US-China Trade Battle Hits Global GDP as Negative for 2-3 Years
United States and China have agreed to resume trade talks - Photo by GettyImages

JAKARTA (TheInsiderStories)People’s Bank of China (PBoC) warned that uncertainty caused by friction and trade tensions between the United States (US) and China could have a negative impact on the global economy, it said in its latest report on monetary policy implementation in first quarter 2019 last week.

According to the PBoC, in the future, trade friction and policy uncertainty could further drag the global economy through high inflation, damage to family and corporate sentiments, and financial market volatility.

The Chinese economy has some deep problems because some traditional sectors are in adjustment, manufacturing growth and private investment are slowing and economic growth is heavily dependent on property and infrastructure investment, the central bank said in the report.

In addition, uncertainties and impacts on the global supply chain caused by trade friction are gradually releasing, starting from postponed corporate investment decisions to easing external demand for some countries because the supply chain is disrupted.

The potential for disruption is considered to be severe because of a blow to rising tariffs on goods sold to the US, and related uncertainties caused by the worsening trade war.

However, the PBoC estimates that China’s economic outlook will remain stable thanks to many favourable factors.

“China is able to overcome various types of internal and external uncertainties because there is sufficient space for policy makers to maneuver and various monetary policy tools,” the central bank said.

The country’s economic indicators showed positive signs of stabilization in Q1, with the economy recording a better-than-expected 6.4 percent year-on-year (yoy), reflecting expansionary economic activity and improving economic structures.

That means, for China, the blow of President Donald Trump on Chinese export goods does not reflect some weakness in the credit and economic indicators in April or the latest US rate increase for Chinese goods in May.

“The People’s Bank of China hints in its latest quarterly report that it can start looking beyond the current cycle. We think that would be premature, given recent weakness and intensified pressure on the external sector,” Chief Asia Economist of Bloomberg Economics Chang Shu commented.

Looking ahead, the central bank promised to continue with targeted stimulus domestically while keeping its currency stable.

The Yuan traded on the ground broke the level of 6.8859 to the dollar on Friday as the weekly decline extended to the longest since August amid tensions with the US trade.

Policy makers will maintain a balance between tightening and easing measures, while making controls from targeted monetary tools.

“Monetary policy will keep liquidity conditions and credit growth steady, and the central bank is ready to provide counter-cycle support if the growth trajectory deteriorates suddenly,” said economists at China International Capital Corp Eva Yi and Liang Hong in their notes on Sunday ( 05/19).

In addition, the central bank also stressed the need to improve the credit structure, which meant he wanted to improve his ability to direct credit to the parts of the economy in need.

“China has accumulated experience and has sufficient policy tools to deal with foreign exchange market fluctuations,” State Foreign Exchange Administration Chief Pan Gongsheng said in an interview on Sunday.

Gongsheng viewed China’s stable economic and financial performance as providing strong support to keep the foreign exchange (forex) market and the Chinese currency stable. China’s forex market is expected to see more capital flows this year, he added.

Meanwhile, former PBoC official Sheng Songcheng stressed that China should not allow Yuan to be weaker than level 7. The fall of Yuan by passing level 7 could shake market confidence.

“Increase the pressure on capital outflows. Devaluing the Yuan only has a small positive impact on trade,” he said.

Written by Daniel Deha, Email: daniel@theinsiderstories.com