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> The Keynesian Model explains why the trade war, between the United States of America and China, will negatively impact both countries' economies and adversely affect their average expenditures or Gross Domestic Product.
> An economy's average expenditure consists of the sum of personal consumption expenditure, gross private domestic investment, government expenditure on goods and services, and net exports - which is the country's exports less their imports.
> When a trade war occurs, taxes are imposed on imports, in an attempt to encourage households from that country to purchase more of the good from their local producers because their prices would be lower in comparison to goods which have been imported from other countries' producers.
>While this may seem like a good idea at first, applying the classical school of thought of supply and demand. Demand of the product will increase because of the substitution effect, which is when the consumers of a good substitute it for a similar good which has lower prices. However, when one applies the Keynesian school of thought, this imposition of taxes on imported goods is bad because both countries will keep imposing heavier and heavier taxes. As a result, net exports for both countries will decrease. This negatively impacts that country's average expenditure or gross domestic product. This means that economic growth will be adversely affected.
> To fix this problem, the government will try to increase their spending on domestic goods and services. This is an effective way of encouraging economic growth because of the spending multiplier effect.
Another way the economy can experience growth is by investment by households.
> However, this is not always the case, as seen here. This can be explained by the "crowding-out" effect. This occurs when the government is running on a budget deficit and has to borrow to boost Aggregate Demand.
> Thus, there would be little, if any, increase in the real GDP ultimately.
> In this case, the crowding-out effect has caused China to be in massive debt which dampens the effect of the Expansionary Fiscal Policy.
> The reason why average expenditure or gross domestic product is increasing at a slower rate that it should be is because that households are not consuming as much as they should. Instead of spending on goods and services, the Chinese households are saving their income. Even the increase in domestic aggregate demand is not enough to compensate for the saving of the households. To help increase average expenditure and gross domestic product, households need to increase their spending and consumption of local goods rather than saving most of their income.

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-China's AI policy has lead to an increase in the unemployment rate.
- Increase competition with robotic production
- There are several companies in export manufacturing industries in Zhejiang, Jiangsu and Guangdong provinces have reduced their labour pool by 30-40 percent over the past 3 years.
- It is unavoidable as majority of our jobs can now be replaced by robots.

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-Due to this trade war between China and the United States of America, both price of imports and exports has increased.
-Increase in import prices means that there is presence of cost-push inflation.
-Import price rise --> increase in production cost -->  "pulls" the price of final product higher --> prompts seller to increase selling price --> inflation as a result.
-Due to the price increase in exports of China to the United States of America, people in US may not buy from it anymore and choose to buy from elsewhere instead. This could in turn cause an economic downturn in China's economy.

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-To be a "winner" in times of inflation, people in China should protect their purchasing power by  joining a strong trade union or investing that money on a physical assets.

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-US has increase tariff by 25% on US$200 billion worth of Chinese imports in August 2018.
-China then retaliated by proposing tariffs on US$60 billion worth of US goods, ranging from liquefied natural gas, iron ore and steel to aircraft.

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-The consumer price index(CPI)increase by 2.1% in the previous year which exceeds the predicted rise of 1.9%.
-A better representation of change in price level will be the core consumer price index which rose 1.9% in July 2018.

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-In July 2018, China experienced disinflation and the capital city of China experienced a decrease in economic growth rate due to trade dispute with Washington.
-Inflation rate picked up in August 2018 largely due to price increase in non-food products.

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The losses caused by the Sino-U.S. trade war to China are the divestment of foreign investors and the relocation of the global industrial chain. Along with the resetting the industrial chain are capital outflows and unemployment for several developing countries, including China.

The United States has become a safe haven for global investors due to the reform of the tax system and the loosening of supervision. In August, there were 201,000 new jobs in the United States, and the unemployment rate was down to 3.9 percent. However, China's serious unemployment problem has become worse due to the massive withdrawal of foreign capital.

Unemployment Statistics With Chinese Characteristics

The Chinese regime has been expanding its censorship. In recent months, even negative news concerning the trade war, unemployment, loss of foreign exchange reserves, stock market and the real estate market have become sensitive topics subject to censorship. Despite this, there are still various methods available for measuring the severity of China's unemployment.

In mid-August, the National Bureau of Statistics (NBS) announced that the unemployment rate in urban areas nationwide was 5.1 percent in July, rising 0.3 percent from the previous month.

