Speciale: The Monday after
[Special Newsletter in English] The Monday after Trump's tariffs: an article from the People's Daily and other commentary from Chinese media
Good morning from Beijing,
Asian markets have opened sharply lower this week, with Hong Kong particularly hard hit. Japan and Shanghai are also in negative territory. While some Asian nations have opted for immediate dialogue and negotiations with Washington in response (Vietnam being a notable example), China has reacted in multiple ways, including the issuance of a series of documents and articles systematically outlining its position.
Avviso per i lettori italiani: dato che sono a Pechino e ho occasione di incontrare persone che si occupano di Cina qui e dato che c'è stato un aumento degli iscritti non italiani, ho pensato di pubblicare questa newsletter speciale in inglese: quella della domenica rimarrà in italiano, ma spero di riuscirne a produrne altre speciali in inglese, grazie come sempre per la vostra attenzione
Notice for non-Italian readers: This is a weekly newsletter, usually published on Sundays, and is typically in Italian. I've been working on China for 20 years now, and in the newsletter, I present themes and analysis from China, drawing on Chinese sources. Given the recent increase in non-Italian subscribers, and since I'll be in Beijing again for the time being and for a while, I've decided to release a 'special' version of the newsletter in English as well. Let's see how it goes, and if it's well-received, I might add an English version on Mondays to accompany the Italian one on Sundays. Thank you in any case for your attention.
Over the weekend, the Xinhua News Agency's WeChat account published an article titled "China's Government Position on Opposing the U.S.'s Abuse of Tariffs".
Below are two excerpts that echo some of the points made in yesterday's People's Daily commentary:
China is an ancient civilization and a land of courtesy. The Chinese people advocate treating others with sincerity and valuing trustworthiness. We do not provoke trouble, nor do we fear it. Pressure and threats are not the right way to deal with China. China has taken and will continue to take resolute measures to safeguard its own sovereignty, security, and development interests. The essence of China-U.S. economic and trade relations should be mutual benefit and win-win cooperation. The United States should conform to the common expectations of the people of both countries and the world, proceed from safeguarding the fundamental interests of both countries, stop using tariffs as a weapon to suppress China's economic and trade activities, and stop undermining the legitimate development rights of the Chinese people.
As the world's second-largest economy and the second-largest consumer market for goods, China will only open its door wider to the outside world, no matter how the international situation changes. We will continue to promote high-level opening-up, steadily expand institutional opening-up in terms of rules, regulations, management, and standards, implement high-level trade and investment liberalization and facilitation policies, create a first-class business environment that is market-oriented, law-based, and internationalized, and share development opportunities with the world to achieve mutual benefit and win-win results.
Yesterday, I was smoking a cigarette when the postman arrived in the hutong where I live and left a copy of the People's Daily at my neighbor's apartment entrance. I glanced at it and saw this article titled: 集中精力办好自己的事 (Focus on doing your things well). We didn't manage to connect last night, but I'm counting on our usual evening chat to get his take on the current situation. While life in the hutongs might seem far removed, economic topics, even as they apply to daily life, actually come up quite frequently (and it seems to me that the optimism I sensed here some twenty years ago has now given way to a degree of concern about the future).
I'd like to share some key excerpts, prefaced with a brief observation: following China's response, I had the opportunity to ask several sources, including those with international roles, whether Beijing still intends to reach an agreement with the Trump administration, given the recent speculation about such a possibility. The responses were uniformly negative, some simply stating, 'No.' One source, in particular, specified that China currently feels prepared for a potential escalation, citing the country's perceived reduced reliance on the U.S. market (as also articulated in the People's Daily article) and its readiness to engage in a tit-for-tat strategy.
This, of course, doesn't necessarily mean this phase couldn't be China's way of initiating its own negotiation. For example, I believe that Beijing will inevitably seek an agreement with Washington, and we might gauge this by whether or not discussions for a meeting between the two presidents progress in the coming days.
The article also references points that have emerged in previous days, namely a kind of long-term preparation by China for this eventuality (many articles have highlighted the reduced reliance on exports to the US) and a particular focus on the issue of consumption. This emphasis on consumption was already underscored by the Premier's recent speech at the Two Sessions and the 30-point document on boosting consumption. In essence, China appears to be signaling its readiness. However, as previously mentioned, the possibility of genuine negotiations isn't ruled out, and perhaps the much-discussed Phase One agreement could resurface, though it currently seems a distant and unlikely prospect given the high level of tension, at least rhetorically.
Here are some excerpts from the People's Daily article, which is structured around four key points:
However, it's essential to recognize China's position as a super-sized economy with robust resilience against U.S. tariff bullying. In recent years, our proactive diversification of markets has reduced our reliance on the U.S. market. The share of our total exports destined for the U.S. has decreased from 19.2% in 2018 to 14.7% in 2024. A decline in exports to the U.S. will not have a disruptive impact on the overall economy. Conversely, the U.S. remains heavily reliant on numerous Chinese products. Currently, the U.S. depends on China for many consumer goods, as well as a significant volume of investment and intermediate goods, with reliance exceeding 50% for certain categories where short-term alternative sources in the international market are scarce. In the context of deeply integrated global supply chains, a complete cessation of China-U.S. trade is improbable.
