While some of the rhetoric around trade tariffs on China has died down over the last couple of weeks, the prospect of a trade war has not. On April 18, China imposed preliminary antidumping tariffs of 178.6 percent on sorghum, a crop used to make alcohol and biofuels, while President Donald Trump's threat to impose tariffs on $150 billion worth of goods on everything from solar panels to aircraft to cars remains on the table.
If an actual U.S. trade war ensues, then China's economic growth prospects could be negatively impacted in a significant way. While the country's economy has shifted inward over the last few years, relying on its own citizens to fuel growth, it still exports billions of dollars in goods and services every year. Last year it sold $506 billion in exports to the United States — nearly 20 percent of its exports go to America — while the United States sold just $130 billion to the Chinese.
In January the International Monetary Fund said China's economic growth would top 6.6 percent in 2018, but it could now drop by as much as 0.5 percent if these tariffs are imposed — and it could slow even further if a global trade war truly heats up. China's economy can likely weather a small decline in growth, in part because of its increased reliance on domestic spending, but this isn't the only potentially GDP-destroying situation it's dealing with.
Over the last few years, China's debt-to-GDP has ballooned to more than 300 percent from 160 percent a decade ago, causing many people, including Chinese officials, to warn of a financial-sector debt bubble that's waiting to burst.
How did it get so bad? After the recession, the country spent trillions on infrastructure projects, with many banks, including unregulated or "shadow" banks, loaning money to companies that have been unable to pay back their debts. According to a Chinese news outlet, Lai Xiaoming, chairman of China Huarong Asset Management, one of the country's biggest asset management firms, said that total volume of nonperforming loans could hit a record $476 billion by 2020.
Reference: Reuters
Read More: https://www.reuters.com/article/us-usa-bonds-milestone-analysis/treasury-yield-milestone-may-augur-changing-tide-for-risk-idUSKBN1HV2TA
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