China's Economy: Reasons for Optimism

This year, one of the biggest concerns for investors around the world has been the potential for a renewed trade war between The US and China. So what's the state of trade negotiations between the two countries? And should last week's summit give investors a measure of relief? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm speaking with my colleague, Kuei Shan, chief China economist in Goldman Sachs Research, to talk the implications of the recent talks for tariffs, restrictions on exports, and more broadly, China's economic growth. Hui, welcome back to Exchanges.

Thanks for having me.

So, Hui, China has borne the brunt of US tariffs. They've definitely been in the crosshairs. Yet exports, and I would say growth, have been exceptionally resilient. Why is that? Are the tariffs just not working?

Good question. Chinese exports indeed have been very resilient. After last year's 13% growth in export volume. This year, looking at the data, Chinese exports volume is on track for another 8% growth. So if you look at the detailed categories, it's not like the Chinese exports are immune to any kind of tariff impacts. In fact, for categories like toys, footwear, garment, where it's labor intensive and the margins are relatively thin, when you add tariffs, you do see large declines and sometimes double digit and more than double digit declines in the exports of these categories. So to us, the 3

And is that rerouting tariff evasion? Do some of those goods end up coming to The US or you've just really changed where these goods are flowing to and who's consuming them?

I think it's both. When it comes to trade and looking at trade data, it's not zero and one. It's somewhere in between. We did find evidence, the category by category, in months when Chinese exports of this product to The US dropped, You also see Chinese export of the same product to ASEAN countries increase and ASEAN exports of the same product to The US increase in the same month or following month. But at the same time, Chinese exporters have been diversifying their trade destinations over the past few years. Ever since the first trade war in twenty eighteen, twenty nineteen, you are seeing

So we've now had this Trump Xi meeting, which deescalates trade tensions between China and The US. So what are your key takeaways about that meeting last week? How substantial are the agreements, and how does that affect the export picture ahead?

Yes. On October 30, President Trump and President Xi met in South Korea. The details of the meeting or the agreement, we're still learning about it because the White House fact sheet versus the Commerce Department of China official release, they are emphasizing slightly different things. So we shall see what exactly was agreed upon and how the implementation of the agreement will be going forward. But to me, this is very important in a couple of aspects. One is that I think this is for the first time China's positioned more as equal to The US. Remember during the first trade war, at least the

But we have seen this back and forth between US and China before. So what gives you conviction that this trade truce is going to prove to be more lasting?