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https://scmp.com/economy/china-economy/article/3007602/trade-war-us-could-lead-economic-cold-war-china-beijing
Economy/ China Economy

Trade war with US could lead to economic ‘cold war’ for China, Beijing researchers say

  • ‘China’s Economic Security Outlook’ sees tit-for-tat tariff war with the US and the broad hostility as a major risk endangering China’s ‘economic security’
  • Beijing and Washington have conducted nine rounds of trade negotiations ahead of an eventual meeting between Chinese President Xi Jinping and Donald Trump
China accounts for 13.5 per cent of the world’s trade. Photo: EPA

Further escalation of the trade war with the United States could lead to an economic “cold war”, according to a risk map outlined by a Beijing-based research team, which highlights the most serious dangers to China’s economy.

The tit-for-tat tariff war with the US and the broad hostility is seen as a major risk endangering China’s “economic security”, along with a property bubble, local debt, unemployment and online financing including peer-to-peer lending, according to the latest edition of China’s Economic Security Outlook.

“If the trade friction escalates further, it may eventually lead to a new cold war,” the book warned.

The research was coordinated by Liu Wei, monetary policy adviser for China’s central bank and president of Renmin University of China, and Su Jian, a professor at Peking University in Beijing, pulling together expert views from the National Development and Reform Commission, the State Information Centre and the Chinese Academy of Social Sciences.

If the trade friction escalates further, it may eventually lead to a new cold war, China’s Economic Security Outlook

The book does not take into account the latest negotiations between the world’s two largest economies in March and April, but reflects a widespread concern among Beijing researchers over China’s future role in the global value chain.

“One thing is going to be unchanged for sure: the US technological and investment restrictions will only increase,” the book said. “The gaming will be unavoidable until the bilateral structural disputes completely disappear. We must be fully prepared.”

The researchers wrote that the actual impact is far beyond US-China trade relations, but could derail the global trade system, which China has benefited from since its entry into the World Trade Organisation in 2001.

“China is now at the crossroads of international trade. It is hard to choose. It will be a very key factor influencing the medium and long-term trend of the Chinese economy,” they said.

China, which accounts for 13.5 per cent of the world’s trade, could soon be put at a great disadvantage as the Group of Seven countries – Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States plus representation from the European Union – are planning zero tariffs, zero subsidies and zero barriers in their future trade plans.

“If developed nations like the US, the European Union, Japan and Canada reach such a deal, it would post a severe impact: the World Trade Organisation would be hollowed and China would be excluded from the new global trade system,” the researchers added.

Beijing and Washington have conducted nine rounds of trade negotiations and the process is accelerating towards a deal between the two countries. According to the report, China is most likely to reach compromise with the US on the protection of intellectual property and competition neutrality of state-owned enterprises, which benefits the healthy development of the economy.

The researchers also urged China to further loosen market entry and ensure equal treatment for all the businesses.

“Maintaining the global industrial chain and building an open domestic market are the necessary preconditions for China and the US to compete and cooperate, rather than zero-sum game,” they suggested.

Maintaining the global industrial chain and building an open domestic market are the necessary preconditions for China and the US to compete and cooperate, rather than zero-sum game. China’s Economic Security Outlook

Domestically, they called for expansionary fiscal spending to stabilise the economy, projecting that growth could drop to between 5.0 and 5.5 per cent in 2019 from last year’s 6.6 per cent if there is no policy support.

“Without policy intervention, Chinese economy could see stagnation, for example, slowing growth rate and higher consumer price index growth,” they warned.

Worries regarding stagnation could be a reason behind the stimulus announced in the first quarter, including 5.81 trillion yuan (US$864 billion) of new loans, the highest in a decade, and over 1 trillion yuan of local bond issuance.

China’s first quarter growth beat market expectation by increasing 6.4 per cent and stayed at the high end of the target zone of 6.0 to 6.5 per cent.