Help firms hurt by tensions

In the wake of trade tariff tensions, China (and the US) need to be aware of the potential risk of a breakdown in the industrial chain. A study found that if the trade friction lasts for one more year, countries will face the risk of industrial chain breakdown.

The trade friction will affect foreign investment. Some companies may shrink the size of their business, or even close down and move out of China.

Normal retreat of foreign investors is understandable. But Chinese companies investing overseas can also move to another destination. So, any abnormal retreat of foreign investors due to the trade friction and increasing tariffs should receive close attention.

If the entire value chain and the industrial chain of foreign investment break down, it will have a profound impact on the real economy. If there is any trend of foreign investment fleeing China, it would affect China's exports, imports, economic growth and employment.

A few measures might help China avert any such possibilities.

One, seize the right moment to reach an agreement. It's better than no deal. China and the US appear to have missed two chances to sign a trade deal. This, however, does not mean that both countries can't reach a deal when the moment is right.

Two, China needs to support foreign companies that have been affected by the trade friction. The country needs to ensure they stay on for a longer time to see if there will be any change in the situation. Once foreign companies move out of China, it would be hard for them to come back. So, China needs to do its best to support them during this time of hardship.

Three, China needs to further deepen the opening-up policy to restore confidence in its economy. It also needs to accelerate the progress of a China-led global value and industrial chain. While the existing value chain is facing the risk of a breakdown, it needs to build a global value chain and lead it, to compensate for the damage done so far.

Lu Jinyong, director of the international investment research center at the University of International Business and Economics, said on a seminar hosted by the Center for China and Globalization on June 10.