China cuts taxes to protect its economy from the trade war

China is looking for new ways to pump up its slowing economy as a trade war with the United States escalates.B...

Posted: Jul 24, 2018 1:12 PM
Updated: Jul 24, 2018 1:12 PM

China is looking for new ways to pump up its slowing economy as a trade war with the United States escalates.

Beijing has announced a range of measures including tax cuts, infrastructure spending and new loans to business as its tries to reinvigorate economic growth, which has begun to slow in recent months.

The tax cuts for business are relatively small - worth about $10 billion - but they come on top of much bigger injections of funds into the banking system in recent weeks aimed at boosting activity.

The Chinese government said in a statement late Monday that the new stimulus was intended to help the country cope with "an uncertain external environment."

Related: China is unleashing more than $100 billion into its economy

China has accused the United States of starting a trade war by imposing tariffs on billions of dollars of its exports. It has responded with tariffs of its own on American products, drawing threats from President Donald Trump of much bigger retaliation to come.

The world's second-biggest economy grew by 6.7% in the quarter ended June 30, its slowest rate of growth in almost two years.

While China should still meet its 2018 growth target of about 6.5%, the intensifying clash with the United States could hurt the economy in the second half of this year.

Related: China's economy slows just as the trade fight begins

The Chinese government "is sending a clear signal that it is preparing to defend growth," said Raymond Yeung, an economist at investment bank ANZ.

News of the stimulus measures boosted Chinese stocks on Tuesday. The Shanghai Composite index closed up 1.6% and Hong Kong's Hang Seng gained 1.4%. Among the top gainers were construction and industrial companies, which could benefit from higher infrastructure spending.

Monday's announcement is the latest in a series of steps China has taken to try and perk up its economy.

Since June, the People's Bank of China has injected about $180 billion into the financial system by providing new loans and reducing the amount of deposits commercial lenders are required to hold.

Related: The US-China trade war will spill into other Asian economies

Shifting policy

Analysts said the government's move on Monday showed it doesn't want the central bank to do all the heavy lifting.

It's worried about the effect of looser monetary policy on the Chinese currency. The yuan has already fallen to its lowest level in more than a year.

Trump has accused China of keeping the yuan artificially low to boost its huge export industry.

Ken Cheung, a currency strategist at investment bank Mizuho, said the Chinese government was trying to avoid measures that would cause the yuan to weaken too sharply.

The People's Bank of China "might refrain from scaling up its monetary easing further in the very near term to avoid excess yuan depreciation."

A falling yuan could help Chinese exporters but if the depreciation spirals out of control, it could shock financial markets in China and around the world.

Intensifying trade clash

The Trump administration and China this month imposed tariffs of 25% on $34 billion of each other's exports. US tariffs on an additional $16 billion of Chinese goods are coming soon.

The US government also said last week it was readying new tariffs on Chinese goods worth an additional $200 billion, releasing a list including fruit and vegetables, handbags and baseball gloves.

Related: The US is running out of Chinese exports to tax

Analysts have previously forecast that trade tensions could shave up to 0.5 percentage points off Chinese growth this year, depending on the intensity of tariffs.

Also weighing on growth are policies by the Chinese government designed to rein in the country's huge amount of corporate debt, which has snowballed since the global financial crisis.

Some analysts think things could get worse for China's economy before they get better.

"Despite the shift of Beijing's stance towards stimulus, we expect growth to weaken before staging a moderate rebound," said Nomura economist Ting Lu.

West Lafayette
Cloudy
41° wxIcon
Hi: 43° Lo: 21°
Feels Like: 36°
Kokomo
Cloudy
40° wxIcon
Hi: 41° Lo: 23°
Feels Like: 34°
Rensselaer
Cloudy
37° wxIcon
Hi: 39° Lo: 21°
Feels Like: 30°
Fowler
Cloudy
41° wxIcon
Hi: 40° Lo: 23°
Feels Like: 36°
Williamsport
Cloudy
41° wxIcon
Hi: 41° Lo: 21°
Feels Like: 34°
Crawfordsville
Cloudy
39° wxIcon
Hi: 42° Lo: 20°
Feels Like: 33°
Frankfort
Cloudy
39° wxIcon
Hi: 41° Lo: 21°
Feels Like: 33°
Delphi
Cloudy
39° wxIcon
Hi: 43° Lo: 23°
Feels Like: 34°
Monticello
Cloudy
39° wxIcon
Hi: 45° Lo: 24°
Feels Like: 34°
Logansport
Cloudy
37° wxIcon
Hi: 41° Lo: 23°
Feels Like: 31°
A few showers, then much warmer weather is ahead...
WLFI Temps
WLFI Planner

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 1084488

Reported Deaths: 17386
CountyCasesDeaths
Marion1425562217
Lake705171220
Allen64347862
Hamilton49481481
St. Joseph48135639
Elkhart39011536
Vanderburgh33874494
Tippecanoe29863271
Johnson26876463
Hendricks25548379
Porter24683380
Madison20440444
Clark19785275
Vigo18609308
LaPorte16638260
Monroe16237217
Delaware16230286
Howard16181310
Kosciusko13763162
Hancock12644184
Bartholomew12544188
Warrick11889189
Wayne11794264
Floyd11792225
Grant11484233
Morgan10134188
Boone9576120
Noble8921121
Henry8917163
Marshall8792146
Dearborn875798
Dubois8673138
Shelby7958127
Cass7907126
Lawrence7861182
DeKalb7416106
Jackson738093
Huntington7280107
Gibson6922118
Montgomery6830122
Harrison680696
Knox6779113
Steuben641185
Miami6384106
Whitley631160
Putnam626582
Clinton614176
Wabash5958108
Jasper591991
Jefferson5617102
Ripley540892
Adams527881
Daviess4964116
Scott475978
Wells462998
White459967
Greene458399
Clay452162
Decatur4491109
Jennings434666
Fayette429094
LaGrange413890
Posey398344
Washington380654
Randolph3770107
Fountain364962
Spencer353446
Fulton352270
Starke343672
Sullivan342454
Owen341676
Orange320270
Jay315450
Rush293332
Carroll287037
Franklin283544
Perry281453
Vermillion277557
Parke244930
Tipton244664
Pike241744
Blackford213944
Pulaski203158
Newton176552
Brown169850
Crawford167129
Benton160517
Martin149219
Switzerland143712
Warren131416
Union115416
Ohio90513
Unassigned0581

COVID-19 Important links and resources

As the spread of COVID-19, or as it's more commonly known as the coronavirus continues, this page will serve as your one-stop for the resources you need to stay informed and to keep you and your family safe. CLICK HERE

Closings related to the prevention of the COVID-19 can be found on our Closings page.

Community Events