Chamber in Review
Assessing Trade War Developments
Assessing Trade War Developments<br/>評估貿易戰發展

Carol Liao, Executive Director and Senior China Economist at JP Morgan<br/>摩根大通銀行執行董事兼資深中國經濟學家廖薇博士

Liao noted that the ban on American technology producers exporting to China, in particular, could have far-reaching implications.

What are the reasons behind the United States’ pursuit of a trade war with Mainland China, and how is the situation likely to play out in the near future? Carol Liao, Executive Director and Senior China Economist at JP Morgan, shared her insights at a Chamber roundtable on 25 October.

“Everyone knows this goes way beyond trade,” said Liao, who was previously an economist at the IMF. She explained that while there is a trade imbalance, other issues that are of concern to the U.S. administration are IP protection and market access in the Mainland. 

Beijing has promised to open its markets further and to strengthen its IP protection, and is already carrying out reforms in both these areas. But the U.S. “wants all or nothing,” Liao said. It is demanding that Mainland China change its whole economic model, something that is not going to happen. 

JP Morgan has noted strong bipartisan support for anti-China measures in the U.S., so even a weakening of the current administration would not be likely to change the path. Given all this, JP Morgan is not optimistic that there will be a resolution to the trade tensions any time soon.

Liao noted that the ban on American technology producers exporting to China, in particular, could have far-reaching implications. This would force the Mainland to become more independent when it comes to technology development and could see more resources being allocated to related industries. 

“We will see more state power focused on the tech and R&D sectors,” she said, adding that any increase in investment in these areas could turn out to be a good thing for the Greater Bay Area, including Hong Kong. 

If the 25% tariff level on all products threatened by the U.S. does come into effect next year, this will likely hit the Mainland’s GDP to the tune of around 1%, according to JP Morgan’s estimates, resulting in the lowest growth level for 20 years. However, government measures are likely to be introduced to stop this happening. 

Another potential issue for China is its government debt, which is 60% of GDP and rising. However, this is not a huge concern, as it is still low compared with the U.S. or Japan, for example.

“The government also has ample assets on the balance sheet to handle the debts,” Liao added, including land and large SOEs. 

In response to a question about the likelihood of a financial crisis in the Mainland in the near future, Liao said that there is a consensus among experts that this is not likely.

“There have been a lot of factors that outside observers have described as a ticking time bomb,” she said. “But if you look more closely, China has mitigating factors.” 

These include strong state control, low household debt and manageable government debt. Corporate debt is a problem, but many corporates in the Mainland are also SOEs, so have government support.
“Nobody is expecting a hard landing in the next 12 months.” 

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