Matthews Asia - Sinology

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A disappointing deal, and a healthy economy

Matthew Asia's Investment Strategist, Andy Rothman, thinks it's merely the best trade deal in the last 36 months of Chinese history. Based on the few details provided so far, the deal doesn't appear to represent a significant improvement on the current trade framework. 

The uncertainty of how this will evolve, and how Trump will respond, means that this deal is unlikely to reassure American and Chinese CEOs, who have been deferring CapEx in response to uncertainty over the bilateral trade dispute. Removing that uncertainty was the negotiators' top job, and they appear to have failed. 

In spite of this, Andy thinks that failure to reach any deal would have a profound impact on the global economy. He will be less worried about the near-term impact on China, as the main engine of its growth — domestic demand — remains healthy, and Beijing has a significant store of dry powder it could deploy to mitigate the impact of an all-out trade war with Washington.

Key Points:

• The trade deal is disappointing, because its sets unrealistically high goals for American exports to China, so the risk of failure and a return to tariff battles remains, leaving corporates in both countries unlikely to feel secure enough to resume investment spending.
• There are also no signs that the two sides are preparing to use this pause in the dispute to reconsider the poor direction the bilateral relationship is taking, towards decoupling and confrontation.
• Despite the disappointing deal, Andy Rothaman expects the consumer-driven Chinese economy to remain healthy in 2020, and Beijing is preparing only a very modest stimulus designed to stabilize growth.

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Important Information:

Sources: Matthews Asia, CEIC 

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