Calling for policy support
According to CN Wire, Goldman Sachs Economists highlighted the need for policy support by saying:
“Beijing needs to ease more target easing in the coming quarters given the slower domestic demand and the continued weakness in the labour and property markets.”
The Economist has been added:
“The economic debilitation is the result of a combination of factors, including heavy rains and floods in early August, regional restrictions on the construction of Beijing, and a long recession in the cities near the front of the military parade, the property sector, and the government’s crackdown on price wars.”
Trade talks are focused
The weakening of China’s economy comes at a crucial time as the US administration is asking other countries to raise tariffs to put pressure on China to stop importing Russian oil. Mexico also turned the screws and announced plans for a 50% tariff for the automaker.
With high levels of trade negotiations underway, it is important to lower US tariffs to restart industrial production and to facilitate margin pressure. However, risk remains when stagnant talks, 100% EU tariffs on Chinese products and 50% Mexican tax on automobiles burden external demand.
It’s progress, but uncertainty
The updates from trade negotiations are bright, reportedly Scott Bescent, the Secretary of Treasury.
“The next consultation with the US could lead to a rollover of an additional 90-day tariff ceasefire, which could occur before the November 10th deadline. China’s negotiators are strict, but we’ll realize there’s three and five years to risk risk to US trade relations to avoid decoupling.”
Meanwhile, China’s major trade negotiator Li Chenggang reportedly said they had reached Tiktok’s framework agreement. However, he warned that China would not sacrifice profits to businesses to reach an agreement. President Trump is scheduled to speak with Chinese President Xi Jinping on Friday, September 19th.
Does Beijing agree to cut Russian oil imports in exchange for a reduction in tariffs? The question was heavily after the Shanghai Cooperation Agency (SCO) summit in early September, attended by Chinese President Xi Jinping, Russian President Vladimir Putin, and Indian Prime Minister Narendra Modi.
Beijing used the platform to dilute US authority over global trade and drive stronger demand for Chinese products. Beijing U-turn on foreign policy seems unlikely, but that’s not entirely unbelievable.
Beijing’s policy direction
On Wednesday, September 17th, lawmakers will hold a briefing to discuss ways to boost service consumption. This is important to follow ongoing trade talks, addressing price competition and moving forward with a transition to a consumption-driven economy.
CN Wire reported key articles from President Xi Jinping, including key articles on the progress of the national unified market, published in Qiushi magazine, including:
- Correct disorderly low-cost competition between businesses.
- Promoting orderly exits of outdated capabilities.
- Improved financial systems, statistical frameworks, and credit mechanisms to promote market unification.
- Reduce the “chaos” in local practices that attract investment.
- It focuses on effectively dealing with serious regression.
- Skip exports to domestic sales.
President Jinping’s agenda suggested pressure policymakers to address overcapacity while increasing domestic demand.
Mainland stock markets own companies
Mainland stock markets continued to hold their position despite deepening economic rifts.
The CSI 300 and Shanghai Composite Index achieved 15.2% and 15.18% YTD, reflecting the Nasdaq Composite Index (15.73%). Meanwhile, the Hang Seng index is leading the way, surgening 31.84% YTD as Chinese and foreign investors target stocks focused on China.
Despite strong profits, the downside remains. Trade development, the Chinese housing market, and weak demand remain important concerns for traders.
An extended tariff ceasefire and further cooling of demand exposes Chinese households to more unemployment. Rising unemployment rates could potentially reduce private consumption by weighing risky assets.
Meanwhile, policy measures targeting the housing sector and US-China trade agreements can raise sentiment. Trade contracts with lower tariffs can rekindle external demand and facilitate margin pressure. Improving margins could promote job creation and domestic consumption.