Scholars analyzing the Chinese economy never trust this kind of data. It might be called "statistics with Chinese characteristics." Starting this April, the authorities changed the method of measuring unemployment from using a "reported urban unemployment rate" to a "surveyed unemployment rate." Meanwhile, they also commissioned a team of team of experts to write a paper called "Comprehensive Analysis of the Surveyed Unemployment Rate Reflected in Nine Issues" to prove that the "surveyed unemployment rate" was more reliable than the previous "reported urban unemployment rate." However, all experts know that unemployment rate surveys "with Chinese characteristics" do not reflect reality either.

The data provided by the government only accounts for urban unemployment, and ignores the hundreds of millions of working-age rural unemployed. In 2017, the Meteor Federation of Journalists (also known as the Youth Media Association) conducted a survey on the actual unemployment rate and published its findings in an article titled "China's Unemployment Rate-the Hidden Truth."

Key points from the article may be reiterated as follows: the total Chinese population in 2016 was 1.383 billion, including 907.47 million people between the ages 16 and 59. Deducting 68.6 million students enrolled in high schools, universities, and vocational school leaves a working-age population of 838.87 million, accounting for 60.7 percent of the total population. According to statistics, the total number of employed was 774.63 million.

However, the study brought up a critical issue: Chinese peasants do not retire and are included in the "employed" category for life. Elderly peasants, defined as those over the age of 60, numbered 129.28 million, a number that must be subtracted from the total employment figure. As a result, the real number of employed, working-age Chinese was 646.75 million - a difference of 192.12 million compared with the total number of working-age Chinese not enrolled in education or training. By this metric, the real Chinese unemployment rate is 22.9 percent.

Demographic statistics from this year paint a mirror image of the 2016 situation. The real rate of unemployment is still over 22 percent, even without factoring in the effects of the Sino-U.S. trade war that began this March.

At present, there are three factors exacerbating China's unemployment crisis.

Dual Impact of the Trade War: Withdrawal of Foreign Capital and Surge in Unemployment

The withdrawal of foreign capital from China that began this year has become irreversible. Although the Chinese authorities maintain stubborn resistance to this shift, the Ministry of Commerce acknowledged at a regular press conference held on Sept. 20 that tariffs imposed by the United States on $200 billion worth of Chinese goods have affected six categories, including the electromechanical industry and light industries such as textiles. Among the affected enterprises, foreign companies accounted for 50 percent. The Ministry of Commerce claims the U.S. tariffs harm not only the interests of Chinese and American companies and consumers, but also the security of the global industrial chain. The last sentence refers to the fact that foreign capital is withdrawing or considering withdrawal from China.

On Sep. 13, the American Chamber of Commerce in China and the AmCham Shanghai published a survey conducted on more than 430 US companies in China. Thirty-five percent of the companies surveyed have transferred production from China to other countries such as those in Southeast Asia, or are considering doing so.

According to statistics from Japan's Kyodo News, 60 percent of Japanese companies have been transferred or are in the process of transferring from China to other countries, while the remaining 40 percent are deliberating on how to withdraw funding.

As for Taiwan-funded enterprises, the Japanese financial newspaper Nikkei reported on Sept. 16 that Taiwanese factories manufacturing shoes for Nike, Adidas, Under Armour and other brands have moved their production lines to Southeast Asia and India.

In order avoid the tariffs about implemented by Washington, even Chinese-funded enterprises and manufacturers are moving. Many Chinese factories are transferring their assembly lines abroad.

The Hong Kong-based Kerry Logistics Network Limited, Asia's largest shipping and logistics company, is currently moving its production lines for customers in different countries from China to Malaysia, Vietnam, Myanmar and even Laos.

What kind of impact does the withdrawal of foreign capital have on Chinese employment? A widely quoted figure is that according to official estimates, the total number of people directly employed with all foreign-invested enterprises is more than 45 million people. In addition, there are countless suppliers and upstream and downstream enterprises that rely on foreign capital to survive, involving hundreds of millions of people.

According to Bloomberg News, on Sept. 11, China's chief economist Zhu Haibin of JPMorgan Chase & Co. stressed in his research report the profound impact of tariffs on China: if the United States imposes a 25 percent tariff on $200 billion worth goods exported from China, and China does not retaliate, it may leave three million people unemployed. If China uses the following methods to retaliate, including imposing counter-tariffs on U.S. good and depreciating the yuan by 5 percent, then 5.5 million people will lose their jobs and the GDP will decrease by 1.3 percent.

