While it is still unclear how the Sino-American trade war will continue, an article by the East Asia Forum is now appearing arguing that Trump will lose the trade war and the impact on China is limited. First, the growing importance of domestic consumption in China It is also pointed out that exports are not so large in terms of GNP and that the trade war would cost only 1/2% economic growth, which would be sustainable and would not cause any political or social unrest. No economic or financial crisis, no mass labor could be expected to be the breeding ground for social unrest. Yesterday, the Chinese Communist Party has raised its growth statistics by 2.8%, which is again surprising and probably unbelievable.
You have to be careful at the East Asia Forum, as this is a pro-Chinese organization that often likes to disseminate purposive CP propaganda such as the recent announcement that India would join the RECP, creating the largest free trade center in the world, but India then decided not to join. Although most US companies do not want to leave China, Elon Musk is now even building a giant Tesla factory in Shanghai, China’s economy is still growing at 6%, 35% of US companies in China are producing “in China, for China”, but also 65% of US companies in China are exporting, especially to the US, which is why they are victims of punitive tariffs. However, from a Chinese perspective, this will not lead to mass emigration of US companies and more likely cost Trump’s electorate and US consumers $ 1,000 a year more, which is why the CP China hopes that voters will reciprocate and will not vote for Trump For example, Yan Liang, Associate Professor of Economics at Willamette University, Oregon writes on the East Asia Forum website:
„The trade war is based on an overestimation of the damages it will inflict on China. China’s economy is no longer heavily dependent on trade, as it was just 10 years ago. In 2008, China’s net trade surplus accounted for 8.3 per cent of GDP. By 2018, that figure was only about 1.3 per cent.
China’s household consumption share of GDP has grown rapidly, though it is still quite low at around 40 per cent (compared to 68 per cent in the United States). The average growth rate of private consumption was 8 per cent between 2000 and 2018, compared to just 2.2 per cent for the United States.
Since 2015, consumption has contributed to over 60 per cent of China’s GDP growth, while net exports have contributed to less than 10 per cent. Given China’s demographic changes, urbanisation and the growth of the digital economy, it is likely that, as Martin Wolf argues, ‘over the next decade a mass consumer society will emerge in China’.
Declining exports to the United States will at most shed half a percentage point of growth from China’s GDP. More importantly, the Chinese government has enough policy space to bolster domestic demand and offset the negative impacts of trade, given its relatively low debt-to-GDP ratio of 50 per cent.
The Trump administration also overestimates the impacts of the trade war on foreign investment in China. Despite outcries over companies moving away from China, such claims are simply not borne out in data. In a US–China Business Council survey, 97 per cent of US businesses in China stated that they are profitable. 87 per cent had not relocated or had no plan to relocate their activities. Some companies which moved from China to countries like Vietnam soon found themselves facing skilled labour shortages or limited infrastructure and had to move back to China.
Export-oriented investors may consider leaving China due to heightened export costs as a result of the US tariff hike. But market-oriented investors produce and sell in China to avoid tariffs. Around 35 per cent of US companies are adopting the ‘in China, for China’ strategy, including Tesla and Microsoft. There is simply no evidence that companies are leaving China in droves.
Meanwhile the Trump administration’s departure from multilateral globalism has involved attacking several trading partners. It has distanced itself from strategic allies, even calling Germany and Canada national threats for sending their steel to the United States. The United States also backed out from the Trans-Pacific Partnership, giving China more room to ally with important trading partners. Even though China’s exports to the United States dropped by 8 per cent in the first half of 2019, its overall exports inched up by 0.1 per cent.
The trade war even undermines Trump’s own economic and political bases of domestic support as tariffs on imports are a tax paid by US importers and consumers. It is estimated that Trump’s tariffs on Chinese imports will cost US households on average US$1000 annually.“
Nevertheless, China is undergoing a structural change that is trying to replace the export-oriented growth model with more domestic consumption:
“Since 2011, the Chinese leadership has publicly stated that China’s long-running growth strategy can no longer be sustained. Instead, one wants to move away from the extreme dependence on exports, away from an export model based on labor-intensive cheap mass production of mass products, away from decades of growing consumption at the expense of consumption, which has been channeled mainly into state-owned enterprises.
Because this model has reached its limits. The markets for cheap Chinese products in the US and Europe are largely saturated. Even China’s huge reservoir of labor is slowly exhausted, the population is aging rapidly, and the masses of unskilled manual workers are becoming less and less needed, and wages are rising.
Especially where China’s industry wants to go: in the high-tech, high value-added sectors that need a highly skilled workforce. The private enterprise sector has grown rapidly and China now has significant overcapacity in some industries. For example, in the construction industry, although the cities are still a single construction site. China’s rapidly growing middle class is demanding what the Chinese economy can only offer inadequately: high-quality consumer goods of all kinds. And services. If the Chinese leadership wants to prevent their money-making citizens from shopping or moving abroad, they have to change course. And she does.
Recently, through massive cuts in taxes and social security contributions. By the end of 2019, the tax and duty burden will be reduced by two trillion yuan (about 265 billion euros). That is more than 2 percent of the economic output assumed for this year. VAT on industrial products has already been cut. The social security contributions for companies should decrease noticeably in the coming months. The infrastructure development continues, albeit less massively than before. Meanwhile, all major cities are connected by railways, on which high-speed trains run every hour. They are now being built in China and can compete with Japanese and European designs.
The banking sector is a problem child. Public institutions mainly lent to state-owned companies and kept as far away from private ones as possible. Household and corporate private debts have nevertheless exploded, thanks largely to the expansion of the shadow banking sector. More recently, the government has urged all banks in the country to lend more to private individuals on terms that are as favorable as state-owned enterprises.
