Escalation of trade war could force Beijing to roll out fresh economic stimulus measures, PineBridge says
- Deleveraging efforts could be at risk if Beijing is forced to act to avoid an economic slowdown
A further escalation of the trade war between the United States and China could force Beijing to take more expansive measures to stimulate the Chinese economy, according to officials at the asset manager PineBridge Investments.
The rising trade tensions between the two largest economies have come against the backdrop of the Chinese government engaging in a campaign over the past two years to reduce the country’s debt levels, known as deleveraging, Markus Schomer, chief economist at PineBridge Investments, said.
As the country’s economy has begun to slow, Beijing has begun using a broad array of stimulus measures, such as reducing the amount of cash that banks in China have to hold in reserve, Schomer said on Thursday at a media round table in Hong Kong.
“If the Trump administration goes on and escalates further, we’ll probably get to the point where China’s leaders abandoned deleveraging and have to go all out to avoid a much more serious slowdown in the economy,” Schomer said.
“The problem is this huge build-up of debt over the years requires a certain amount of nominal growth rate,” he said. “You can’t allow nominal growth to slow a little bit and allow the deleveraging to happen at a gradual pace. You cannot do this rapidly in a few years. This is like a 10 to 20-year episode of bringing the debt levels in China to a much more manageable level.”
