MNI: China Will Open Markets To Ease Trade Tensions
China will liberalise its economy if faced with higher tariffs.
China will deepen market access for foreign trade and investment to temper increased U.S. trade tariffs should former President Donald Trump regain the White House, trade and currency experts have told MNI, adding the direction of the Japanese yen will feature heavily in any discussion about greater yuan flexibility.
“Trump's 60% tariffs, if ever implemented, would be very damaging in the short run,” said Wang Dong, professor and executive director at the Institute for Global Cooperation and Understanding at Peking University, noting rising trade tensions with other nations also posed risks.
Last month’s Third Plenum underscored Beijing’s commitment to link China more closely with the global economy, which would mitigate damage from U.S. tariffs, he added. (See MNI: Further Easing To Boost Property After China’s 3rd Plenum)
“The recent leadership plenum underscored that market and institutional opening up as a key part of Chinese modernisation towards 2035,” Wang said, noting China planned opening market access and ensuring equal treatment for foreign firms.
UBS estimated a 60% Trump tariff on all Chinese imports would halve China’s GDP growth rate, but Wang noted uncertainty remained over how quickly and gradually measures would be implemented.
Wang was more optimistic on China-EU economic relations, noting Brussels perceived more value in globalisation than Washington, giving negotiations a firmer footing.
YUAN DEPRECIATION
Analysts have speculated the People’s Bank of China may devalue the yuan to offset potential trade challenges.
However, a currency devaluation would exacerbate global-trade tensions further, given Beijing’s strong exports advantage, a chief economist at a leading consultancy firm said.
“The only long-term solution is for China to expand market access to foreigners – a wider deal needs to be done,” the economist, who did not wish to be named due to the sensitivity of the matter, added.
Allowing more yuan flexibility would benefit the economy by lowering real-interest rates and reflating prices, the source said.
"This was more likely if China faces both Trump tariffs and a persistently weak yen, a major regional currency that constitutes about 11% of the yuan's managed rate," the economist continued.