Politics White House Split Over Hardline Response to China Trade War
China,
Canada and Hong Kong are among the economies most at risk of a banking crisis,
according to early-warning indicators compiled by the Bank for International Settlements.
Canada -- whose economy grew last year at the fastest pace
since 2011 -- was flagged thanks to its households’ maxed-out credit cards and
high debt levels in the wider economy. Household borrowing is also seen as a
risk factor for China and Hong Kong, according to the study.
“The indicators currently point to the
build-up of risks in several economies,” analysts Inaki Aldasoro,
Claudio Borio and Mathias Drehmann wrote
in the BIS’s latest Quarterly Review published on Sunday.
The study offered some surprising results: for example, Italy
wasn’t shown as being at risk, despite its struggles with a slow-growing
economy and banks that are mired in bad debts.
While China was flagged, a key warning indicator known as the
credit-to-gross domestic product “gap” showed an improvement, said the BIS,
known as the central bank for central banks. This may suggest the government is
making progress in its push to reduce financial-sector risk.
China
Derisking
China
banking stress indicator improved since 2015
Source: BIS
The gap is the difference between the credit-to-GDP
ratio and its long-term trend. A blow-out in the number can signal that credit
growth is excessive and a financial bust may be looming. In China, the gap fell
to 16.7 percent in the third quarter of 2017, down from a peak of 28.9 percent
in March 2016 and the lowest since 2012, the study showed.
The narrowing gap in China “suggests the efficiency of
financial intermediation is improving," said Ding Shuang, chief economist
for Greater China and North Asia at Standard Chartered Plc in Hong Kong. “This
helps to slow the pace of the rise of the debt-to-GDP ratio, creating
conditions for an eventual deleveraging of the economy.”
Financial
Crackdown
China
is getting serious about dangers in its financial system. While derisking has
been the government’s mantra since 2015, the country’s most powerful
politicians have been ramping up directives on everything from shadow banking
to stock-market speculation. Since April last year, financial regulators have
targeted curbing the growth of wealth management products and interbank
borrowings, with a more recent focus on reining in household debt.
The Basel, Switzerland-based BIS routinely collects and
analyzes data to monitor vulnerabilities in the global financial system. These
figures typically include the amount of credit in an economy and house prices,
as well as borrowers’ ability to service their debts.
For this study, the analysts assessed household borrowings and
cross-border or foreign-currency liabilities as potential sources of
vulnerability by back-testing them against earlier crises. They then scored the
indicators by the amount they currently deviate from long-term trends.
— With
assistance by Samuel Dodge, Jeff Black, Jun Luo, and Enda Curran
(Updates with chart and economist comment on
China’s deleveraging in seventh paragraph.)
First wave of tariffs on
Chinese goods to take effect July 6
·
One
idea floated is a visit by Chinese official Wang Qishan
Sec.
Ross Says Trade Partners Are Spoiled and That Game Is Over
Some White House
officials are trying to restart talks with China to avoid a trade war before
U.S. tariffs on Chinese products take effect July 6, three people familiar with
the plans said, setting up a battle with others in the administration who favor
a harder line.
Staff of the National
Economic Council have contacted former U.S. government officials and China
experts in recent days to gauge chances for high-level talks in the next two
weeks, the people said on condition of anonymity to discuss the inquiries. One
idea NEC staff floated was inviting Chinese Vice President Wang Qishan before
the tariff deadline, they said.
Wang
Qishan
Photographer: Andrey Rudakov/Bloomberg
The
outreach signals a willingness by some U.S. officials to seek a truce before
$34 billion in Chinese products are hit with tariffs rather than trigger a
trade war between the world’s two largest economies. Still, the chances of such
negotiations happening in the near term are slim as long as opponents inside
the administration favor penalizing Beijing. President Donald Trump has shown
no signs of backing down.
The White House didn’t
respond to a request for comment.
Minding
the Trade Gap
Trump frequently cites the "massive"
trade deficit with China as a problem
Source: Bureau
of Economic Analysis
The
U.S. administration has said that after July 6, tariffs on an additional $16 billion worth
of Chinese goods will be imposed after a public review period. The tariff
threats have hurt U.S. stocks in the past week, and the Dow Jones Industrial
Average declined for an eighth straight day on Thursday, the longest losing
streak in more than a year.
Tit-for-Tat
After China swiftly
responded with counter threats on the same amount of tariffs and timeline,
Trump on Monday directed the U.S. Trade Representative’s office to identify an
additional $200 billion worth of Chinese products that would be subject to a 10
percent tariff. The administration has not published a timeline for these
tariffs.
“If
it really does get to be a big war, we have many more bullets than any of these
other countries,” Commerce Secretary Wilbur Ross said in a Bloomberg Television interview on Thursday.
There
are different views within the Trump administration on what could be considered
a win. Hard-liners such as U.S. Trade Representative Robert Lighthizer and
White House trade adviser Peter Navarro are pushing for structural changes to
China’s policies. Treasury Secretary Steven Mnuchin and NEC Director Larry
Kudlow are more receptive to a deal aimed at lowering the bilateral trade
deficit.
Trade Infighting
Divisions within the
administration on how to deal with China make it harder for the White House to
get Wang to visit on short notice. But other administration officials are
thinking about bilateral talks in the longer term, the people familiar with the
matter said.
A more realistic possibility
would be for Wang to visit before the bigger round of tariffs are imposed,
according to Derek Scissors, a China analyst at the American Enterprise
Institute in Washington. The U.S. still needs to release a product list for the
threatened tariffs on $200 billion of Chinese goods, and then there would be a
60-day comment period before those take effect.
“We just failed to reach a
deal a few weeks ago, so reaching one in the next few weeks is unlikely,”
Scissors said. “The real deadline is more like Sept. 6 than July 6.”
The two sides have tried,
and failed, to resolve their differences through earlier rounds of
negotiations.
Ross told a Senate committee
Wednesday that previous talks with Chinese officials showed “that the
administration is trying,” but that the two sides “were not able to accomplish
enough to justify in the president’s mind not going ahead with the tariffs.”
Bloomberg’s
Stephanie Baker reports on White House frictions over trade.
Source: Bloomberg
“There
are already some signs that we may get some ultimate solution,” Ross told
senators at a hearing that focused on his agency’s Section 232 investigations
into imports that pose a national-security threat. “I don’t think the Chinese
want a trade war any more than we do.”
The latest round shows
stiffening positions and Trump’s push to heighten downside risks in order to
win more concessions in negotiations, according to Societe Generale SA
economists Stephen Gallagher and Yao Wei. All threats materializing would hurt
China’s economy more than America’s, a reason the U.S. is willing to push
harder, and ripple through value chains to Taiwan, Malaysia, South Korea and
Singapore, they said in a note Friday. Multinational companies seeking access
China’s large market and cheaper factories would be hurt most.
“There is a sense of playing
with fire,” they said. “Increased tariffs can do more damage both to the
economies and to the companies straddling the trade disputes. We still expect
to avoid a trade war that could bring sustained damage to the global economy.”
Still, U.S.-China tensions
could be further strained before the tariff deadline. The Treasury Department
is slated to announce measures to restrict Chinese investments in the U.S. by
June 30 as part of a probe under USTR’s Section 301 into alleged
intellectual-property theft and the forced transfer of technology.
In
an editorial published
late on Thursday, the state-run tabloid Global Times newspaper said that while
competition with the U.S. would grow, Chinese should focus on domestic affairs
and “maintain strategic composure.”
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