As regular, there was loads to unpack in Donald Trump’s tweet. The US president claimed that American tariffs have been having a “main impact” on the Chinese language financial system, which this week posted its lowest stage of gross home product progress for almost 30 years.

“China’s 2nd Quarter progress is the slowest it has been in additional than 27 years. The US Tariffs are having a serious impact on corporations wanting to go away China for non-tariffed nations. Hundreds of corporations are leaving,” Mr Trump tweeted.

A few of that is maybe half true. A number of corporations — together with US tech behemoths reminiscent of Apple — are certainly contemplating shifting a part of their provide chain out of China. And, sure, this potential shift is pushed partly by the US-China commerce warfare.

However the total message of Mr Trump’s tweet — that US tariffs are dragging China down — depends on a simplistic studying of what animates China’s financial system. The truth is that China’s dynamism lately comes largely from inside, from funding and client spending. Commerce has lengthy since ceased to be greater than a bit participant in China’s progress story.

“The Trump tensions have contributed to slower progress in China, however the greatest influence has been on sentiment fairly than straight from commerce,” stated Andy Rothman, funding strategist at Matthews Asia. “Do not forget that final yr, internet exports accounted for lower than one per cent of China’s GDP.”

Thus, Mr Trump’s declare that US tariffs have had a “main impact” is overblown. Equally deceptive is the concept Chinese language progress has taken a giant hit. Financial enlargement of 6.three per cent within the first half of this yr, down from 6.6 per cent over all of 2018, hardly constitutes a rout.

When such numbers are expressed in US dollars, the vacuity of Mr Trump’s phrases turns into clear. Final yr, China added $1.45tn to its $13.6tn financial system, making it by far the most important nationwide contributor to international GDP.

For context, the additional $1.45tn in financial output that China managed in 2018 is roughly equal to the dimensions of the Spanish or Australian economies. Even when China manages solely 6.three per cent progress this yr, it’s going to have added one other “Spain”.

Such comparisons assist to place the significance of China’s financial system into context. However they don’t take account of the nation’s manifold frailties, lots of which lie deliberately obscured beneath upbeat official narratives.

The principle structural drags on Chinese language progress are homegrown. They’re hangovers from blistering stimulus binges launched because the 2008 monetary disaster which have despatched money owed skyrocketing to ranges which now restrict Beijing’s coverage choices.

Complete debt in China stands at over $40tn, or near 310 per cent of GDP, based on the Institute of Worldwide Finance. This represents an explosion from ranges of simply over 150 per cent in 2008, revealing that a lot of China’s golden decade was borrowed fairly than purchased.

The frailty has pressured Beijing to mood its ambitions. Officers routinely warn over the dangers that would erupt from an enormous, unregulated shadow finance system. Native governments, in the meantime, are navigating what S&P analysts Gloria Lu and Laura Li name a “debt iceberg with titanic credit score dangers”. Households are additionally more and more maxed out.

The upshot of all that is that Beijing now not enjoys the luxurious of with the ability to purchase progress by deploying credit score to spur unchecked asset worth inflation. Such limitations assist clarify why Beijing seems set towards a return to the go-go insurance policies of 2009 and 2015. A number of analysts suppose that if a stimulus is launched to stem ebbing progress later this yr, it is going to be a restricted, piecemeal affair.

Staying Beijing’s hand over the liquidity spigot is the information that extra credit score will inflate housing costs additional out of the attain of a swelling center class. “Historical past has confirmed that each nation relying excessively on actual property for financial prosperity would finally pay a heavy worth,” warned Guo Shuqing, China’s banking regulator, in June.

But Chinese language policymakers additionally know that when property costs ease, households really feel poorer and rein of their spending, having an influence on the broader financial system. So a balancing act outcomes. When progress slips an excessive amount of, tax cuts, rebates and even handed injections of liquidity are deployed. If issues overheat, some goodies are withdrawn.

The one escape for China comes from boosting productiveness. And it’s this that provides Mr Trump his leverage. Though US commerce tariffs have little energy to injure China, the prospect of a full-blown financial rivalry with the US that restricts Chinese language corporations’ entry to US tech looms as a potent risk.

Thus, says Mr Rothman, China is prone to favour a decision with the US to the commerce warfare. With out one, Beijing will battle over time to ascend the know-how ladder, making productiveness good points tougher to achieve.

james.kynge@ft.com

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