Timing of US trade war ‘couldn’t have been worse’ for China

Alternative Headline: Trump's Tough Trade Policy With China Is Limiting China's Zeal For Power And Dominance And Helping America.

As the fiscal policy row rumbles on in China, concerns are growing about the state of the economy and the aftershocks of the trade war with the United States.

Last week, Xu Zhong, the director-general of the research bureau of the People’s Bank of China, or PBOC, heavily criticized the country’s fiscal strategy as Beijing grapples with rising debt and a slowing economy.

His remarks triggered a heated debate in policy circles after he broke protocol by singling out the Ministry of Finance’s performance in the government’s ongoing war with debt.

“There is ample room for fiscal policy, but evidence shows that the policy is not being implemented actively enough,” Xu said in a speech before the text was released to Chinese media group Caixin.

“Lowering local authorities’ willingness to pay off debt, which would pass the fiscal risks to the financial sector, [are] moves [which] may lead to moral hazard … and even trigger systemic risks,” he added.

Since the Ministry of Finance is in charge of fiscal policy while the PBOC concentrates on monetary issues, his statement resonated with economists and analysts in China.

On Wednesday, the war of words continued when Liu Shangxi, the head of the Chinese Academy of Fiscal Sciences under the Ministry of Finance, stressed that fiscal policy should help steer structural changes rather than stimulating growth.

“All this puts China in a very difficult position,” the J.P. Morgan note stated. “Not only because much of the tariff and non-tariff measures are directed towards it, but the timing couldn’t have been worse.”

“The current proactive fiscal policy, which is different from the traditional expansionary policy, is not [a] direct government effort to expand demand, but indirect effort through stimulating market vitality, optimizing resource allocation and increasing quality supply,” Liu wrote in the official Economic Information Daily.

The world’s second-largest economy is starting to cool as growth in key sectors slow amid fears of an escalating trade war with the United States and Beijing’s crusade against corporate and local government debt.

Borrowing costs have spiraled as the purge continues, prompting the PBOC, or central bank, to cut reserve requirement ratios for major banks three times this year.

Liu’s comments are yet another sign that there are conflicting views at the top of President Xi Jinping’s administration when...Read More HERE