bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

authorLocations

authors

corrections

sponsorType

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

quizIds

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

paywallTypes

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Hao Zhou

When China’s Vice-Premier Liu He invited US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to take a picture together in Shanghai on the evening of July 30, it was hard to image how much trade tensions would escalate within 48 hours.
On August 1, US President Donald Trump tweeted that he would impose tariffs on all Chinese exports to the US, resulting in a big shock globally, including probably to Liu.
The media reported that Trump made this decision in the Oval Office in front of Lighthizer and Mnuchin, and Mnuchin suggested he needed to at least tell Liu about the new tariffs.
A call was placed, according to some media reports, but nobody in Beijing picked up the call.




It is a bit hard to imagine that Beijing did not pick up a call from a senior US official. Whatever the case, at the end of the day, the tariffs were a slap in the face for China.
I believed China prepared very carefully for the Shanghai talks. The American delegation was welcomed by their Chinese counterparts at the Fairmont Peace Hotel, located in the riverside Bund, which is also famous for its Old Jazz Band.
The band, with six local players all aged over 70 years old, has been playing in the Peace Hotel since the 1980s.
I am not sure whether US trade negotiators spent some time in the bar that evening, but surely the selection of Shanghai and the Peace Hotel indicates China had high stakes on the trade talks.
However, as a result of the Shanghai talks collapsing, hardliners from the Chinese side have taken centre stage.

On August 5, the Chinese currency breached the 7 yuan to the dollar mark, which the People’s Bank of China had defended for years, and on August 23, China announced that it would impose retaliatory tariffs of 5 to 10 per cent on US$75 billion of American products.
All this suggests that China is preparing for a protracted trade war with the US and, more importantly, is prepared to pay the cost in the coming years.
Why China’s bond market is well placed to ride out global economic storm
Some explained that Chinese President Xi Jinping sees no point in signing a deal with Trump, who simply has no credibility. But Mexico, at the end of day, still sought a trade deal with Trump, and Japan is doing the same at this moment.
That said, the most important thing is not who China is going to sign a deal with, but whether China still holds the bargaining power at this juncture.
China seems to firmly believe so, and the Chinese policymakers have taken swifter actions in recent weeks. The trade war has somehow helped to accelerate the policymaking process.




For instance, China has blocked the financing channels to the shadow banking and property sectors. Over the past half-year, three medium-sized and small commercial banks have been taken over or recapitalised.
Furthermore, China has massively tightened property financing for both developers and homebuyers.
Clearly, both property tightening and financial deleveraging are typical de-risking processes, indicating that China sees the importance of containing systemic financial risks amid ugly trade tensions.
The US and Chinese economies need more than a trade war truce
This might be equally important for the US. Trump continues to put pressure on the Federal Reserve to cut interest rates to sustain economic growth, and every time the stock market drops, Trump pays special attention on Twitter.
To be blunt, the trade war will terminate should a financial crisis take place in either country, or both countries, as a crisis will destroy everyone’s confidence. Under such circumstances, nobody will be interested in addressing external imbalances.




Put simply, to have a sound position in a prolonged trade war, both China and the US have to find a new balance between growth and risk management. And the bottom line is to prioritise financial stability ahead of economic growth.
Hence, it does not matter whether China takes a soft or hand line in the trade talks. As long as it can manage the financial risks embedded in the real economy, it can still hope for a turnaround in the trade talks in the future.
The same applies to the US: as long as the equity rally continues, it still has the upper hand in the trade spat.
However, to achieve the same target, China and the US have to adopt very different monetary policy approaches.
For China, monetary policy will be eased towards the manufacturing sector, but tightened in the shadow banking and property sectors to prevent another round of debt piling.
As for the US, it needs an extraordinarily relaxed monetary policy to support financial markets.
Hao Zhou is senior emerging markets economist at Commerzbank


How Indonesia can calm property investors’ fears of a return to 1998

Asia’s commercial property market growing in diversity and complexity

Ukraine must look beyond the US to chart its own course for peace

Data centres and Japan likely to remain Asia’s real estate darlings

The View

China is tightening and the US is easing, but both show signs of digging in for a long trade war

US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin pose for a photo with Chinese Vice-Premier Liu He in Shanghai on July 31. Within 48 hours of this picture, when progress in negotiations was apparent, the trade war between the US and China escalated with the announcement of fresh tariffs. Photo: AFP

In this photograph taken on August 8, 2017 members of the "Old Jazz Band" perform at Shanghai's ornate Fairmont Peace Hotel in Shanghai. Frequently described as the oldest jazz band on the planet and once recognised as such by Guinness World Records, its six wizened Chinese members range from a relatively youthful 63 to a scarcely believable 97. / AFP PHOTO / CHANDAN KHANNA / TO GO WITH: Lifestyle China-music-jazz, FEATURE by Peter STEBBINGS

China has taken a key step towards interest rate and monetary system reform, but caution will rule

Yi Gang, governor of the People’s Bank of China, has signalled that the country is reforming its dual-track interest rate system. Photo: Bloomberg

Despite his boasts, Trump is far from winning trade war

US President Donald Trump is counting on a trade war win and good US economic outlook for re-election in 2020. Far from being a winner, his strategy is proving counterproductive. Photo: Reuters

China’s economic achievements over the past 70 years point to a strong future, even amid the US trade war and slowing growth

Illustration: Craig Stephens

Opinion

Comment

Business


China pushes ahead with deleveraging and tightening standards to avoid systemic risks, while the US seeks stimulus
These approaches appear opposite, but both are about girding up to maintain an advantage in the trade war



China pushes ahead with deleveraging and tightening standards to avoid systemic risks, while the US seeks stimulus. These approaches appear opposite, but both are about girding up to maintain an advantage in the trade war.


US-China trade war

US-China trade war: All stories

US-China relations

Donald Trump

China economy

US Federal Reserve

Xi Jinping

Currency war

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

The View | China is tightening and the US is easing, but both show signs of digging in for a long trade war

China pushes ahead with deleveraging and tightening standards to avoid systemic risks, while the US seeks stimulus These approaches appear opposite, but both are about girding up to maintain an advantage in the trade war

China pushes ahead with deleveraging and tightening standards to avoid systemic risks, while the US seeks stimulus

These approaches appear opposite, but both are about girding up to maintain an advantage in the trade war