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US-China trade war likely to tone down: Japan government analyst

Tokyo — Tension between US and China on trades is likely to tone down ahead of China's People's Congress to be convened in the first week of March, said Osamu Tanaka, a former diplomat and chief senior researcher of government run Japan External Trade Organization said Friday.

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Speaking at the China Research & Communication Center Forum in Tokyo, Tanaka said China is likely to compromise with the US as much as possible because the government is seeking political and economic stability in the 70th anniversary year of the founding of the People's Republic of China.

"In my view, the Chinese government will try and avoid any distractions as their number one priority is stability," he said.

Chinese policy makers are making the March 5 People's Congress the deadline for striking a compromise with the US.

"All-out confrontation will result in major damage. They would rather have the trade issues resolved by March. The Chinese economic slowdown is becoming tangible," he added.

He pointed out that the 2019 plan set by the China Central Economic Work Conference last month set the bilateral agreements reached during the November G20 summit as one of its goals. "The conference paper mentioned importance of intellectual property rights and showed consideration to the US," he said. He also noted that more Chinese officials have become visible in policy making in the second half of the year, indicating that roles may have been spread out more within the government.

He added China would not want talks with the US to break down. But if US were to say no to China's proposal, China would lose face. "China cannot afford to suggest schemes that would be turned down," he said.

Stability is China's top priority, he said. "When there is a political event, governments become stability-minded. If reforms are undertaken, the growth rate slows. When there is a development process, things can become unstable.

Stability is the first priority and employment is top of the government's agenda," he said.

China may barely meet its 2018 target of 6.5% GDP growth, but this target is difficult for 2019. Labor indicators, however, remain positive, he said.

China's urban unemployment rate in November was 4.8%, down 0.1 percentage points year on year. "Employment is not bad overall; there has been no bad data yet, although there are signs. Companies are reducing the number of new hires," he said.

New ideas were introduced in the 2019 economic plans.

Since 2016, China has been engaged in supply-side reform, cutting over capacity of steel and aluminum plants. "At first, China was only talking about supply side reforms but this year, they introduced a new idea of industry-specific policies. China needs to prevent breaks in various supply chains resulting from trade wars," he said.

--Mayumi Watanabe, mayumi.watanabe@spglobal.com

--Edited by Jonathan Dart, newsdesk@spglobal.com