Common interests keep China and the US on the same page

It is too early for Beijing to uncork champagne, but the worst may be over. China’s economy grew faster in the three months of the year and hit the upper range of Beijing’s target. The 6.4 per cent growth in the first quarter has eased concerns about a further slowdown. Industrial production has jumped and consumer spending has been steady. Despite the best efforts of US President Donald Trump’s administration to inflict damage on China from trade to technology, the country has weathered the storm by encouraging domestic demand and opening up more economic sectors. It has also walked a fine line between stimulus and deleveraging. For now, even the International Monetary Fund has acknowledged that the trade war has had less impact on the overall Chinese economy than previously thought.

Industrial production grew by 8.5 per cent year on year in March, the fastest in more than four years and easily beat the 5.9 per cent rise in January and 5.3 per cent in February. Retail sales increased by 8.7 per cent in March. Property investment also rose to 11.8 per cent in the first three months of the year. Meanwhile, Beijing has announced 2 trillion yuan (US$299 billion) in tax cuts, which aim to benefit small to medium-sized companies and will allow local governments to issue 2.15 trillion yuan in bonds this year to fund infrastructure projects, a jump of 59 per cent from last year.

The latest is a moderate stimulus, as the central government works to cap the overall national debt at 270 per cent of GDP. This has been a difficult balancing act as Beijing’s commitment to deleveraging were almost derailed by Washington’s trade war. As a result, economic recovery will not be as rapid as before but more drawn out. Perhaps equally important to China’s economy is that despite the outright hostilities of Trump and his lieutenants such as Mike Pompeo and Mike Pence, his administration has neither the will nor unity of purpose to deliver a knockout blow to China. This is not hard to understand. Trump wants a buoyant US economy and stock market, which are the very indicators he chooses to prove his success as president and viability to serve a second term. An imploded China will have a detrimental effect on the world economy, including Wall Street and America’s Main Street.

The White House has been signalling for weeks there will be a trade deal with China soon. The US Federal Reserve has changed tunes and is now taking a more dovish stance. Healthier economic growth in the world’s two largest economies even have some economists and investors such as those at the investment powerhouse BlackRock predicting “a melt-up” for global equity markets. Unlike some of his top advisers, Trump is no ideologue. He is not ready to keep China down if it means causing serious pain to the American economy and compromising his chance of being re-elected.