The U.S. is due by Friday to release the final list of products subject to
the 25 percent levies the White House announced last month on $50
billion in imports. U.S. President Donald Trump is trying to bring down a
$375 billion annual trade deficit with China, and he's using the threat
of a trade war to force concessions from Beijing.
For its part, the Chinese leadership would surely prefer to avoid such a conflict and
has attempted to appease Washington with offers to increase purchases of
American products. But if push comes to shove, the fundamental strength
of China's economy could help alleviate the damage of any outright
trade confrontation, experts said.
"All measures broadly indicate that China still is actually doing quite well economically right now,"
said Shenzhen-based economist Christopher Balding, adding that data also
suggest consumer confidence is high.
"So I don't believe there would be a lot of either popular or political support for any type of
easy backdown to Trump," Balding told CNBC. "I think there would be
relatively wide support for pushing back to some degree."
China said its economy grew 6.8 percent in the three months to the end of
March, beating economist expectations, and maintained the same rate of
expansion for the third straight quarter. Importantly, many economists
question the veracity of that official growth data, but other metrics,
too, have shown strength.
The latest upbeat view on China's economy comes from Morgan Stanley, which said the prospect of rising
corporate bond defaults in the country is unlikely to cause a broader
crisis — a fear that has hovered over the world's second-largest economy
in recent years.
"Systemic financial risk is unlikely, considering the small size relative to the overall financial system,
stable interbank interest rates, and more resilient economic
fundamentals than in previous stretched periods in 2014-16," economists
from the investment bank wrote in a report dated Sunday.
China suffered its first bond default in March 2014 and worries over the
country's financial health have simmered, with an uptick in defaults
this year spurring concern.
But Morgan Stanley said defaults this time are a "desired result" of increased efforts by regulators to
deleverage the economy over the past 18 months.
"We believe orderly bond defaults could foster healthier development of the onshore
bond market, increasing its attractiveness to foreign investors and
facilitating China's capital account liberalization over the longer
run."
Stefan Hofer, chief investment strategist at LGT Bank in Hong Kong, called China's growth "remarkably stable" over the past few
years and said "systemic risks" such as those affecting the financial
system are firmly under control.
"This White House is extremely unpredictable and can and does change its mind very quickly," Hofer
cautioned, though he added he doubts the U.S. will go ahead with the
tariffs on Friday after Trump's summit with North Korea avoided a
breakdown.
