Trade War with China


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Hendrik_2000

Brigadier
Two years low price doesn't spell soybean maker Armageddon, considering that there is no trade war in every two year.
12 billion $ spent for PR , it is bargain : )
2 year is long enough time for family farm to go bankrupt. Remember every year the farmer has to go to bank to get the loan for the next planting season Anyway here it is the western press crowed about winning the trade war citing Yuan Dollar exchange rate

The Myths About China's Economic Slowdown
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I write about the global economy
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An employee counts 100-yuan notes at a bank in Nantong in China's eastern Jiangsu province on July 23, 2018.

China’s real GDP growth peaked in 2007 at 14.2%, and has been trending downward since. By 2017, it dropped to 6.8%. That much is clear and unmistakable. The problem is how to interpret the slowdown, especially in light of some recent economic indicators that have been widely used to project where the Chinese economy is heading. Here we quickly enter into the realm of myth making.

The first common myth is that the recent decline of the Chinese stock market, which has shed around 20% of its value since the beginning of the year, signals that the slowing economy is being affected by the trade war and therefore heading toward deeper troubles. Indeed, U.S.President Donald Trump gleefully tweeted on August 4 that the slide of Chinese equities indicates that he is winning the trade war against China.

The fact of the matter is that, unlike the U.S., China’s stock market has few significant links with the real economy. While the issuance of stocks is the primary source of raising capital for businesses in the U.S. and Western Europe, Chinese businesses continue to rely heavily on bank lending. Up to three quarters of China’s business investment has been financed by bank loans, versus less than 20% in the U.S., according to estimates by the
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. In this regard, the stock market is peripheral in China.

Furthermore, it is estimated that 80% of the trading volume of the Shanghai Stock Exchange is accounted for by small retail and individual traders, in contrast with institutional traders’ whopping 90% volume share in the U.S. As a consequence, volatility in America’s stock markets has a direct impact on the real economy via institutional traders and investors but not so in China. In fact, an
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shows no correlation between GDP growth and stock market valuation in China whatsoever. So much for a softening Chinese stock market signalling victory for Trump’s trade war.

A second myth is that slowing economic growth in China has led to the weakening of its currency, which in turn portends more difficulties ahead. Pundits who are bearish on China pen headlines using terms like “plunging Chinese yuan” and “troubled economy” in the same breath. And they keep pointing to the yuan’s 8% depreciation from April 11 to August 1 this year. The April 11 date is significant because it’s the most recent peak of the yuan’s exchange value against the U.S. dollar. That’s right, if you want to exaggerate the decline of anything, make sure you choose the last peak value as the starting point.


The fact of the matter is that it is not just the Chinese yuan that has declined against the U.S. dollar. Let’s stay with the April 11 starting day for the moment, by August 1 the euro also declined 6.6% against the US dollar, so did the Japanese yen by 6.3%, and the Indian rupee by 7.5%. The 8% decline of the yuan is therefore unremarkable. Taking a broader and more meaningful time frame of the last one year from August 1, 2017 to August 1, 2018, the Chinese yuan declined by 1.4% against the U.S. dollar, alongside with the decline of the euro by 1.0%, the Japanese yen by 1.3% and the Indian rupee by 6.5%, according to data from Haver Analytics. Framed as such, the decline of the yuan’s exchange value against the U.S. dollar is entirely unexceptional. Putting the spotlight exclusively on the Chinese yuan creates a completely misleading diagnosis. As I argued in an
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, much of the decline of the major currencies against the U.S. dollar is due to the rise of U.S. dollar driven by nothing more than global economic uncertainty because of the U.S.-initiated trade war.

Finally, there is the myth of an impending crash of the Chinese economy due to its debt overhang. China’s debt level had indeed surged in the aftermath of the global financial crisis when the government opened the spigot to flood the economy with bank lending. It helped holding up China’s economic growth, and in so doing provided much needed support to the global economy as well. However, China’s debt level also rose to among the highest in the world measured as a percentage of GDP, and has led to dire warnings of a coming financial crisis. The argument runs that, to avert a financial crisis, China has no choice but to deleverage, but in so doing the economy could crash.

