Opinion | With US trade war, China’s long-running economic reforms have been thrown a spanner in the works

China has been trying to rein in debt, correct the public-private imbalance and spur consumption-led growth. The real danger of the trade war is it risks distracting policymakers from their focus on such structural reform

Reading Time:4 minutes

Published: 5:00am, 29 Jul 2019Updated: 5:21am, 29 Jul 2019

The trade war that US President Donald Trump launched a year ago has bruised China’s economy. Yet, since 2010 China’s gross domestic product growth has been trapped in a downward trend . Trade war aside, the real danger for China lies in the daunting structural weaknesses in its economy, accumulated through decades of rapid development and growth.

The trade war, beyond denting China’s exports, complicates matters by abruptly distorting Beijing’s ongoing endeavour to disentangle its structural problems.

Even before the 2008 global financial crisis, the Chinese leadership had declared that China’s growth model was “unstable, unbalanced, uncoordinated and unsustainable”.

China recognised that it was locked in a vicious cycle of ever-heavier dependence on investments in infrastructure and real estate to realise its target growth rate, and that this spawned perilous structural problems.

There are three major problems. The first is high debt at the local government level. Driven by investment-oriented growth incentives, local governments went on an investment binge, relying substantially on borrowing to fund infrastructure projects.

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