Trump Policies' Impact on Chinese Economy is Controllable, CF40-PIIE Report Says
Yicai Global
/SOURCE : Yicai
Trump Policies' Impact on Chinese Economy is Controllable, CF40-PIIE Report Says

(Yicai Global) May 9 -- The new US administration's changes in taxation, infrastructure investment, financial regulation and monetary policy will have a "controllable impact" on the Chinese economy, a study conducted by top Chinese and American research institutions suggests.

The study, CF40-PIIE Joint Report 2017, debuted at the sixth economists' symposium between China Finance 40, a Beijing-based non-government think tank, and the Peterson Institute for International Economics, a leading US-based panel.

In the short term, tax reforms in the US would boost economic growth, but lead to increased government debts and a deficit in the long term, the report said, adding that this would indirectly affect Chinese businesses. Corporate tax rates and land and energy prices in China are effectively much higher than in the US, which may tempt Chinese firms to divert their investments stateside and trigger a new wave of capital outflow.

However, if US President Donald Trump's administration honors its pledges to increase domestic infrastructure investment and government spending, it will spell good news for China's exports, with the Asian nation benefiting from a positive spillover effect. It isn't yet clear how much money would be committed to infrastructure construction, given the US government's debt constrains, whereas China's infrastructure is highly developed and its firms can achieve mutually beneficial results by strengthening financial and technical ties with America.

In terms of financial regulation, the US may simplify the Dodd-Drank Wall Street Reform and Consumer Protection Act, but is unlikely to completely abolish it, limiting the impact on China's economy. Relaxing financial regulation will no doubt help American financial institutes improve profitability, but does little to stimulate corporate investment or credit demand, meaning the US cannot count on deregulation to drive growth. Such financial letup could even lead to another financial crisis, the report added.

The Dodd-Frank Act was signed in by former US President Barrack Obama in 2010, to promote financial stability in response to the global financial crisis of 2007 to 2008.

Federal Reserve rate hikes saw a dollar index rally, prompting China to adjust the yuan's exchange rates. However, China's strict capital control makes it easy to soften the impact on external exchange rate changes and the domestic financial market. Its recent shift in monetary policy will help curb inflation and excessive rises in home prices, ultimately keeping financial risks in check. American policy changes reinforce China's determination to push forward its economic reforms, according to the report.

The sixth CF40-PIIE China-US Economists Symposium kicked off on May 7, with dozens of experts from the two largest economies meeting in Beijing to discuss bilateral ties and the development of globalization.

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Keywords: CF40, PIIE