Communist China Gets a Credit Downgrade

Beijing is putting up a brave front in the face of President Trump’s attempt to even the global playing field via tariffs on Communist China’s imports. “China is a super economy,” says the party’s press organ. “We are strong and resilient in the face of the U.S. tariff bullying.” The mandarins appear to think they can prevail in a battle of wills with America. Yet a credit downgrade on China’s sovereign debt suggests the risk Beijing is running.The downgrade on Chinese debt comes courtesy of the rating agency Fitch, which says the notch downward, to A from A+, was in the works even before Mr. Trump’s announcement last week of new tariffs. The downward rating reflects “concerns about weaker public finances and the impact of higher tariffs on exports,” the Financial Times reports. Yet the move by Fitch prompted Beijing to gripe about bias against the communist regime. Fitch foresees that Beijing will “sharply increase spending” to buttress growth and “counter deflationary pressures,” the FT reports, in light of “rising tariffs that would weigh on external demand.” Fitch reckons that the spending, “along with a structural erosion in the revenue base, will likely keep fiscal deficits high,” with debt as a proportion of economic output expected to “continue its sharp upward trend over the next few years.”Sure enough, in the aftermath of Mr. Trump’s “Liberation Day,” policymakers at Beijing launched discussions over “whether to accelerate plans to unleash stimulus to bolster consumption,” Bloomberg reports. Yet the moves contemplated under China’s state-run economy are the antithesis of the kind of decisions that would prompt enduring growth via the efficient allocation of resources. Those would be the hallmarks of free-market economies.China’s moves “focus on boosting consumer spending, birth rate and subsidies for some exports,” Bloomberg reports, and regulators at Beijing are also weighing “a stabilization fund to shore up its stock market.” The cost of these measures, taken together, could run to hundreds of billions of dollars, Bloomberg adds. That cost, ultimately borne by the Chinese, reflects the high expense associated with maintaining Beijing’s mercantilist trade policies.Under that regime, China has gained access to global markets — transforming itself into the world’s workshop — while also limiting access to its own market and forcing technology transfers from Western industrial giants. While American automakers like General Motors hoped to profit from access to the Chinese market, they instead have largely been wiped out by domestic competition from firms that have learned much of their expertise from the West. A looming trade war with America could prove to be a kind of “mercy killing” for American automakers on the mainland, Bloomberg’s David Fickling reports, “wiping out the remnants of Buick, Chevrolet and Ford’s mainland markets.” More broadly, Mr. Fickling says, China “has spent decades building an economy that’s already largely war-proofed against blowback from its own trade practices.”Mr. Fickling points out that America imports vast quantities of consumer goods from China like “smartphones, computers, games consoles, furniture, toys and clothing.” Tariffs of some 104 percent, as Mr. Trump threatens, could double the cost of these goods, hitting consumers in the wallet. America, by contrast, is “a relatively minor supplier to China in almost every major product category,” so it could emerge relatively unscathed by its retaliatory tariffs.That, at least, is how President Xi and his camarilla seem to view the escalating trade dispute. So rather than reducing to zero their own levies on American imports — as Vietnam’s communist regime reportedly offered as a goodwill gesture — Beijing is looking to double down on the policies that have enabled it to build up its industrial base at the expense of America and the West. How long, though, will they be able to afford this posture of defiance?

Communist China Gets a Credit Downgrade

Communist China Gets a Credit Downgrade

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