At the same time, the Chinese economy is being restructured. The expansion of the internal market and private consumption will be promoted, shifting the focus of industry to highly productive and capital-intensive production. The service sector is growing rapidly. State-owned enterprises still play the main role, but meanwhile the Chinese government is using all means to promote private enterprise, and it is even pursuing policies in favor of the rapidly growing number of small and medium-sized enterprises. However, with the more often announced reform of state-owned enterprises, it is not far off. As before, competition between state and private companies is far from fair, and the lion’s share of public sector investment is still flowing. “
Even though China’s economy is gradually becoming less dependent on exports, the US trade dispute is mounting. Imports and exports sank, but the trade balance surplus increased. Remarkable, however, is that the East Asia Forum only substantiates its claims of China’s alleged insignificant export dependency with the help of the net trade surplus indicator and that the trade war can only cost 1/2% of economic growth, but avoids export dependency figures and the number and share of employees in the export sector. Especially since China is only in the beginning to switch to domestic consumption and the importance of export is only gradually reduced.
The article of the East Asia Forum tends to be a somewhat glossed representation, despite it all a certain has a core of truth. According to World Bank statistics, China’s export share was 2.49% in 1970, rising exponentially to a peak of 36.04% in the following decades, and has now fallen to around 20% by 2018. In contrast, according to statistics published by the EU Commission in 2019, Germany achieved an export quota of 38.2%, the eurozone countries an average of 34.7%, the EU of the 28 member states 32. 8% and the US only 7.8%. China’s export dependency has sunk, but still far above that of the US, almost triple.
Meanwhile the protests in Hongkong are continuing. The German media perception of the protests in Hong Kong changed in the last week. Although the WELT has given Joshua Wong its own column in its newspaper and the Springer Corporation and BILD portraits the Hong Kong protests as a struggle between the free and non-free world, so China, other images and news dominated in other media. At first, the protests were portrayed as a broad movement of the Hong Kong majority, but then you got the impression that they were just a few radical students. It also gave the impression that many Germans, because of the violence, the Molotov cocktails and the image of the oppositional archers, tacitly demanded an end to violence or a crackdown by Beijing. The impression was that the Hong Kong opposition had lost a lot of sympathy in Germany, especially since the impression emerges that the goals are not realistic, the fight lead to nowhere and became increasingly destructive. Meanwhile, the Hong Kong court has declared the ban against face veils as unconstitutional, Beijing now pointed out its right to interpret the Hong Kong constitution, threatened to cancel the 1 country 2 systems status and now considered in the meantime that the district elections might not take place.
Yesterday, some people seemed to want to counter the bad image of the Hongkong protests in the public media and there was very favorable coverage of the ZDF-Heute Journal for the Hong Kong opposition. A portrait of a Hong Kong artist and member of the opposition, who is peaceful and fighting with the weapons of art, but understand his fellows and their militancy. Today, local elections are held in Hong Kong and will be followed by other reports. What fuels the Hong Kong opposition is now the Hong Kong Human Rights Act of the United States, which was passed by the US Senate and by bipartisan support in the House of Representatives with only one vote against it. The agreement means that Hong Kong will lose its preferential treatment in the US from trading or at least check its status in the event of human rights violations or a violation of the principle of 1 country, 2 systems or the rule of law. The CPC responded aggressively and threatened to take countermeasures if the Human Rights Act were to be empowered. China experts are now divided on the question of whether the CP China will now suppress the uprisings or not, whether Hong Kong was so important that she was afraid of it or would sacrifice it, including 1 country 2 Systme finally establish the rule of the CPC in Hongkong. However, it is up to Trump to sign the Human Rights Act so that it can enter into force, but so far there has been no response.
A Chinese friend commented:
“Would it not be a false assumption that the goal of Trump’s trade war is the decline of the Chinese economy and the Chinese regime? I know many Chinese dissidents have this assumption, which I think is completely wrong and self-contemptuous. The Chinese economy is strong, especially in the last 20 years, also strengthened by technological leap and innovation (if only in the baby phase), and the potential to continue to grow is there too. There are still so many countries in the world that support China economically and politically for good reason. And the Chinese leadership is taking full advantage of capitalism and free trade to play off western countries against each other and harness the developing world. Everything that has been going on for a year and a half is just the beginning. As the increasing attention for the freedom fighters of HK in the German media is also the beginning. “
Trump’s goal is for US hard power, the US economy, and the US military to remain No.1 . He does not plan the decline of China, but his goal is also far more ambitious than just concluding a small trade agreement that will save him over the next election. He wants a pax americana under his America first conditions and the question is whether Xi Jinping will be ready for it and whether he will make so many tactical concessions, but that may not exceed a certain extent. On the other hand, it is very likely that Trump’s policy will be quite ineffective, indeed it will harm the US economy more, he will drive other countries more into the arms of Beijing. even China’s own innovations, internal market orientation and its overdue structural change are more likely to be catalyzed. Then he would be in front of a pile of rubble like Bush jr. after Iraq war and financial crisis.
But if he is re-elected, he will escalate the Sino-American conflict if Xi does not agree with his America first-pax americana, and I think even a Sino-American war based on the model of Offshore Controll is conceivable. In the final assessment, we differ as much as I do from most other China experts who believe in the myth of the peaceful businessman who just wants a better deal. Offshore control of TX Hammes, however, is the logical continuation of the commercial war by military means of a naval blockade and strangulation of China´s economy, which remains below a nuclear war and wants to force the Communist Party to give in, insofar as the trade war as a civilian means should not be sufficient. Here neither the Trump or TX Hammes want the overthrow of the Communist Party of China or Xi Jinping as goal. Trump relies on strong men, but they just should not be as strong as he is.