China has all the means to counter the detrimental effects of a trade war with the United States. This is the statement made by China's Central Bank Governor Yi Gang. According to the governor, if the situation does not de-escalate soon, China still has a lot of room for adjustment. The tit-for-tat tariffs that the two economic giants have engaged in against each other are making national economies all over the world nervous.
According to Yi Gang, China's central bank has in its disposal, plenty of tools to combat the harrowing effects of a trade war with the United States. Included among these tools are monetary instruments such as interest rate policy and required reserve ratio adjustments. Despite this strong stance, Yi is aware that there are significant risks to a prolonged tension between the two countries. The governor added that for China, a "constructive solution" is still the best.
These comments were made after IMF stated that the tensions are stalling global growth forecasts. IMF downgraded its forecasts for this year and even next year. In particular, the body claimed that the tensions can lead to a low 3.7 growth next year. The country's growth estimate for 2019 has also been reduced to 6.2 percent, lower by 0.2 percentage points.
China at present has already employed some measures to bolster its economy against these negative impacts of the trade war. Precisely, the People's Bank of China has cut the number of reserves that banks must hold this year on four different periods. With these, cash is continuously injected into the economy to stimulate market activities. Businesses can continue to borrow money as well as individual households so that investment and consumption activities will not stop.
Yi also rejected investors and economists' interpretations that China needs to ease monetary conditions already, given how it kept cutting the number of reserves. Yi said that China's policy stance would continue to be neutral and prudent at the same time. Despite its cutting of reserves, the central bank does not want to drastically slow or stimulate the Chinese economy. The growth in China's total social financing is also at a reasonable range, the governor explained.
Yi's immediate comments come days after he also said that the market remains the main decisive party in establishing the currency exchange rate of the nation. Yi refuted claims that the nation is using the exchange rate as a tool or a weapon against the United States, despite the trade war between them.