What is overlooked is the fact that virtually all China’s debt is domestic, and most of it is owed by state-owned enterprises to state-owned banks. In other words, most debts are owed by one part of the government to another. Coupled with China’s massive foreign reserves, this makes a debt crisis like that of Greece impossible. China dealt with a worse debt situation in the 1990s by removing the banks’ non-performing loans and recapitalizing the banks. In the worst case scenario, the government could do so again; and today its fiscal power is stronger than in the 1990s.

More importantly, the emphasis on deleveraging fails to understand a fundamental function of debt in an economy. One person’s debt is another person’s investment. A high level of debt by itself is not a problem if it is productively invested. The best solution to China’s debt overhang is therefore to gradually increase productively invested debt and at the same time writing off steadily the unproductive debt. While the overall debt level may not have changed (hence no appearance of deleveraging), but as long as the composition of debt is shifting from the unproductive to the productive, the debt problem is resolved while economic growth remains intact.

This appears to be the course that the Chinese government is taking; curbing lending to state-owned enterprises, especially those in heavy industry suffering from over capacity, while maintaining supply of credit to more productive borrowers, especially private businesses in the service sector which now accounts for over half of the GDP. Hard data are difficult to come by; but the IMF’s estimates of China’s "incremental capital output ratio" (ICOR, the lower the value, the more productive the capital invested) show a decline from 7.07 in 2016 to 5.43 in 2017. This could just be a blip in the data, or the beginning of a trend, we just don’t know. Only time will tell. For now, a debt-induced financial crisis in China is sheer fantasy.

These are some (by no means all) of the common myths about China’s economic slowdown. What, then, is the reality of China’s economic slowdown?

Stay tuned.
 
now I read
China's vice commerce minister to visit U.S. on trade issues
2018-08-16 11:57:46
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Chinese delegation led by Vice Minister of Commerce Wang Shouwen will, at the invitation of U.S. side, visit the United States in late August to talk with the U.S. counterpart on bilateral economic and trade issues of their own concern, the Ministry of Commerce (MOC) said Thursday.

Wang Shouwen is also the deputy China international trade representative. The U.S. delegation will be led by David Malpass, Under Secretary for International Affairs at the U.S. Department of the Treasury.

China has reaffirmed its stance of opposing unilateralism and trade protectionism, and not accepting any forms of unilateral restrictive trade measures, according to an MOC statement posted on its website.

China welcomes dialogue and communication on the basis of reciprocity, equality and integrity, according to the statement.
 

Anlsvrthng

Senior Member
Registered Member
2 year is long enough time for family farm to go bankrupt. Remember every year the farmer has to go to bank to get the loan for the next planting season Anyway here it is the western press crowed about winning the trade war citing Yuan Dollar exchange rate
If a business facing five times in ten years this price then it is part of the normal business, not an exceptional events.

There is a cyclic movement of price anyway in every year, so an " every two year" event is not extreme.
 

tidalwave

Senior Member
Registered Member
Trump is getting plenty antsy lately.
Stalemate over NK issue, and China trade war. No result in sight.
He then followed by sanction of Iran and launched trade war against Turkey. Alot of actions.

Now , US invites China to have talk amid Xi political instability at home, feeling maybe Xi can make concession this time.

China sends a low level official to US for talk, probably just going through the motion, not going to make concessions US wanted.
 
Trump is getting plenty antsy lately.
Stalemate over NK issue, and China trade war. No result in sight.
He then followed by sanction of Iran and launched trade war against Turkey. Alot of actions.

Now , US invites China to have talk amid Xi political instability at home, feeling maybe Xi can make concession this time.

