China risks deeper deflation by diverting exports to domestic market
tariffs, have led to slower growth in China’s manufacturing sector, which makes up about 30% of the country’s economy. The government has been reluctant to unleash a massive stimulus to boost the economy, fearing it could worsen a debt problem that has been building up for years.
“China’s ability to stimulate its economy is still very strong,” said Zhou, the Barclays economist. “But Beijing is cautious about deploying stimulus measures, given the ongoing risks of a property bubble and rising debt levels.”
Instead, policymakers have taken a more targeted approach to support growth, including tax cuts, infrastructure spending and other measures to boost domestic consumption.
Shan, the Goldman economist, said Beijing could ramp up spending on infrastructure projects and social welfare programs to help offset the impact of the U.S. tariffs and support economic growth.
“China has a lot of policy tools at its disposal to cushion the blow from the trade war,” Shan said. “But the government will need to carefully balance its priorities to ensure sustainable growth in the long run.”
Despite the challenges posed by the trade war and the threat of deflation, many economists remain cautiously optimistic about China’s economic prospects in the long term. The country’s vast consumer market, burgeoning technology sector, and ambitious infrastructure projects offer potential opportunities for growth and innovation.
“China has proven resilient in the face of external challenges before, and there’s no reason to believe it won’t weather this storm as well,” said Shen, the investment bank director.
As Chinese exporters navigate the shifting global trade landscape and domestic market pressures, the country’s policymakers will need to strike a delicate balance between supporting growth, managing inflation, and safeguarding financial stability.
With the global economy facing uncertainties and headwinds, China’s ability to adapt and innovate will be crucial in shaping its economic future and its role on the world stage.
