Possible sanctions of financial transactions could trigger financial crisis in China
October 2, 2018 Category Foreign trade, Weekly
A further escalation of the trade war between Washington and Beijing to include sanctions on financial products or transactions could trigger a financial crisis in China, researchers warned in a report. The study by Renmin University’s National Academy of Development and Strategy looked at a series of possible additional retaliatory steps the U.S. could take in the trade war to constrain, or even try to directly destroy, China’s financial markets, financial assets and its currency. While some of the scenarios seem fanciful, and would clearly do the world economy great harm if they were ever implemented, the fact that the think tank chose to examine them suggests concern that the U.S. will stop at nothing to win the trade conflict. So far, the tit-for-tat trade war between the world’s two largest economies has focused entirely on commercial goods.
The U.S. is a major source of foreign investment for China. According to China’s Ministry of Commerce (MOFCOM), by the end of 2017, there were approximately 68,000 U.S.-funded enterprises in China with actualized investment of more than USD83 billion. China and the U.S. have both reaped enormous benefits from trade and economic cooperation. American companies have played an exemplary role in China for their Chinese peers in terms of technological innovation, marketing management, and institutional innovation. They have promoted market competition and motivated Chinese firms to improve their technology and management.
At the same time, the U.S. has gained access to a wide range of business opportunities such as cross-border investment and entry into the China market, which have played a big part in driving economic growth, improving consumer welfare, and upgrading the economic structure in the U.S. China respects international business practices, observes the rules of the WTO, and treats all businesses registered in China equally, Chinese analysts said.
U.S. President Donald Trump used the occasion of his second address to the United Nations to amplify his anger about China’s trade and economic policies, accusing Beijing of “relentless product dumping” and other unfair practices. Singling out China as a rogue nation in terms of trade while discussing his administration’s most pressing foreign policy issues at the 73rd annual UN General Assembly in New York, Trump’s move signals further escalation in the bilateral trade war that started in July, and his administration’s determination to change the course of the Sino-U.S. relationship, analysts said. “I have great respect and affection for my friend President Xi, but I’ve made clear our trade imbalance is just not acceptable,” Trump said.
The United States is putting “a knife to China’s neck” on trade issues, China’s Vice Minister of Commerce Wang Shouwen said, adding that the resumption of talks on the matter depended on the “will” of the U.S. According to analysts, it is increasingly likely that both sides will not resume negotiations for some time, at least until there is a noticeable shift in the political mood on either side, possibly until Donald Trump leaves the White House. Several rounds of talks in recent months have failed to produce a significant breakthrough and fresh negotiations which had been expected in coming weeks have been cancelled by China. Wang said that not all trade discussions had been useless, but accused the U.S. of abandoning its mutual understanding with China.
Despite the trade war, the Chinese government decided to cut import tariffs on 1,585 items from November 1. China’s average tariff level will be reduced to 7.5% after the new round of cuts from 9.8% last year. Among the cuts, the average tariff rate on electromechanical equipment imports will be reduced to 8.8% from 12.2% while tariffs on textiles and building materials will be cut to 8.4% from 11.5%.
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