We have been engaged in trade friction with the U.S. for eight years, accumulating rich experience in this arena. Although international markets widely consider the U.S.'s indiscriminate tariffs to be beyond expectations, the Party Central Committee had anticipated this new round of U.S. economic and trade suppression and has fully assessed its potential impact, ensuring ample lead time and sufficient reserves in our contingency plans. Last year's Central Economic Work Conference comprehensively outlined how to respond to this new round of U.S. containment and suppression against China, emphasizing the need to enrich and improve our policy toolbox, dynamically adjust policies based on the extent of external impact, strengthen unconventional counter-cyclical adjustments, and enhance the foresight, targeting, and effectiveness of macro-control.Faced with the U.S.'s volatile and unpredictable behavior and its tactics of maximum pressure, we have not closed the door to negotiations, but neither will we harbor illusions. Instead, we are fully prepared to cope with various shocks. (Yuzhe He breaks down another article on People’s Daily for you here)
Following that, I'm sharing some excerpts from an article that appeared yesterday in the Securities Daily (证券日报), under the headline 美国“关税大棒”破坏全球贸易秩序 中国应对空间充足 (America's "Tariff Club" undermines global trade order; China has sufficient response capacity), In which you can find several industry operators sharing their perspectives on the ongoing trade war.
My comment: The fundamental question for both the general public and investors, beyond the more technical considerations, remains the same: Will this new consumption plan actually work? Many market participants in Italy are asking me precisely this: how to bring investments back to China, considering the distrust stemming from past plans that failed to deliver. Beyond the tariffs, I believe much of the future of this trade war, from the Chinese perspective, hinges on this. Good intentions and initial regional programs to increase household disposable income are welcome, but ultimately, those who need to decide where to invest (regardless of the current chorus of 'Buy China, Buy China' on trading floors :)) want to see results, not just pronouncements.
Yan Xiang, Chief Economist at Founder Securities, points out that since the beginning of the year, a more proactive fiscal policy and moderately easing monetary policy have been gradually implemented. The synergistic effects of existing and new policies are continuously strengthening, enabling China's economy to achieve a stable start. With the sustained transmission of the effectiveness of various policies aimed at expanding domestic demand, China's economic resilience is expected to continue.
Zhang Jun, Chief Economist and Head of Research at China Galaxy Securities, notes that domestic preparations for expanding internal demand were made earlier this year. However, given the unexpected scale of U.S. tariff increases, the probability of the April Politburo meeting further intensifying domestic demand measures has increased. Currently announced but not fully implemented counter-cyclical policies include childcare subsidies and intensified urban village renovation. Future policy reserves are expected to include expanding the scope and scale of "new infrastructure" and "major projects," service consumption subsidies, and increased government purchases of commercial housing.
Zhong Zhengsheng, Chief Economist at Ping An Securities, believes that China has "contingency plans" and "consensus" on macroeconomic policies, particularly with the clear deployment for boosting consumption in the Government Work Report. There remains significant potential to promote stable growth through expanding domestic demand. Despite external uncertainties, China's policies will be more focused on "managing its own affairs well."
Zhang Ming suggests that China must steadfastly expand domestic demand, especially vigorously boosting consumption. Firstly, more forceful expansionary fiscal and monetary policies should be implemented to offset the impact of a significant decline in net exports on aggregate demand. Secondly, with the declining reliability of external markets, it is crucial to intensify the construction of a unified domestic market, break down regional protectionism and administrative segmentation, and reduce the domestic circulation costs of factors and goods. Thirdly, reforms in the income distribution system, education, healthcare, elderly care, and housing should be intensified to allow low- and middle-income families with a higher marginal propensity to consume to obtain higher incomes, and to enable the middle class with a strong motivation for precautionary savings to consume with confidence.
Lastly, on the topic of private companies, I'm highlighting some passages from this piece headlined: China Securities Regulatory Commission: stepping up Support for outstanding private enterprises to grow stronger, superior, and larger (证监会：加力支持优质民营企业做强做优做大)
A China Securities Regulatory Commission (CSRC) statement on April 3rd reported that Wu Qing, Party Secretary and Chairman of the CSRC, recently stated that the CSRC will take the deepening of the comprehensive reform of capital market investment and financing as the guiding principle to accelerate the new round of capital market reform and opening up.
Wu Qing stated that the private economy is an important component of the national economy and a crucial force in driving technological innovation. Vigorously supporting the development of the private economy is not only an inherent requirement for the capital market to serve the real economy but also an important focus for accelerating the cultivation of high-quality listed companies and promoting the high-quality development of the capital market.
Thank you for reading the newsletter. I'm a podcaster working with Chora Media, where I host two podcasts, 'Altri Orienti' and 'Fuori da Qui'. I lived in China and Asia for a long time and am currently in Beijing for a few months. I try to share what's happening in these places through the newsletter, books, and videos on YouTube. And also here on Instagram.
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