains the largest trading partner of ASEAN and the two sides are on track toward achieving the total trade target of US$1 trillion by 2020”.
But even in the rosiest of gardens there will be thorns.
In China itself, the World Bank feels Beijing should “sustain its efforts to reduce corporate debt and restructure state-owned enterprises, tighten the regulation of shadow banking and address rising household mortgage debt”.
Elsewhere, tensions in the Korean peninsula could yet get out of hand with negative consequences for China and the world.
But in truth, based on the campaign rhetoric that dominated Trump’s successful race for the White House last year, who would honestly have bet on China-US trade relations still being amicable at this stage of Trump’s first term in office?
“I’m the best dealmaker there is,” said Trump in 2015, but he also said separately that “to be a great dealmaker, you have to be flexible”. Perhaps that flexibility is now guiding his attitude to China.
All things considered, the outlook for China’s economy currently looks reasonably rosy.