China's AI Policy Leads to Structural Unemployment

Like many developed countries, the Chinese labor force faces increasing competition with robotic production.

A September report published by China Development Research Foundation and Sequoia Capital China, a venture capital firm, shows that several companies in export manufacturing industries in Zhejiang, Jiangsu and Guangdong provinces have reduced their labor pool by 30 to 40 percent over the past three years. In the past decade, Hangzhou Wahaha Group, a Chinese beverage company, has reduced the number of workers in its assembly line from around 200 or 300 to just a handful of personnel.

Robots competing for jobs once done by humans occurs in many countries, making unemployment an unavoidable trend in many cases. Some governments are considering various kinds of "robot taxes" to make up for the loss of human taxpayers.

Xavier Oberson, a professor and tax lawyer at the University of Geneva in Switzerland, advocates taxing robots proportional to their productivity-especially considering that a robot can generally replace more than one person. He recommended that funds accumulated through these taxes be used for social security funding and training for the unemployed.

South Korean and French politicians have also put forward similar proposals, hoping to use increased taxes to increase unemployment welfare. The Chinese authorities are aware of the increase in unemployment brought by AI, but apparently have not considered specific countermeasures.

Increasing Social Security Taxes Leads to Increased Unemployment

On Aug. 27, the State Administration of Taxation issued a tax reform to be implemented on Jan. 1 next year. The new policy introduces two major changes. First, it will be impossible for enterprises to conceal the actual number of employees and avoid paying social security taxes. According to the "China Corporate Social Security White Paper 2018" released by the independent social security agency 51 Shebao in late August, 73 percent of Chinese companies were not in compliance with state regulations, i.e. they were not paying the social security fees as demanded of the actual wages. After the new policy is implemented, the possibility of companies' escaping social security taxes will be greatly reduced.

The tax reform will increase the corporate tax rate from 31 percent (13th highest in the world) to the second-highest in the world at 44 percent.

The implementation of the new social security tax policy increases the burden on enterprises will increase. Many media have published articles discussing this issue. According to the author of "In the Next Year, Please Prepare for Unemployment," if a company pays one employee 10,000 yuan ($1,440) a month, the company needed only to pay the lowest social security tax in the past, but going by the new policy, the employee has to pay an additional 640 yuan ($92) per month while companies have to pay an additional 1,860 yuan ($268) per employee per month, making the additional cost for hiring an employee more than 20,000 yuan ($3,200) a year. For a small company with around 10 employees, it will cost an additional 200,000 plus yuan ($32,000) a year. The increase in costs directly reduces the profits of small and medium-sized businesses, which will be forced to lay off workers in order to survive.

The trade war has not yet ended, but its impact on China is gradually emerging. The Chinese Communist Party (CCP) does not want a trade war with the United States. Beijing has long acted as if opening up the market to Western countries is a special privilege it has afforded the West, while failing to recognize the thanks that China's economic prosperity owes to the international trade system.

Ever since 2003, when the CCP announced its "peaceful rise," it has been trying to change the international rules.

In 2014, Xi Jinping publicly proposed his diplomatic guiding principles: "It is necessary to comprehensively consider and use both international and domestic markets, international and domestic resources, and international and domestic rules."

Since the existing guardian of these rules is the United States, if the CCP were to rewrite and dominate the standards of international conduct, it would have to challenge the United States. But when the trade war came, it was unexpected, and China did not have enough assets for competition.
He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored "China's Pitfalls," which concerns corruption in China's economic reform of the 1990s, and "The Fog of Censorship: Media Control in China," which addresses the manipulation and restriction of the press. She regularly writes on contemporary Chinese social and economic issues. Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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The losses caused by the Sino-U.S. trade war to China are the divestment of foreign investors and the relocation of the global industrial chain. Along with the resetting the industrial chain are capital outflows and unemployment for several developing countries, including China.

