US-China trade tussle forces China to reform faster, says asset manager Amundi

If there is a bright spot in the brewing US-China trade tensions, it is the short-term uncertainty that would fuel the mainland to push through necessary reforms faster to boost long-term economic growth, says asset manager Amundi’s senior economist for macroeconomic research Qinwei Wang.

“I am [being] constructive on [the impact from] Trump’s pressure … because what is actually happening is Chinese policymakers are taking this opportunity to speed up reforms,” Wang said in a media briefing in Hong Kong.

US sanctions on ZTE were also a big lesson for Chinese companies and policymakers, Wang said. They have driven and strengthened China’s determination to catch up in the production chain and produce proprietary core technologies.

Beijing’s shift in its policy focus from cutting overcapacity to upgrading the economy – such as giving national grants and support in intellectual property protection – has become more pronounced amid the pressing need to protect Chinese corporate interests as the trade spat with the US intensifies.

Mainland Chinese media recently reported that China’s largest contract chip maker Semiconductor Manufacturing International Corp (SMIC) will start developing 14 nanometre (nm) chips at a mass production rate of over 95 per cent next year. The company also bought extreme ultraviolet lithography machines that makes 7nm chips from the Netherlands for US$120 million. Huawei Technology and Tsinghua Unigroup are expected to launch proprietary 5G chips next year.

Therefore, Amundi – Europe’s largest asset manager with €1.43 trillion (US$1.66 trillion) of assets under management – said it remained constructive on Chinese equities: applying a relative value trading strategy in asset allocations by going long on the Hang Seng China Enterprises stocks while shorting emerging markets as a hedge.