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Opinion | How China can shrug off the impact of the US trade war on its economy and improve the lives of its citizens
- China can stomach the cost to its GDP of even all its exports to the US being halted if it takes steps to boost domestic demand
- Investment in public goods such as environmental protection, education and health care could serve this purpose
Reading Time:4 minutes
Why you can trust SCMP
The US-China trade war is once again heating up. While it will do greater damage to the Chinese economy than to the US’, both in absolute and relative terms, Beijing can manage the negative impacts on its real GDP and employment through an appropriate increase in domestic demand. There is no need to panic.
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The Chinese stock markets, which are driven by psychology rather than fundamentals, have already taken a hit. In 2018, stocks listed in Shenzhen on average lost 30 per cent, in Shanghai 20 per cent and in Hong Kong 10 per cent. In contrast, the S&P 500 index tracking US stocks did not suffer any loss on a whole-year basis in 2018. In 2019, the Chinese stock markets first continued to fall and then began to rise, buoyed by hopes of a successful conclusion to US-China trade talks.
More recently, however, they have fallen again, reflecting the lack of progress in the trade negotiations. The S&P 500 also experienced similar volatility.
However, the Chinese stock market indices are not good barometers of the state of the country’s real economy. There is essentially no correlation between the rate of growth of Chinese real GDP and of the country’s stock market indices.
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China’s exports of goods to the US in 2018 was 3.6 per cent of GDP. The total value-added attributable to these exports is around 66 per cent, resulting in an estimated maximum loss of 2.4 per cent of GDP if all exports to the US are halted. If, as is more likely, half of Chinese exports of goods to the US are halted, the maximum loss will be a manageable 1.2 per cent.
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