China held its most important economic policy meeting of the year recently amid a burst of confidence that the Communist Party leadership is about to take the most decisive action in more than a decade to boost growth. The Central Economic Work Conference signalled aggressive measures to stimulate an economy on the brink of deflation.
The party’s top officials have been using language not heard since the aftermath of the global financial crisis to signal a looser monetary policy and more action on the fiscal side to stimulate domestic demand. This follows some signs of a revival on the foot of successive policy interventions in recent months, including interest rate cuts and an easing of lending rules.
But the measures have so far failed to end the years-long slump in China’s property market and its knock-on effect on consumer confidence. And as China’s consumers remain reluctant to spend, the rest of the world is increasingly anxious about the impact of plentiful, cheap imports of Chinese goods such as electric vehicles.
The external environment is set to worsen for Beijing next month when Donald Trump returns to the White House with a mandate to impose a blanket 60 per cent tariff on all Chinese imports. China’s policymakers appear to have been holding back much of their firepower so that they can blunt the impact of tariffs by pumping money into the domestic economy.
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China has shown some of the retaliatory instruments at its disposal, announcing curbs on exports to the US of critical minerals and materials including gallium and germanium, which are essential for producing semiconductors. Both the US and China demonstrated during their last trade war that they have the capacity to damage one another.
Other countries, including Ireland, will suffer if the world’s two biggest economies start a new trade war. The best hope is that Beijing takes the bold action needed to persuade Chinese consumers to start spending and that the next trade war with the US will be short or, better still, avoided.