Trade war may undermine China’s whole basis for future development
Tensions over structure of the Chinese economy are not confined to the US, with Europe and Japan also concerned about technology transfer
The US-China trade war’s worst effects will be felt over the long-term and could slow China’s ability to continue the strong pace of development it has enjoyed in recent decades, according to the International Monetary Fund’s former representative in Hong Kong.
Shaun Roche, currently chief Asia-Pacific economist at Standard & Poor’s Global Ratings, said analysts tended to overestimate the short-term impacts of the conflict while underestimating its long-term effects.
Speaking on the sidelines of the International Monetary Fund’s annual meetings in Bali on Friday, Roche said the short-term economic “headwind” for the Chinese economy created by the tariffs could be “easily offset” by a loosening of monetary policy and depreciation of the yuan exchange rate, which the Chinese government had been pursuing.
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It would be more difficult for the Chinese government to offset “the restrictions put on Chinese firms regarding their investment in the States, and other matters that slow the technology transfer from the US, Europe and Japan into China”, he said.
Roche warned the slowing of technology transfer may undermine the whole basis of how China had grown in past decades – adapting and innovating based on foreign technologies – which could significantly erode its growth potential in the future.
“Chinese technology share prices already reflect weakening [investor] confidence” in the ability of Chinese firms to continue to grow as they have before, he argued, predicting there was likely to be more negative fallout in the longer run.
Roche pointed out that trade tensions were not confined to the US and China, with concerns about structural features of the Chinese economy coming also from Europe and Japan, including the way foreign firms see their propriety technologies unfairly transferred, the lack of a level playing field for foreign firms doing business there, and the dominance by Chinese state-owned enterprises in many business sectors.
“This is a shared concern,” he said, noting last month’s joint statement by trade officials from the US, Japan, and the European Union that focused on the need to address China’s non-market-oriented policies and practices.