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- Due to the US-China trade war, China's unemployment rate has increased. This is because of the massive withdrawal of foreign capital.
- According to the National Bureau of Statistics (NBS), the unemployment rate in urban areas was 5.1 percent in July, and has increased to 5.4 percent in August.
- However, the data did not account for the hundreds of millions of the adult population in the rural area that are unemployed.
- The Meteor Federation of Journalists thus conducted a survey on the actual unemployment rate in 2017- "China's Unemployment Rate"
- Total Chinese population in 2016 was 1.383 billion, including 907.47 million people between ages 16 and 59. Deducting 68.6 million students enrolled in high schools, universities, and vocational school leaves a working-age population of 838.87 million, accounting for 60.7 percent of the total population.
- Lastly, the total number of employed was 774.63 million.
- Chinese peasants do not retire,thus they are under  the “employed” category for life. Elderly peasants, defined as those over the age of 60, numbered 129.28 million, a number that must be subtracted from the total employment figure.
- The real number of employed, working-age Chinese has become 646.75 million (a difference of 192.12 million compared with the total number of working-age Chinese not enrolled in education or training)
- By this metric, the real Chinese unemployment rate is 22.9 percent.

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China's GDP increased by 6.8% year-on-year in the first half of 2018 and we expect GDP to grow by 6.3-6.7% in 2018 and 6-6.6% in 2019. However, after 2020, GDP growth is expected to decline to an annual rate of 5-6% in 2021-2025, though ongoing economic rebalancing should sustain higher annual consumption growth of 5.8-6.8%. Consumption accounted for 78.5% of GDP growth in the first half of 2018, compared to 31.4% for investment. This strong consumption growth is supported by a record-high consumer confidence.

Fixed urban assets investment growth declined to 5.5% year on year in the first seven months of 2018. The slowdown in investment is mainly driven by the government's deleveraging campaign, reducing funding for local government infrastructure and State-Owned Enterprises (SOEs) investment projects.

Chinese government loosens its fiscal and monetary policy stances

Recent government policy statements and measures indicate that the deleveraging campaign has slowed down and may even be temporarily reversed, due to concerns about the slowdown in investment and negative impact of a trade war. The central government is now encouraging local governments to speed up spending of unused revenues and banks to ensure adequate financing for local government projects. This contrasts with earlier policies aimed at discouraging excessive lending to local government. The deceleration in shadow banking credit growth is also likely to reverse in the second half of 2018.

In July 2018, the central bank injected CNY502 billion into the Chinese banking system using 1-year loans. The Chinese government also announced CNY1.2 trillion in business tax cuts in addition to infrastructure spending measures, due to higher external "uncertainty".
Source: Euromonitor International from Euromonitor Macro Model
The 2008 financial crisis' impact on the Chinese economy was smoothed out by a large fiscal and credit stimulus programme, though growth still slowed down gradually. The cost of the stimulus was an excessive rise in debt and investment levels. Debt has started to stabilise relative to GDP, and we expect the Chinese economy to continue on a path of soft deceleration. However, risks of a more abrupt debt restructuring or a hard landing remain.

Post financial crisis stimulus led to over-investment

Higher investment boosted labour productivity. This was partly offset by the lower return on capital of the new investment projects and higher investment spending also contributed to the massive rise in China's debt levels. Scaling back of the government stimulus and the start of a rebalancing towards consumption led to a drop of three percentage points in investment to GDP by 2018. China still invests 44% of its GDP despite economic rebalancing, significantly above the global average. The consumption to GDP ratio declined by 11 percentage points in 2001-2010, reaching a low of 36% in 2010.

Consumption remains low

The early part of the decline of consumption to GDP in 2001-2007 reflects a boom in private sector investment and employment, which required a large rise in private sector saving due to China's restrictive financial system. Despite the recent rebalancing of the economy, China's consumption to GDP ratio has increased slowly, reaching 38% in 2017 (compared to a world average of 56% and an emerging markets average of 51.5%).

Domestic aggregate demand was not enough to fully absorb the rising savings of Chinese households and firms, leading to a rise in the current account balance that peaked at 10% of GDP in 2007. The growing need to finance investment and liberalisation of financial markets, together with rebalancing towards consumption led to a decline in the current account to GDP ratio since 2007, reaching 1.3% in 2017.

