Beijing (AFP)

"China's economy is collapsing," Donald Trump assures. By threatening to impose additional tariffs on all imports from China, the US president hopes to bend the Asian giant and force him to a trade agreement.

The trade war has added to the many challenges that the world's second largest economy is already facing: slowing growth, over-indebtedness, inefficient and deficit state enterprises ...

In this context, the new sanctions promised by Donald Trump could hit hard the Chinese economy, analysts said, who expect however that Beijing will do the round back while waiting for better days.

Even before the new threats of Donald Trump, Chinese President Xi Jinping admitted last Monday a "complex" situation and called to "resist".

"Whenever the Chinese Communist Party admits something, the reality is usually much worse," said a note firm SinoInsider expertise.

Xi Jinping assures that "the ship of the Chinese economy (can) face the waves". But growth faltered in the second quarter, marking its weakest performance in at least 27 years, at 6.2%.

Worse, "there is a good chance that the Chinese economy is actually worse," SinoInsider believes, doubting many experts as to the reliability of national statistics.

- "Mass Layoffs" -

However, as to prove right to Donald Trump, the latest figures are not encouraging.

In July, manufacturing activity contracted for the third consecutive month, weighed down by export orders.

At the same time, the job market has deteriorated at the fastest pace in five months as companies downsize to cut costs, according to financial media group Caixin.

Sign of concern of the communist regime, still obsessed with "social stability", Prime Minister Li Keqiang called last week to take more measures to support employment and prevent "the risk of massive layoffs and unemployment" .

But US trade sanctions are not the only issue.

"Contrary to Trump's assertions, the slowdown in the Chinese economy is mainly due to domestic factors," tempers Max J. Zenglein of the Mercator Institute for China Studies (Germany).

However, the next salvo of customs duties, promised for September 1, "will be an electroshock" for the manufacturing sector, already severely affected by the trade war, says Rajiv Biswas of IHS Markit, recalling that the United States are the first outlet for Chinese exports.

"The field of electronics is particularly vulnerable because many products exported to the United States, such as smartphones, will be subject to this new series of customs surcharges," he warns.

- A dilemma -

If the economy suffers, however, nothing says that Beijing will yield to the demands of Washington, some of which, as the end of subsidies to state-owned companies, could undermine the very structure of the communist regime.

The Chinese government should therefore seek to gain time, hoping - as Donald Trump accuses - that a new, more accommodating president will be elected next year.

Beijing could choose to let its currency spin to support exports. It would be an additional "lever" in the negotiations with Washington, stresses Ken Cheung, strategist at Mizuho Bank.

China has another option - devalued so far by the authorities: a stimulus policy with massive investments.

The danger is that it "increases financial risks," said Shi Yinhong, a professor of international relations at People's University in Beijing, recalling Beijing's focus on deleveraging.

"It's a dilemma (...) there are not many ways to maintain growth."

To less depend on exports, Beijing is more likely to change its growth model, with a greater focus on domestic consumption.

But this strategy "can only work by increasing wages" and it would hurt competitiveness, notes the economist Raymond Yeung, ANZ bank.

To avoid customs surcharges, some companies in China have already begun moving their production to other countries, such as Vietnam, where labor is cheaper.

And politically, in the run-up to the 70th anniversary of the founding of Communist China on Oct. 1, it seems difficult for Xi Jinping to yield to Trump.

With his new threats, the US president has "reduced the likelihood of an agreement" with China, said Louis Kuijs, Oxford Economics firm. On the contrary, Beijing will be "more determined to prepare for long-term economic tensions."

© 2019 AFP