From “Made in China” to “Chinese Assets”

The Sino-US trade dispute has proved once again the importance of the “Made in China” label.  Being at the center of global manufacturing，China is not only providing manufactured goods to the whole world but is also serving as an organizer of global commodity manufacturing activities. This is behind the trade friction between China and the US and the result will not only be felt by the two parties but will also have global repercussions.

The latest figures show that Sino-US trade friction has led to a contraction of demand in China，and the impact has since been transmitted through the global supply chain lines to other economies including South Korea，China's Taiwan，Japan and the euro zone – most notably Germany. China’s processing trade exports，for example，fell 7.3% year-on-year over the first three quarters of 2019，while processing imports had an even more rapid year-on-year decline of 11.7%.

Meanwhile，Germany’s manufacturing PMI fell to a record low of 41.7% in September. In addition，according to estimates of the World Bank，global GDP growth in 2019 will fall to 3.0% from 3.6% in 2018，trade volume growth will fall from 3.7% to 0.9%，and increased tariffs have already resulted in a sharp drop in global trade elasticity from the normal level of 1.0-1.3. The risk of a global recession and a downward spiral in foreign trade is increasing.

Currently，countries around the world are taking active steps to strengthen policy coordination and head off recession. Indirectly，this is making “Chinese assets” increasingly important on the global stage — alongside the “Made in China” label.

“Made in China” will bring near term benefits to Chinese assets. China was the first country affected by Sino-US friction，so it was the first to respond. China is expected to take the lead in stabilizing its economy.

China is also one of the few economies with a full panoply of manufacturing. As a result，Chinese assets will gain much from trade and manufacturing stabilization. Despite the rise of the “anti-globalization” movement，China has honored its pledges to open up its financial markets and has gradually removed institutional obstacles to  international capital in the domestic equity and bond markets.

Moreover，global bond prices have weakened under the effects of loose monetary policies used to counter trade friction. The use of negative interest rates has expanded and the global tally of bonds  with negative interest rates has reached US$17 trillion. Negative interest rates in the euro area and Japan may lead to a decline in the attractiveness of assets denominated in those currencies，and alternative international assets will be in demand. That has made Chinese bonds look even more attractive to gl