In KResearch’s view, China’s economy may slow over the
remainder of 2018, along with exports that will likely weaken as well,
amid full-year growth that is expected to reach 6.6 percent YoY. Because
accelerated shipments were already transacted before the effectiveness
of new tariff rates per Section 301 of the US’s Trade Act of 1974 at the
end of 2Q18, impacts of those increased tariffs would not be very
serious. Also, key Chinese
products, e.g., mobile phones and PCBs, are not included in the new
taxation. Therefore, China’s outward trade in 2018 should still expand,
given an up-cycle in global electronics business. However, with demand
now weakening and a high 2017 base, this leads KResearch to project
slower growth in China’s 2018 exports at perhaps 4.5-5.5 percent YoY,
versus the 7.9-percent pace in 2017, assuming that trade disputes
between the two countries do not escalate and a satisfactory conclusion
can be reached within 2H18.
Meanwhile, China’s
central bank recently announced a cut of 1 percent in their reserve
requirement ratio for commercial banks (RRR) to help promote SMEs, while
also contributing to higher liquidity that would cushion future risks.
This RRR cut is not aimed at stimulating the overall economy and will
likely not create any greater risk in corporate debts, due to stricter
loan underwriting criteria required for them by the authorities. In
addition, the lower RRR is also, in part, a replacement for their CNY900
billion medium-term lending facility to the banking sector that will be
due at the end of April 2018.
Risks to be watched over the rest of this year include those mainly related to international trade. The US is
considering the inclusion of more Chinese products into their list of
goods to be subject to higher tariffs – and that might total around
USD100 billion in export trade – in retaliation for China’s stated
intent to impose a 25-percent tariff on US imports; such action would
likely put more pressure on China’s economy. Nevertheless, KResearch
maintains the view that China and the US may be able to find an amicable
solution to the US’s Section 301 measures that could minimize its
negative impacts and in turn limit damage to their economies. If they
accomplish this, global trade would thus be gradually revived and a
trade war between the two countries would be less likely to arise.
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