The US/China friction is "about technology more than trade"

  • By Kate Weber

China is treading slowly while they decide which path to take as they tackle trade tensions with the US with the latter focusing on slowing down the pace of technology transfer to its trading rival. 

Speaking at the Global Slowdown in 2019 in Sydney, chief economist for Asia-Pacific at S&P Global Ratings, Shaun Roache assessed trade relations between the U.S and China will remain tight as the US.
looks to keep China at a distance. 

“The US is trying to slow down the pace of technology transfer to China. 

“There are three issues that the US is focused on. 

It's intellectual property protection, market access foreign in China and a level playing field with fair competition between foreign firms and state enterprises, but also increasingly private sector champions in China.”

Roache said despite tariffs regularly featuring in the media, they are the “least important’ part of the U.S strategy. 

“Tariffs are the least important part of the US strategy. 

“The US is making it harder for Chinese firms to acquire foreign technology abroad through investment and it's working.

“But this is going to continue to be important. It's making it harder for the China supply chain to source foreign influence.” 

China heavily relies on technology from foreign investment as their main source of growth as their technology sector is currently growing twice as fast as the global economy. 

“The US/ China [friction] is about technology more than trade so it's a difficult problem solved. But the effects are going to be felt more long term particularly in China. 

“If underlying growth is really slowing because China can’t get the technology that it needs and China still wants to keep growth rates 6 per cent. 

“How is it going to fill that gap between its growth targets and underlying growth. 

“Well we know the answer” its stimulus and in the old-fashioned way of infrastructure, investments and real estate. 

“The problem is that it will just make a vulnerable situation worse.”

China’s next move 

Roache said the current outlook is “worrying” and potential crisis talks could depend on China’s next move as their economy has been “quite mild and modest.”

“It is telling us that the Chinese are being very careful. 

“They don't want to overdo it, but they now have a choice. If growth continues to slow, are they going to let growth slow or are they going to continue to try to push growth?

“If they do this the credit intensity number is going back towards five and that's when you start talking about debt crisis, financial crisis and the big currency devaluations. 

“That's going to be something to watch.”

S&P will be watching China closely to see what direction China follows, given the impact each path will have on the global markets. 

“Overall, the picture looks a little worrying, more so in the longer term. In the short term we're going to see a continued slowdown, but the pace of that slowdown is going to be fairly modest. 

Roache continued to state it will be “a world where interest rates can stay low for a sustained period.”

One eye on China

“China's chosen path is going to be important. Are they're going to choose the market over the state? Or head towards for the self-reliance?

“The more they go for the state-approach the more growth is going to go slow over the next three or five years.”

“Our own view is the Chinese will continue to be quite careful. We think they will let growth slow. 

Roache also said S&P don’t predict any recessions in Europe or in the U.S economies since policymakers are responding, and rates are being kept lower for longer. 

“At the same time consumer demand in these economies is pretty strong,

“We also see China stabilizing as well.”