GENEVA (Reuters) – The direct economic impact on China of the trade war with the United States appears limited, though it could rapidly prompt China’s exporters to switch away from the U.S. market, the former central bank governor in Beijing said on Wednesday.
FILE PHOTO: A container truck moves past containers at the Yangshan Deep Water Port in Shanghai, China April 24, 2018. REUTERS/Aly Song/File Photo
Zhou Xiaochuan, who stepped down in March after 15 years at the monetary policy helm, also told Reuters that China’s economy, which he expected to roughly match last year’s growth rate of 6.5 percent in 2018, needed to evolve beyond a model based on urbanization.
It would be a pity if the trade war led Chinese firms to withdraw from the U.S. market. “But I think it will force China to look at many other markets. So it’s not necessarily a good thing for the United States,” he said in an interview.
“I think the speed of (geographical) diversification can be relatively fast and beyond many people’s expectations.”
Zhou played down the direct economic damage to China from the trade clash, which he said had been estimated at 0.2-0.8 percent of GDP, but said the impact of the conflict could be deeper in terms of business confidence.
China’s yuan has weakened more than 8 percent against the dollar since the end of March, when the bilateral trade tensions started to flare.
On Tuesday, Beijing added $60 billion of U.S. products to its import tariff list in retaliation for U.S. President Donald Trump’s planned levies on $200 billion of Chinese goods.
The country was changing its growth strategy, and needed a new economic motor to take over from the trend of urbanization as the major ingredient in economic growth, said 70-year-old Zhou.
“Whether this is reaching the peak or has peaked and maybe going down, we need to find some new economic growth driver. So the Chinese government has emphasized … supply side reform to encourage new technology and other (areas).”
A demographic shift also pointed to lower savings and lower investments, he said.
Long one of the world’s most respected central bankers, Zhou no longer has a say over economic policy, but is vice chairman of the Boao Forum – Asia’s Davos – and was leading a delegation of former ministers and experts discussing WTO reform in Geneva.
More global market participants might start using the yuan as China improves the exchange rate regime and the currency becomes more usable and convertible, he said, but China was not actively pushing for them to use it.
Internationalization of the yuan, also known as the renminbi (RMB), was always intended to be very slow, but the pace largely depended on the situations facing other currencies. “So if the other currencies have some problem, the global market may decide to use more RMB,” he said.
Reporting by Tom Miles; editing by John Stonestreet