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China prepares for rough US trade relations with stimulus measures; Australia may pick up the slack

Published 13/11/2024, 01:07 pm
China prepares for rough US trade relations with stimulus measures; Australia may pick up the slack
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Beijing has escalated its economic support measures amid mounting signs of a worsening economic slowdown and increasing pressure from the United States.

Renewed trade offensive on horizon

The country, which has faced structural issues including an ageing population and a hard COVID lockdown when the rest of the world was emerging from that crisis, has now endured years of economic stagnation and a deepening property crisis.

China has been grappling with negative producer prices, declining consumer prices and weakening domestic demand, contributing to a slower economic growth trajectory.

With the re-election of Donald Trump, who has signalled a renewed trade offensive against China, there is growing concern over the Asian giant’s economic future.

Trump’s administration plans to strip China of its "favoured nation" status in the World Trade Organisation (WTO) and impose steep tariffs, gradually rolling out a 60% hike on up to half of US imports from China starting as early as the first quarter of 2025.

UBS analysts have warned that these tariffs would further squeeze China’s economy, especially given its current downturn – and that this could drag down the global economy with it.

In particular, as US companies reduce their capital investments in China in anticipation of tariffs, the ongoing economic deceleration poses risks to Australian industries reliant on Chinese demand.

On the positive side for Australia, with the ongoing shift in global trade dynamics, China may increasingly look to other markets, such as ours, to mitigate the impacts of declining US trade.

Stimulus efforts

Over recent months, Chinese authorities have introduced various stimulus efforts to stabilise the economy.

Just last week, Beijing introduced a debt relief package valued at A$2.1 trillion for indebted local governments.

This, however, has been viewed by the markets as merely a debt transfer from the local to national level, leaving international investors unimpressed.

Other recent initiatives include a US$111 billion boost to support its struggling stock market, lower interest rates and eased restrictions on lending and property.

The measures are intended to combat the severe slowdown in China’s property sector, which is now in its fifth year and has severely impacted consumer demand, pushing the nation towards deflation.

The latest round of stimulus has also helped maintain iron ore prices, providing short-term relief for Australian companies exposed to China by export.

In the near terms, Chinese officials are expected to continue deploying targeted economic support.

Possible initiatives may include expanded subsidies for households, higher social safety nets and incentives to encourage domestic consumption, as authorities seek to reduce reliance on export-led growth.

Read more on Proactive Investors AU

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