20180620-广发证券_香港_-Could_a_trade_war_push_China_s_economy_the_way_of_Japan__12页_610kb

Summary of "Could a Trade War Push China's Economy the Way of Japan?"

Core Content

This report explores the potential economic consequences of a trade war between the United States and China, drawing comparisons with the historical US-Japan trade war of the late 1980s. It suggests that while trade tensions are inevitable, China has the potential to avoid repeating Japan's economic path, which led to a prolonged period of stagnation and the "upper income trap."

Main Similarities Between China and Japan in the 1980s

• Export-Driven Industrialization: Both China and Japan have relied heavily on exports to drive economic growth. China's share of global exports surpassed Japan's in the late 2000s.
• Trade Surpluses with the US: Both countries experienced significant trade surpluses with the US, which contributed to trade tensions.
• High US Fiscal Deficits: Similar to the 1980s, the current US fiscal deficit is at a comparable level to Japan's in that era.
• Property Price Bubbles: China's property investment as a proportion of GDP is currently the highest among major economies, indicating a similar risk to Japan's property bubble in the early 1990s.
• High Leverage Ratios: China's non-financial sector debt-to-GDP ratio is approaching the level seen in Japan in the early 1990s.
• Manufacturing Sector Relocation: Both countries have undergone large-scale shifts in their manufacturing sectors, with Japan relocating to China in the 1980s and China now moving to Southeast Asia.

Main Differences

• Middle-Income Trap Threshold: Japan surpassed the "middle-income trap" in the 1960s, while China is still approaching this threshold, currently at around 25% of the US GDP per capita.
• Structural Challenges: China is still in the process of transitioning from an export-driven to a consumption-driven economy, whereas Japan had already faced these challenges in the 1980s.

Lessons from the US-Japan Trade War

• The US-Japan trade war lasted over 30 years and ended with the bursting of Japan's property price bubble, leading to a long period of economic stagnation.
• The US managed to curb Japan's economic rise through trade restrictions, exchange rate pressures, and structural reforms.
• Japan's failure to transition effectively from an export model to a consumption model led to the "upper income trap."

China's Potential Path

• Avoiding Missteps: China is aware of the risks of over-reliance on exports and property investment, and is taking steps to avoid excessive currency appreciation and over-dependence on the property sector.
• Promoting Domestic Consumption: China is aiming to boost domestic consumption among its 1.4 billion population, which could support economic growth of 4–6% without reliance on exports.
• Urbanization as a Driver: Accelerating urbanization is a key strategy to enhance domestic consumption, as China's urbanization rate is still significantly lower than Japan's in the 1980s.
• Long-Term Consumer Center: China has the potential to become the world's largest consumer center within the next 20–30 years, which could reduce trade frictions and support sustainable growth.

Short-Term Risks and Impacts

• A trade war would have adverse effects on both China and the US, as well as on multinational corporations reliant on the two economies.
• Many of China's largest export companies to the US are not mainland-based, and would be affected by trade tensions.
• A trade war may not reduce the US trade deficit with China, as it could simply shift to other countries.

Long-Term Strategy: Consumption-Driven Growth

• Consumption Upgrade: By promoting domestic consumption, China can create a more balanced economic model and support manufacturing upgrades.
• G20 Market Shares: China currently has a larger gap between manufacturing and consumption shares than Japan did in the 1980s, offering more room for structural transformation.
• Economic Transition: If China successfully transitions to a consumption-driven model, it could avoid the "middle-income trap" and maintain long-term growth.

Conclusion

China has the opportunity to avoid the economic pitfalls that Japan faced during its trade war with the US. With a focus on domestic consumption, structural reforms, and urbanization, China can navigate trade tensions more effectively and position itself as a global economic leader. The report emphasizes that the outcome of the China-US trade war will depend on China's ability to transition from an export-driven to a consumption-driven economy, which could lead to a more sustainable and balanced growth path.