Bilateral trade between Russia and China has grown steadily and the positive trend will continue, said Xu Sitao, chief economist with Deloitte consulting firm in China.
Talking to journalists on the sidelines of the St. Petersburg International Economic Forum (SPIEF 2018), he said China has become the largest export market for Russia since 2017, accounting for roughly 12-13 percent of Russian exports.
Despite Western sanctions, the Russian economy has so far proven to be resilient, Xu Sitao said, also noting the strong rebound of oil prices.
“As I said earlier, Russia and China are very complementary. China is moving away from dirty energy coal, so I do expect further collaboration between our countries, I’m quite optimistic.”
The economist also said a trade war between China and the US would result in a lose-lose situation, which means policy makers on both sides are likely to be rational. That’s what we have seen in the past two weeks, he said, adding “I think trade tensions between China and the US are unlikely to go away.”
“Really, for just one reason, the US economy is right now facing the risk of overheating. And at the same time, the fiscal policy with the tax cut could actually result in larger trade deficit between the US and China.”
Xu explained that if China has to buy more agricultural products and energy from the US in the next two years due to pressure from the Trump administration, “we could actually see reduced purchase from European countries from China.”
That could actually prompt the EU to adopt an even more independent policy towards China, he added.
When asked about his short-term economic forecast, the economist said: “I think China is very much on track, and the Russian economy is on the mend.The US economy actually isn’t strong… By 2020, we could see a risk of recession in the United States.”
In his speech titled “the changing Chinese economy and its global impact”, Prof. Xu has argued that despite an economic slowdown, China still has under-rated resilience thanks to the secular trend of consumption upgrade. Indeed, booming consumption and potential private investment will underpin China’s economic growth as China stays the course of reform and open-door policies.
In the short to medium terms, the most pressing problem facing China’s economic transformation lies in de-leveraging and consequences, said Prof. Xu. On one hand, the Central Government could reduce the mounting corporate debts of SOE via reforms and restructures, by turning state-owned giants into joint-stock companies, etc. On the other hand, consumers should further be empowered by eased capital controls and; such powerful asset allocations could also slowly deflate domestic bubbles. The primary reason for the government to introduce capital controls is to prevent financial risks and the potential market shocks resulted by high capital outflows. Recent decline of China’s foreign reserves should cause no concerns because the level of reserves is far more sufficient in meeting import demand and serving external debt.