Wang Tao is the director of China Chief Economist Forum, the head of Asian economic research at UBS, and the chief economist in China.

The policy choice of the new US administration may change.

165438+1On October 7, major American media predicted that Biden would win this presidential election, but the current President Trump did not give up. For example, the U.S. macroeconomic team of UBS pointed out earlier that the results of the U.S. election have a great influence on the fiscal stimulus and trade policy orientation of the United States in the next stage. We believe that if Biden is elected president, Congress will still be controlled by two parties, which will mean: 1) The fiscal stimulus in the United States may be weak, but the risk of escalating trade friction should be alleviated; 2) In the short term, the United States may not reduce or cancel the current tariffs imposed on China, but the predictability of trade policy will be improved, and the United States may implement more multilateral trade policies; 3) The United States may adopt a more comprehensive strategy of competition and cooperation in Sino-US relations. We expect more active communication between China and the United States next year, but a new trade agreement may not be reached soon. Before the new US administration takes office in the next two months, there is a risk that the current US administration will introduce some measures against China, and some measures may be difficult to reverse after the new administration takes office. Once this happens, it may disturb the market in the short term and bring short-term depreciation pressure to the RMB.

165438+1On October 7, major American media predicted that Biden would win this presidential election, but the current President Trump did not give up. In addition, the results of the Senate election will not be finalized until the runoff election of two seats in Georgia in early next year 10. What will be the difference between Biden's domestic economy and China policy, and what impact will it have on China's economy next year? What are the risks in the coming months?

In the previous report, the US macroeconomic team of UBS pointed out that the scale of fiscal stimulus in the United States will be very different under different scenarios of congressional elections and presidential elections. In addition, the president of the United States has great control over foreign policy and trade policy, which will affect how Sino-US bilateral relations and trade frictions will evolve in the future (chart 1). Compared with Trump's re-election and Congress still under the control of two parties, we believe that Biden's election and Congress still under the control of two parties will bring about a series of changes, and the impact on China's economy next year will include the following aspects:

The fiscal stimulus in the United States may be weak, but the risk of escalating trade friction between China and the United States should be alleviated. Biden said in the transition plan that his first task after taking office is to control the epidemic and revitalize the US economy. However, the US macroeconomic team of UBS predicts that if the Senate is still controlled by the Republican Party, the US fiscal stimulus may eventually be relatively small, so the US GDP growth rate may be slightly lower next year, only 2.9%. On the other hand, the possibility that the United States will impose further tariffs on products from China or other countries/regions will be greatly reduced next year, which should help reduce the uncertainty faced by enterprises and be beneficial to global trade.

It is possible to adopt the strategy of overall competition and cooperation in Sino-US relations. At present, American political circles generally regard China as their main strategic competitor. According to the recent statement of Biden's main policy adviser, the new administration may handle Sino-US relations comprehensively and strategically. Therefore, we believe that the Biden administration may maintain its tough policy stance on China, continue to restrict China from acquiring advanced technology from the United States, and strive to promote more jobs to return to the United States. At the same time, the United States may be more inclined to cooperate with China on global issues such as epidemic prevention and control, climate change and nuclear non-proliferation. We expect that after a period of time (at the same time or after the United States has repaired its relations with its allies), the Biden administration will try to re-establish some formal exchange and dialogue mechanism between China and the United States.

What is the impact on trade agreements and trade negotiations? Despite the epidemic this year and the deterioration of Sino-US relations outside trade, China is still implementing the first-stage trade agreement. Considering that it may be difficult for China to achieve the target of the amount of imports from the United States set in the agreement, we think that China may be inclined to resume trade negotiations with the United States. At the same time, the United States may also want to restart negotiations with China on structural issues, including intellectual property protection and creating a level playing field. Therefore, we expect that China and the United States will communicate more actively next year, but a new trade agreement may not be reached by the end of next year or the year after. Until then, we don't expect the United States to reduce or cancel the current tariffs on China.

We expect China's GDP growth rate to rebound to 7.5% next year. As we mentioned in the previous report (Chart 3), with Biden elected and the two parties controlling the House of Representatives and the Senate respectively, the US economy may rebound slightly, while the global trade environment may improve slightly, which will offset each other and have limited impact on China's GDP growth next year. With the further recovery of economic activities in China and the support of global economic recovery for exports, we expect domestic consumption to rebound sharply next year. Most of this year's tax reduction and fee reduction policies may expire at the end of this year, and infrastructure investment may slow down slightly next year. The central bank may not adjust the policy interest rate, but it will pay more attention to preventing and controlling financial risks, and the overall credit growth rate may slow down.

There is great uncertainty in Sino-US relations in the short term ... Before the new US administration takes office on October 20th, 65438/KLOC-0 next year, Trump and the current administration can and still may introduce further measures against China. These measures are very unpredictable and are likely to have a significant impact on the market. We believe that possible measures include: forcing one or more China stocks to be delisted from the United States, adding more China enterprises to the entity list or imposing export controls on more products, stirring up troubles in geopolitics, tightening visa policies, and hindering personnel exchanges and bilateral exchanges. Some measures may make it difficult for the new government to reverse from domestic political considerations, so it may have a long-term impact on Sino-US bilateral relations.

In turn, it will lead to the depreciation of the RMB exchange rate in the short term. If the current US administration introduces further sanctions against China in the next two months, the exchange rate of RMB against the US dollar may weaken in the short term. However, we believe that the exchange rate of 202 1 RMB against the US dollar is expected to appreciate again when the new government takes office and the external uncertainty is reduced, partly because the US dollar may weaken. Although we predict that China's current account surplus may narrow next year, the domestic and overseas spreads may still be considerable, and further opening up the financial market in China should help attract the inflow of overseas securities investment. In view of the increasing tolerance of the central bank for RMB appreciation, we predict that the exchange rate of RMB against the US dollar will be around 6.5 at the end of next year, and the fluctuation range of exchange rate may be even larger. Breakthrough 6.5 may happen from time to time.

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