Optimism

Experts hopeful about China’s economic prospects and trade talks with the U.S.

Wan agreement. “After the Beijing talk, I’ve become more optimistic because the two countries can sit down and talk about detailed issues,” Yao said, adding that the trade dispute “has psychological effects, especially on the stock market, which has a real impact on the real economy.”

Nicolas Lardy, a senior fellow at the Peterson Institute for International Economics, a private think tank, said eventually there would be a deal. “I think both sides have a very strong interest in coming to an agreement,” he said.

Catherine Mann, Global Chief Economist at Citigroup, said the collateral damage of the U.s.-china trade war was not only to global supply chains. “We have to recognize the collateral damage to the global economy,” she said.

Lu Feng, Director of PKU’S China Macroeconomic Research Center, said the U.S. economy is facing downward pressure and its trade deficits with China have actually increased rather than declined during the trade tensions, which indicated President Donald Trump’s tariff measures were not working to address the bilateral trade imbalance to a significant extent.

Being the world’s two largest economies, both countries have realized that if they do not prevent an escalation of the trade war, it’s not good for the global economy. China’s consistent position has been that it wants to negotiate to address the concerns of both, Lu said. “We have reasonable optimism about the deal,” he remarked, adding there will also be negotiations at the multilateral level.

“Looking ahead this year, I think the keyword or catchword in the international economic diplomacy or relationship would be talk rather than confrontation,” Lu said.

Lardy pointed out that China has already taken several measures to address trade concerns but they have not been very well noticed in the United States.

On January 1, China cut tariffs on over 700 imported items. It has also lifted owner- ship caps for foreign companies in financial services and automobile industries, reduced the list of investment areas off-limits to foreigners, and taken some significant steps to improve protection of intellectual property rights, Lardy said.

“These things have not got the attention I believe they should have. They should ultimately be part of the overall settlement between the two sides,” he said. “We will see increasingly the evidence that tariffs are actually disadvantaging the U.S. economy, reducing employment and slowing growth. This has somewhat been obscured by the effect of the very large tax cuts in 2018, but the effects begin to wane. If economic rationality prevails, there should be an agreement and sooner is better.”

Faith in Chinese economy

Justin Yifu Lin, former Senior Vice President of the World Bank and honorary Dean of the National School of Development at PKU, said he’s confident of China’s growth prospects, predicting that the Chinese economy will maintain a growth rate of around 6.5 percent in 2019 and continue to contribute about 30 percent to the global economic expansion. The Chinese market and growth will be an opportunity for both the Chinese and the global business communities, Lin said.

A major reason for his confidence is that “China’s economic policies are responsive and contingent” and the ongoing supplyside structural reform in China.

The five key tasks of supply-side structural reform are cutting overcapacity, destocking, deleveraging, lowering corporate costs and improving weak areas of the economy.

So far, the focus has been on the first three tasks, Lin said. For example, excess capacity in the steel, coal and aluminum sectors has been slashed significantly. The housing inventory has been reduced, especially in small cities and towns. Also, the high leverage ratio of state-owned enterprises has been lowered.