How Does China's Economy Stand in Front of Looming Trade War?

China’s GDP grew by 6.7% in the second quarter of 2018, which is slightly down from 6.8% in the first quarter. The impact of the intensified trade war seems to be modest on GDP growth, as the Chinese economy is no longer export-driven. It is the domestic consumption, which accounts for more than half of its GDP that contributes the majority of China's economic growth.

(Source:  DataYes   RoboR   Research Platform , National Bureau of Statistic )

(Source: DataYes RoboR Research Platform, National Bureau of Statistic )

In contrast, the yuan exchange rate has been more dramatically affected. The yuan exchange rate has devalued 2% against the U.S dollar since the beginning of 2018 and more than 3% since the start of the trade war. It even tumbled more than 5% against US dollar -- the biggest slide since 2015 from mid-June to late-July, when the two countries fight on tariff ratchet up. 

(Source:   DataYes   RoboR   Research Platform , Federal Reserve )

(Source:  DataYes RoboR Research Platform, Federal Reserve )

To handle the "uncertainties in the external environment" caused by trade war and reinvigorate the economic growth, China has announced a range of proactive fiscal policies including tax cuts, infrastructure spending and new loans to business. On July 23rd, The People's Bank of China (PBOC) decided to inject 502 billion yuan ($74.36 billion) worth of liquidity via the one-year medium-term lending facility (MLF) to support the country's financial institutions. It is the biggest-ever amount in such operation since MLF introduced in 2014. At the same time, the government plans to raise and spend 1.35 trillion yuan (about US$199 billion) for local government, designated for infrastructure. Right after the announcement, Chinese stock market cap biggest three-day rally since mid-August 2016.

(Source:  DataYes   RoboR   Research Platform , People's Bank of China , Shanghai Stock Exchange )

(Source: DataYes RoboR Research Platform, People's Bank of China , Shanghai Stock Exchange )