China-US trade war reaching a crescendo
(6 December 2018 - China) Despite a three month cessation in trade war hostilities between China and the US tabled at the recent G20 meeting, tariffs and slowing global economic growth are clearly impacting Chinese export volumes according to the latest trade report.
The drag on sentiment is coupled with Huawei CFO Wanzhou Meng’s arrest in Canada over potential violations of US sanctions on Iran, provoking outrage from China and complicating tense trade negotiations at the very moment they enter a critical inflection point. Foreign Ministry spokesman Geng Shuang said that China wants the both the US and Canada “to clarify the grounds for the detention, to release the detainee and earnestly safeguard the legitimate rights and interests of the person involved.”
Chinese export growth has slowed while import growth fell even more sharply according to the November report from China’s Customs Administration. November exports rose 5.4 percent year-on-year while Chinese customs data revealed it was the weakest performance since March. Exports to the US rose ten percent year-on-year yet fell back from the 13.2 percent rise notched the previous month. EU shipments increased six percent, halving the 14.6 percent increase from October. Analysts report that slowing global demand appears to be outweighing the continuing higher than forecast exports to the US ahead of the likely commencement of higher tariffs in 2019.
Growth in imports for November slowed to just 3 percent in November following a notable jump of 21.4 percent in October. Analysts see the Chinese government now increasing efforts to aid the slowing economy with the PBoC easing the reserve asset ratio for Chinese banks four times this year to improve liquidity for SMEs. Further reserve ratio cuts could be made in addition to a possible interest rate cut. For January-November China’s trade surplus with the US was US$293.5 billion, compared with US$251.3 billion last year. That confirms that Chinese exporters have stepped up shipments to the US ahead of tariff changes. China’s FX reserves rose by US$8.6 billion in November since October following three months of consecutive declines, influenced by rising bond prices in major countries. By the end of last month, FX reserves stood at US$3.1 trillion, a net decline of US$78 billion since the end of 2017 according to the PBoC. Last month’s increase was a result not only of higher bond prices but also a relative strengthening in the Greenback.
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