BEIJING — In response to the economic strain induced by the trade conflict initiated by U.S. President Donald Trump, China has rolled out a suite of new economic measures. As both nations gear up for upcoming negotiations, Chinese financial officials, including the central bank governor, revealed strategies on Wednesday aimed at cushioning the economy’s fall. These include lowering interest rates and reducing bank reserve requirements to promote increased lending. Moreover, the government plans to boost financial support for sectors such as factory innovation, technology upgrades, elder care, and other service-oriented industries.
The tariffs imposed by Trump, which reach up to 145% on certain Chinese imports, are beginning to weigh heavily on China’s export-driven economy. This comes at a time when the country is already grappling with a protracted slump in its property market. In retaliation, China has implemented tariffs as high as 125% on U.S. products and significantly decreased its purchase of American agricultural goods.
On Tuesday, China and the United States disclosed intentions for forthcoming talks in Geneva, Switzerland, involving Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer, and Chinese Vice Premier He Lifeng. Despite both nations publicly maintaining firm stances on their tariff policies, the decision to engage in discussions marks a potential thaw in their strained relations. As per China’s Foreign Ministry spokesperson Lin Jian, the meeting was instigated at the U.S. request. Lin reaffirmed China’s resolve to protect its rightful interests while upholding global fairness, stressing that pressure tactics will not alter China’s stance.
China’s lenient credit policies aim to offer a supportive “policy buffer” for exporters ahead of these pivotal discussions, as pointed out by ANZ Research economists. The government appears poised for protracted negotiations, sustaining its anti-protectionism posture.
Both the U.S. and Chinese economies exhibit signs of stress, a trend that began as businesses and consumers raced to outpace impending tariff implementations. The talks in Switzerland could offer a platform for both parties to scale back on the exceedingly high tariffs, which Scott Bessent termed unsustainable. Nevertheless, negotiating a comprehensive agreement is anticipated to be a drawn-out endeavor. Morgan Stanley’s analysis suggests that finding a stable resolution remains elusive due to the complexity of the issues at hand.
In the first quarter of the year, the U.S. economy experienced a contraction of 0.3%, while China’s economy reported a 5.4% annual growth rate, partly fueled by increased factory activity to meet sudden demand spikes. However, skepticism about these figures remains among economists, coupled with indications of faltering business sentiment and new export orders.
Measures introduced by China on Wednesday include various financial adjustments. The governor of the People’s Bank of China, Pan Gongsheng, announced a decrease in the reverse repo rate to 1.4% from 1.5%. Additionally, the lending rate for commercial banks was lowered by 0.25 percentage points to 1.5%, along with a 0.5% cut in the required reserve ratio, freeing substantial cash for the economy. Furthermore, interest rates on five-year housing loans saw a decrease.
Global financial markets have been unsettled by the protracted trade dispute between the two powerhouse economies. Initial reactions to China’s economic stimulus measures, as well as the announcement of bilateral talks, resulted in a rise in share prices in Hong Kong and Shanghai markets. While Shanghai’s Composite index advanced, the momentum in Hong Kong started fizzling out.
Despite these moves, Capital Economics analyst Julian Evans-Pritchard notes that simply easing lending conditions may not address the core issue of insufficient consumer and business demand. He argues that substantial fiscal support is required to prop up the economy, suggesting that recent initiatives are inadequate.