- ANZ’s China analyst Raymond Heung said the moves are a natural part of China’s transition to a consumption-based economy.
- He said countries selling quality products to China will benefit over the long-term.
- Heung said China looks set to post strong GDP growth in the June quarter, before growth slows in the second half of the year.
The prospect of another escalation in the US-China trade war has cast a pall over global markets this wake, as major stock indexes struggle for traction.
Although China has threatened to hit back against the latest US restrictions, research from ANZ analyst Raymond Heung shows that plenty of import tariffs are actually about to fall.
“While the US imposes tariffs against China and G7 countries, China will reduce import tariffs by 60% on 1,449 consumer goods from July,” Heung said.
“Shanghai will also host the world’s first International Import Expo (CIIE) in November.”
Heung said the moves are a by-product of China’s transition to a consumption-based economy, rather than growth fuelled via rampant construction activity.
In that sense, the scaling back of import tariffs is “a natural development as the economy evolves,” Heung said.
To demonstrate, he used the following chart which shows how import tariffs typically for when a given country’s GDP per capita starts to rise:
“Countries selling quality products and services to China will benefit over the long term,” Heung said.
Advice that’s no doubt being heeded by Australian companies positioning for a China export strategy, including Gina Rinehart’s cattle station empire in northern Australia or infant baby formula providers such as a2 Milk.
Looking ahead, Heung said economic growth in China for the June quarter could still reach 6.8% — above the benchmark of 6.5% set by Chinese authorities.
“Despite ongoing trade tensions with the US, China’s exports still recorded double-digit expansion at 12.6% annual growth (in USD terms) in April and May,” Heung said.
In addition, “leading indicators such as new export orders index remained at expansionary levels”.
However, Heung cited two reasons which could lead to a slowdown in the second half of the year.
Firstly, there’s evidence to suggest that Chinese export manufacturers have front-loaded their orders to the US, in anticipation of more trade restrictions.
And secondly, the government’s ongoing deleveraging campaign is beginning to be felt in the property sector with real estate values now in decline, which could weigh on economic activity.
While there’s been bluster from both the US and China about tariffs on various consumer goods, the real battle seems to shaping up around technology and intellectual property.
US stocks shuddered on Monday following reports that the Trump administration is now planning restrictions on Chinese investment in US technology firms.
And even a member of the US Federal Reserve weighed into that debate overnight. Dallas Fed chair Robert Kaplan said the US needs to redirect its negative stance towards Canada and Mexico, and refocus its efforts on the technology threat posed by China.