Government stimulus led to debt expansion

The credit and fiscal stimulus programmes led to ballooning non-financial sector debt levels, rising from 142% of GDP in 2008 to 256% of GDP in 2017. Leverage started stabilising in 2016. Corporate debt to GDP started falling in 2016 but this was compensated by rising government and household debt. Year-on-year lending growth in the first half of 2018 remained high at 12.8%. However, this masks a change in composition with a greater proportion of lending to more profitable private sector firms and a decline in the share of lending to local governments and SOEs. The reallocation of lending towards more efficient private sector firms should ultimately allow China's financial system to sustain similar growth rates with less reliance on credit.

Financial risks likely contained, despite high debt levels

While China's debt levels are likely to remain extremely high by emerging markets standards over the next five years, any banking crisis is likely to be contained, causing a major downturn but avoiding a hard landing. Most of China's debt is between state-owned banks and state-owned borrowers (e.g. SOEs, local governments). Resolution of non-performing loans or defaults is much easier to coordinate and less costly than in financial systems that are focused on private financial institutions and borrowers (e.g. in the US).

Short-term hard landing risks are mainly of a moderate credit crunch combined with a disorderly economic rebalancing process (e.g. excessively fast liquidation of unprofitable SOEs with slower than expected increases in private sector employment). A conventional financial crisis is more likely to emerge over a 10-year period, if the current high debt levels are maintained while China continues to liberalise its financial system to become much more private sector focused.

Deleveraging campaign lowered shadow banking exposure

The rise in non-bank financing has raised financial risks, but it still accounts for a moderate part of total credit, and the government's recent deleveraging campaign has significantly reduced the share of non-bank financing in total credit. The growth rate of some of the riskier types of non-bank financing has declined substantially. Shadow banking assets have declined from 87% of GDP at the end of 2016 to 73% of GDP in June 2018, according to estimates by Moody's.

Household debt levels have recently increased above the average for emerging markets. However, household debt levels are still quite low at 48% of income, and the tightening of mortgage down payment conditions since 2016 should contain excessive growth in mortgage debt. Credit card debt and other types of consumer borrowing levels are still moderate, albeit growing fast.

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China Economic Outlook: Q3 2018 | Market Research Blog

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China's GDP increased by 6.8% year-on-year in the first half of 2018 and we expect GDP to grow by 6.3-6.7% in 2018 and 6-6.6% in 2019. However, after 2020, GDP growth is expected to decline to an annual rate of 5-6% in 2021-2025, though ongoing economic rebalancing should sustain higher annual consumption growth of 5.8-6.8%.

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Cost-pull inflation is present, because of the increase in the price of raw materials used for production in China's economy.
This "pulls" up the price of the finished products because the cost of production is higher and firms have to increase the price of their goods to maintain the same profit margin. Therefore, the prices of goods are "inflated" and cost-pull inflation occurs.

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China's factory inflation slows but consumer prices accelerate

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China's factory price inflation cooled in July but not as much as expected, amid a wider slowdown in economic growth as Beijing remains locked in a heated trade dispute with Washington....

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- The analysis of China's  real Gross Domestic Product (GDP), GDP per capita and economic growth will be from 2013 to 2018.
- We will be looking at China's real GDP instead of nominal GDP to find out the change in production of goods and services from 2013 to 2018.
- From 2013 to 2018, China has been experiencing positive economic growth, which means more goods and services have been produced over the years (2013 to 2018).
- Looking specifically at 2017 to 2018 : The real GDP in 2017 was US$12,241 Billion and the economic growth rate for 2017 was 6.9%.
- Doing the calculations the real GDP for 2018 is US$13,036.665 Billion and the economic growth rate for 2018 was 6.5%
-This means that even though China experienced positive economic growth in 2018, its economic growth rate has gone down as compared to 2017's economic growth rate.
- 2018's economic growth rate is the lowest for the past six years and looking at the statistics, there is a possibility that China's economic growth might continue to slow down over the next few years.
- GDP indicates the demand (spending)/production of goods and services of China. Thus even though China may have a high GDP, it does not mean it has high living standards due to the immense population China has.
- Looking at the GDP per capita of China from 2013 to 2017, the average production has been increasing and this shows that the living standards of China ha been improving over the years.
-However the real GDP is an imperfect measure as it does not include the transactions in the black market of China. Thus, it can be inferred that the Real GDP of China is understated.

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Hi Jolene and team, articles look fine.

Make sure that you consider China's issue with inflation, what are the reasons for it and possible solutions that government is going to take etc.