RPT-BREAKINGVIEWS-China’s only plan for Trump is plan for the worst

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.

By Ka Sing Chan

HONG KONG, Feb 28 (Reuters Breakingviews) - China is setting its annual goals but Donald Trump is flagging new tariff threats on a monthly basis. Officials in the People's Republic will need to be flexible and vague to allow their targets for the $18 trillion economy to absorb rapidly escalating external shocks.

On Thursday, the U.S. president said another 10% duty on Chinese exports will go into effect from March 4, on the same day Beijing will kick off its annual policy-setting meetings known as the ‘Two Sessions’. The levy would double the tariff Trump has applied to the country during his second term, and bring it up to a level many economists use in their baseline global forecasts.

Chinese planners are adept at handling some uncertainty. Concluding in 2025, their 14th strategic five-year plan was disrupted by the COVID-19 pandemic and trade tensions. Meanwhile, it took a rush of policy stimulus late last year for Beijing to hit its target for national GDP to grow "around 5%", eventually logging a pace of 5.4%.

When Premier Li Qiang delivers his annual government work report on March 5, he is expected to maintain a growth target of “around 5%” this year, and raise the budget deficit to 4% of GDP from an initial target of 3% last year, Reuters reported in December, citing sources with knowledge of the matter. It implies roughly 1.3 trillion yuan ($180 billion) of additional spending, equivalent to 1% of GDP.

If Trump continues to ramp up tariffs on China through the year, and inches closer to the worst-case scenario of 60% or 100% additional tariffs on top of those already applied to its exports by previous U.S. administrations, it could force China to dig deep. That's now increasingly plausible.

China does occasionally miss its goals, but it can spend as much as it requires to meet them too by relying on off-balance-sheet debt. Li’s cabinet is expected to allow for more flexibility in bond issuance especially by local municipalities. The Ministry of Finance sold 1 trillion yuan worth of ultra-long special sovereign bonds last year. This programme could be tripled to a record level in 2025, Reuters reported citing sources.

The targets China sets next week will confirm Beijing's determination to maintain a certain level of growth in the world's second-largest economy, at almost any cost if it wants.

CONTEXT NEWS

U.S. President Donald Trump on February 27 said that an extra 10% duty on Chinese imports will take effect on March 4 because deadly drugs are still pouring into the country.

He said these would apply on top of the 10% tariff he levied on February 4 over the fentanyl opioid crisis, resulting in a cumulative 20% tariff imposed by his new administration. He made the comments on his Truth Social site and to reporters in the Oval Office.

The Two Sessions, China’s annual legislative meetings, will begin on March 4. Chinese Premier Li Qiang is due to deliver his annual government report on March 5. Beijing will raise the budget deficit to 4% of gross domestic product this year, while maintaining a growth target around 5%, Reuters reported on December 17, citing sources with knowledge of the matter.