Trade war could trigger ‘global financial crisis,’ says ex-China central bank chief

Further escalation of the trade dispute between the world’s two largest economies, China and the US, could greatly hurt the global economy, according to former governor of the People’s Bank of China (PBOC), Dai Xianglong.

Talking at a press event in Beijing on Friday, he said that, “The consequence of the China-US trade war not only will be reflected in both countries, but will also extend to relevant regions, extend to the whole world.”

“If the China-US trade war continues to grow larger, it may cause the global economy to decline, and may cause a global financial crisis,” he said as cited by CNBC.

Dai, who was PBOC governor from 1995 to 2002, said he expects the China Shanghai Composite stock market index to rise steadily above the 3,000 level, helped by China’s coming market reforms. The index which hit above the key psychological level of 3,000 earlier this year was trading at 2,898 on Friday.

Dai also attributed the recent weakness in the Chinese yuan to the market’s reaction to trade tensions. He noted that Beijing would not devalue the renminbi in response. According to him, fundamentals, such as economic growth and foreign exchange reserves, support a stable yuan.

READ MORE: China fighting ‘PEOPLE’S WAR’ against US – state media on tariff hikes

Former Chinese vice commerce minister Wei Jianguo, who was moderating the Friday press event, said that initiating a trade war with China might be the biggest strategic mistake made by the United States since World War II, or even its founding.

“It can be said, that the US this time has at the wrong time, fought a wrong war, and chosen a wrong opponent,” Wei said, adding that trade tensions could last 30 years or more.

“I’m confident that time, reason and truth are on our side,” he said. “Our Chinese people will most certainly win, peace will most certainly win.”

China and the US are deadlocked over an almost year-long trade war which worsened when earlier this month the Trump administration accused Beijing of reneging on commitments to make structural changes to its economic practices.

Washington slapped additional tariffs of up to 25 percent on $200 billion worth of Chinese goods which prompted Beijing to hit back with additional levies on the majority of US imports on a $60 billion target list. China’s retaliatory tariffs are set to take effect on June 1.

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