China’s efforts to open its economy is working, UBS says — trade war or no trade war – Business Insider

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  • China and the US are currently in talks over a trade deal, in the hopes of lower tariffs and increased trade between the two superpowers. 
  • But according to UBS economists, China is likely to succeed with or without a deal.
  • UBS says that because China has opened up its domestic market, any imbalances are going to be corrected in the long run.
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China’s economy will do just fine. 

Currently Trump and Xi are in talks over over a trade deal, after talks earlier this year broke down. Both sides would benefit from the deal, given how much more interlinked the two superpower’s economy have become in recent years. 

But economists at UBS including Tao Wang say that the talks may not matter too much due to the changes China has made to its domestic economy.

Wang says that in the past year, China has cut import tariffs on various goods including cars, opened various industries to foreign investment and “pushed for more support to the private sector” by lowering entry barriers, easing credit access, and cutting taxes and fees. 

china economyChina National Bureau of Statistics

In 2018, China cut import tariffs four times, taking the average tariff down to 7.5%. Additionally, China approved a new Foreign Investment Law (effective in 2020), which is centered on the principal of “national treatment before entry” — which will allow foreign firms to move capital, profits and capital gains in and out freely. 

Read More: Chinese investment into the US has plunged 90% since Trump took office — and poorer states may get hit the hardest

In doing so, the economists say that opening the market and pushing structural reforms are “important for shoring up domestic business confidence and market sentiment.”

They add: “While more market opening may lead to more competition and possibly lower profit margins for some incumbents, measures to lower production costs and support for the private sector and innovation can help improve China’s competitiveness and productivity over time.”

Earlier this month, Markets Insider reported that Chinese investment in the US had plunged, leaving poorer sectors of the US economy worse off. So with the Chinese domestic economy seemingly growing, China’s reliance on the US could slow in years to come.