China sends a low level official to US for talk, probably just going through the motion, not going to make concessions US wanted.
Haha US media actually had articles saying, "Chinese ready to fold; sends team to Washington" and out of the first 5 comments, 3 were, "Didn't the US invite them to come?" Hahaha Americans starting to call out Kudlow for his stupidity.
 

xiabonan

Junior Member
I'm not sure where Western media got the impression that Xi is in some kind of political instability right now.

Most of the ordinary people on the street still firmly support him and even though there are different voices as to how to resolve the trade war, they are mostly in the realm of healthy policy debate and should not be seen as a challenge to Xi's political status and power.

If this trade war came even 1 or 2 years earlier that might be the case, but now his power consolidation is well completed and I personally believe nothing short of an economic crush or large scale riot will damage his political power.

Heck, even the recent vaccine scandal in China had a much large negative impact society wise than the trade war, why are western media always focusing on the less relevant things?
 

Hendrik_2000

Brigadier
I'm not sure where Western media got the impression that Xi is in some kind of political instability right now.

Most of the ordinary people on the street still firmly support him and even though there are different voices as to how to resolve the trade war, they are mostly in the realm of healthy policy debate and should not be seen as a challenge to Xi's political status and power.

If this trade war came even 1 or 2 years earlier that might be the case, but now his power consolidation is well completed and I personally believe nothing short of an economic crush or large scale riot will damage his political power.

Heck, even the recent vaccine scandal in China had a much large negative impact society wise than the trade war, why are western media always focusing on the less relevant things?
It is called hubris elevated self importance My way or highway. Seem to be a lot of noise about China is "loosing" the trade war Well I am not so sure about it China has faced worse challenge than that and she still not only survive but thriving Don't forget China has faced total embargo from 1949 until 1976
China’s economy will not buckle under Trump’s trade war
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AUGUST 17, 2018 6:19 PM (UTC+8)
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If one were to believe the news coming out of world media, China is about to concede to US President Donald Trump’s demands: Refrain from “unfair trade practices” and abandon the “Made in China 2025” industrial policy, the reasons for his trade war against the world’s second-largest economy.

According to articles published by outlets such as the South China Morning Post, Reuters and others, Trump is winning the trade war against China. For example,
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wrote for Reuters that four “anonymous sources” had said the US-China trade war had caused a rift within the Chinese leadership in part because of the government’s overly “nationalistic” tit-for-tat response. The article added that one “source” indicated Xi Jinping’s influence and power were waning.


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According to Blanchard and Yao, these “anonymous sources” said the leadership’s tit-for tat stance had hardened Trump’s stance, which they claimed was causing the loss of 20% in stock market values, a 0.1% year-on-year decline in growth in the second quarter and a 1.5% devaluation of the yuan against the greenback. These “sources” also claim China “overestimated” its strength, culminating in “a state of panic.”

Independent China-based researcher Xu Yimiao wrote in an August 10 the
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that China should cut its losses and concede defeat to Trump. He argued that China was running out of retaliatory countermeasures and overestimated its economic strength. Xu also saw the newly established EU-Japan Free Trade Agreement as a vehicle against China.

Another sign critics have used to show the US was winning the trade is the opposite directions in which the two economies were heading. The US Department of Commerce revealed that the US economy grew 4.1% in this year’s second quarter compared with Q1’s 2.3%. The National Bureau of Statistics of China showed that China’s second quarter increased slower than the first, 6.7% and 6.8% respectively.

But is China losing the trade war?
However, the critics were silent about China’s stock market rebounding since August 8. According to Bloomberg, foreign investors were bullish on the Chinese economy, buying US$2.9 billion worth of mainland shares through Hong Kong links between July 25 and August 8. Since most of the money came from institutional funds looking for long-term investment opportunities, it would seem foreign institutional investors are not worried about China’s economic “slowdown,” stock market losses or currency devaluation.

