China has unveiled a series of measures aimed at mitigating the economic impact of US President Donald Trump’s trade war, which has begun to affect its export-driven economy. The country is preparing to host high-level trade talks with the United States later this week. This announcement goes a long way to denounce the growing rhetoric and preparation for aggression between the two countries.
To revive its stagnant economy, China’s central bank governor, Pan Gongsheng, recently decided to reduce interest rates. At the same time, he worked with other major financial officials to cut bank reserve requirements too. The People’s Bank of China (PBOC) just announced a further 0.5% cut in required reserve ratio. This action will allow banks to free up more capital to lend. In a bid to inject liquidity, the PBOC cut the seven-day reverse repo rate from 1.5% to 1.4%. This action represents a further shift to a more accommodative monetary policy.
The central bank responded to the protests by announcing cuts to interest rates on five-year housing loans. This move further underscores its commitment to boost demand in the real estate market. China’s economy even posted a 5.4% annual growth rate during the first quarter of the year. Yet this growth happened even though we saw the early strain from lowered consumer and business demand, as businesses and consumers front-loaded purchases before tariff increases started, taking advantage of time to avoid cost increases.
Indeed, over the past few months, China’s economy has been in freefall. The country has retaliated with tariffs of its own, targeting a variety of US goods, with rates climbing up to 125%. This trade dispute has resulted in a drop in demand for U.S. agricultural goods, making the economic situation even tougher. Economists have noted that the lack of consumer and business demand remains a key factor dragging down China’s economic performance.
China continues to prepare to defend its trade policies in front of judges in Geneva, Switzerland. Its leaders are working to build a new, figurative “policy buffer,” to better protect exporters. Our first series of meetings are with US Treasury Secretary Scott Bessent, US Trade Representative Jamieson Greer and China’s Vice Premiere He Lifeng. For the first time, they will be face-to-face, hashing out ways to reduce the crippling tariffs that both countries have placed on one another.
Lin Jian, a spokesperson for the Chinese government, commented on the upcoming negotiations, stating, “The U.S. has recently expressed a desire to negotiate with China. This meeting is being held at the request of the U.S. side.” He stressed that China would firmly protect its legitimate rights and interests throughout talks.
“China will firmly safeguard its legitimate interests and uphold international fairness and justice. Please stay tuned for the specific details of the dialogue.” – Lin Jian
These are said by analysts to be forward monetary policy adjustments that could provide temporary relief. They are no substitute for broader fiscal support that’s needed. Julian Evans-Pritchard remarked, “Today’s moves are no substitute for an expansion in fiscal support.”
Economists at ANZ Research echoed similar sentiments, noting that “the authorities are prepared to have a protracted negotiation and hold a strong stance against protectionism.” This shows that China is willing to negotiate in good faith to have long-term discussions but dig their heels in and stand firm against external pressure.
