For the second consecutive day, after holdings it fire for months and stoically resisting a response to Trump's relentless twitter assaults, China escalated its media war on Trump and one day after China's top newspaper unleashed a coordinated attack on the US president, whom the state-run People's Daily called "arrogant" and "deceitful", and warned that China is "prepared to fight to the end", on Tuesday the official China Daily described as "wishful thinking" Trump’s belief that a fall in Chinese stocks was a sign of his winning the trade war.
The China Daily was referring to Saturday tweets by Trump which claimed that "Tariffs are working far better than anyone ever anticipated. China market has dropped 27 percent in last 4 months...," adding that the US market is "stronger than ever."
China took offense as this indication of relative trade war strength, and said that the Chinese stock market was performing poorly long before the U.S. administration imposed tariffs, claiming that the downturn was partly due to Beijing’s attempts to cut corporate debt... although it did not explain why the market failed to rebound after Beijing resumed its re-leveraging campaign as well as promoted several other monetary and fiscal easing measures.
Chen Fengying, an expert at the China Institutes of Contemporary International Relations, said such a correlation is flawed: "President Donald Trump thought the US had won. In fact, the trade war has just begun. It is too early to tell how the trade row will evolve and affect the US and the Chinese economies, thus it is too early for the US president to reach such a conclusion," Chen told the Global Times.
"While the performance of the Chinese stock markets has indeed been affected by the heightened trade tensions between China and the US, it cannot be concluded that a Chinese stock market slump will cause China to lose the trade war with the US."
The Chinese yuan has been affected, in part by the trade row and its uncertain consequences, the Economic Observer reported on Monday. But the report cited Sheng Songcheng, an official at the People's Bank of China, the central bank, as saying the yuan will not depreciate further than $1 against 7 yuan, as this is a psychologically important benchmark.
Guan Tao, a former senior official at the State Administration of Foreign Exchange, said that as of now, the yuan's depreciation has been the result of market factors instead of deliberate government interventions, and there is no sign that the Chinese government is working on a currency war.
"The current weakening of the yuan is a reflection of a change in market sentiment following the change in economic fundamentals," Guan told the Global Times on Monday. "A short-selling sentiment is behind the relatively fast weakening rate in yuan depreciation," Guan said.
"There are varying views on the trade row's impact, but personally, I believe a trade row impact will be limited to the Chinese economy. China is a major economic power, and for an economy with such a status the economic performance is determined more by internal factors than external factors," said Guan, who is currently a senior research fellow at China Finance 40 Forum.
"Data will decide whose guess is correct. We cannot scare ourselves with some extreme stories as separate cases are by no means a reflection on the whole picture," Guan said.
Meanwhile, lobbing its own claim for trade war superiority, the paper said Trump’s claim that “tariffs are working big time” was undermined by data showing the U.S. trade deficit climbed $3 billion to $46.3 billion in June, the first increase in four months.
The editorial in the official China Daily has underscored the increasingly aggressive stance adopted by Chinese state media against Trump, a shift from their previous approach of tempering any direct criticism against the U.S. president when one month ago, Beijing ordered China's state media "not to use aggressive language" for Trump. Instead, China is now not only retaliating tit-for-tat to Trump's trade war, but also responding to Trump's tweeted offenses.
On Monday, the overseas edition of the Communist Party’s People’s Daily newspaper singled out Trump, saying he was starring in his own “street fighter-style deceitful drama of extortion and intimidation”.
As Reuters notes, Chinese state media has also been promoting the message that the country’s economy is strong enough to ride out the trade war. In a separate People’s Daily commentary, a researcher at the Commerce Ministry reiterated this stance, saying China was strong and resilient enough to weather the trade dispute.
“We absolutely have reason to believe that during this complex trade friction, and relying on the domestic market, China can continue to enhance its leading position in the global economic and industrial system,” researcher Mei Xinyu wrote.
That said, even ignoring the market and focusing just on the economy, the cracks that are forming will provide further ammo to Trump's claim that China is feeling the damage from the extended trade war. Recent data has shown that Chinese growth has already started to cool. The government has responded by releasing more liquidity into the banking system, encouraging lending and promising a more “active” fiscal policy.