The US Chamber of Commerce in China has reported that 73% of its members are profitable and 74% planned to expand investment in China in 2018.

The China “gloom and doom” messengers also fail to mention that unlike Western stock markets, China’s are dominated by individual investors who have little knowledge about the economy or capital markets. They only want to make some fast money and for the most part panic at the first negative sign, as they did during the 2017 “Chinese stock-market rout” – which bounced back within a short time period.

Therefore, the stock market in China is never an indicator of economic performance. Rather, small investors see it is a casino in which to make a quick buck.


On currency devaluation, some critics see the trade war is weakening the Chinese economy while others speculate that China is “weaponizing” the yuan to counter Trump’s stance. Either way, that does not mean a weakening economy and capital outflow are in the offing.

Another sign that critics apply to suggest China is taking a hit from the trade war is the fact that the Caixin/Markit Purchasing Managers Index contracted from 50.1% in June to 50.8% in July, suggesting that manufacturing expansion had slowed.

Whether decreases in some economic indicators are a sign that the trade war is taking its toll on the Chinese economy is unclear. But Chinese key economic indicators are far more robust than those of the US, despite its president claiming the economy has never been better.

Further, critics have applied the same logic in past assessments, falling over one another to tell the world that China’s economy is collapsing at the first sign of weakness. They were wrong each time in the past. They will be wrong again because their analysis is inconclusive, lacks long-term data, and to some extent is injected with ideological biases.

Impact on US economy
The 4.1% Q2 growth rate in the US might have been a blip rather than a trend. Surging agricultural exports to bypass tariff retaliation by China and other countries contributed to one full percentage point of the growth rate, according to The Wall Street Journal. Trump’s tax cuts and increased government spending also contributed. Making allowance for these one-time phenomena, the seasonally adjusted growth rate (an indication of long-term growth trend) would be lower.

What’s more, other organizations are not as optimistic as the White House, pointing to a less than successful trade war.

According to an August 8 China Global Television Network (CGTN) report, the Atlantic Federal Reserve revealed that the trade war was forcing 20% of businesses either to postpone or cancel investment plans. If true, US economic growth will contract and unemployment will rise.

The Wall Street Journal has reported that small businesses and startup companies are being particularly hit hard, losing profits and investment funds (largely from China). Unable to withstand the losses, many could shut down, according to the WSJ. Should this occur, the impact on the US economy will be severe because small businesses are its backbone, creating most of the country’s jobs.

In the meantime, US farmers are still waiting for Trump’s promise of a $12 billion bailout. According the US Chamber of Commerce, Trump will require another $27 billion bailout for other agricultural groups. Where he will get that money is a mystery in light of increasing government deficits.

What’s more, the bailouts may only be a Band-Aid solution because they are intended to ease current revenue losses caused by Trump’s trade war against China (and other countries). The long-term pain will be much more pronounced because the US may lose the lucrative China market.


According to the China’s Ministry of Commerce, the country has other sources in Brazil, Argentina, Russia and other countries for its food and animal feed. And even if the European Union caves in to Trump’s bullying and shifts to buying US soybeans, farmers would still face surpluses, culminating in significant price drops.

The latest news on the effects of Trump’s trade war relates to the cost of rebuilding houses destroyed by California wildfires. According to the California Construction Association, the cost will rise because of tariffs imposed on lumber, nails, drywall and other building materials. Such costs would affect not only California, but would apply nationwide.

What’s more, Trump’s trade war against China disturbs the global supply chain, harming other countries, including the US. The parts imported from China and other nations to make the final product in America will become more costly, causing cost-push inflation. Moreover, prices rising faster than wages due to China’s and other countries’ tit-for-tat tariffs may lead to “price or demand pull” inflation.

History is not on the critics’ side, pundits having been wrong again and again over the last 40 years about China’s imminent collapse. Based on the cherry-picking of “facts” or inconclusive analysis, they will probably be wrong again.
 
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