As the U.S.-China trade war deepens, concerns in various quarters are growing about the negative impact on the Chinese economy. China's real gross domestic product rose 6.7% on the year for the April-June quarter, down 0.1 percentage point from the previous quarter. If the cycle of retribution between the two countries discourages ever more companies from investing in the second half of the year, the conflict will deal a significant blow to the world economy, too.
China recently announced that it was easing foreign investment restrictions across many business sectors, including banking, insurance, automobiles and railways. The move appears partly aimed at taking pressure off the administration of U.S. President Donald Trump, and we commend Beijing for taking positive steps.
But China was supposed to have taken those steps after it joined the World Trade Organization in 2001, when it pledged to follow the principle of mutually open markets. The country has been woefully late in making good on its promise and has a lot more work to do in opening its markets.
As the world's second-largest industrialized economy, China can hardly be called a "developing country." Its economic status is clearly reflected in its industrial structure: The nation exports a large amount of industrial products and is heavily dependent on agricultural imports. As such, respecting universal global economic rules can only help China maintain stable growth.
Unfortunately, China is heading in a direction opposite to what would be the wise path. A particularly noteworthy example of this is how the Chinese Communist Party, ever since its twice-a-decade congress last fall, has heightened its pressure on private-sector companies, including those based overseas, to set up in-house party cells. Such a corporate governance system would allow the Communist Party to interfere with business decisions even if it becomes possible to set up wholly foreign-owned enterprises in China.
The problem is that such a practice goes beyond the reach of WTO rules. The international trade watchdog can flag the problem but has no legal authority to enforce any changes. When China's accession to the WTO was approved, the U.S. and other Western countries were optimistic that China would change for the better. But the Chinese leadership under President Xi Jinping still embraces the policy of making state-run enterprises bigger and stronger.
The country's latest quarterly growth, driven by consumer spending, topped the government's full-year target of around 6.5%. However, likely investment declines caused by the impact of China's campaign to reduce local debt, combined with fallout from the trade tussle, will surely drag on the economy in the second half.
In recent weeks, the weak yuan and a slowing Shanghai stock market have made headlines. Meanwhile, Chinese authorities are growing increasingly alarmed about the possibility of huge capital outflows. Property prices remain high, but analysts are saying that downward pressure on the Chinese real estate market is likely to grow.
The U.S.-China trade war is a byproduct of the struggle for global hegemony between the two largest economies. Intertwined with that is their battle to protect national security interests. Beijing is displaying an assertive external policy in its quest to become the world's wealthiest and strongest nation. For the sake of global economic stability, however, the two governments must show restraint not only in the area of economics and trade but also on matters of national security.