The official newspaper of China’s courts, the state-run People’s Court Daily, recently published a commentary with a rare candid assessment: as the United States imposes tariffs on more China exports, many Chinese firms will go bankrupt, especially private companies.
“It is unpredictable how [the U.S.–China trade war] will develop and to what extent,” wrote Du Wanhua, a senior judge at China’s highest court, the Supreme People’s Court, in the July 25 commentary. “But one thing is certain. If the United States imposes high tariffs on Chinese products imported into the United States according to the scale of $60 billion, $200 billion, and $500 billion, many enterprises in China will face the predicament of becoming bankrupt.”
On July 6, China and the United States imposed tit-for-tat 25 percent tariffs on imports worth $34 billion and announced that they would impose tariffs on an additional $16 billion worth of goods later.
Then, on July 10, the United States announced that it was preparing to impose tariffs on Chinese goods worth $200 billion, in response to China’s retaliatory move. Later, President Donald Trump said the administration was ready to impose tariffs on all Chinese products, worth roughly $505 billion, exported to the United States.
Although the Chinese regime has insisted it will carry out anti-retaliation measures, it has not disclosed anything specific. However, the regime recently prohibited the media to report how the trade war will influence the domestic economy, declining stock market, and U.S. media coverage of the trade war.
A source also told Reuters that state media journalists were instructed to report on Chinese company news with caution because some were already feeling the effects of the trade spat. Reporters were directed not to stir up negative emotions or “reveal the cards” of Chinese importers, according to the source.
The release of the July 25 commentary indicated that despite wanting to keep its war strategy under wraps, Beijing is beginning to worry about the potential impact of the trade war on society and the economy.
Judge Du listed several reasons that the trade war could lead to Chinese companies shutting down, such as: due to high tariffs, the cost of raw materials or parts needed for the first steps of the supply chain will dramatically increase; key raw materials or parts have been banned from selling to Chinese firms—likely referring to the U.S. ban on telecoms firm ZTE from buying tech parts from U.S. suppliers—which the U.S. administration recently lifted; and costs will rise sharply due to high anti-dumping and countervailing duties from other countries.
Du added that it would be difficult for the state to use de-leveraging or de-stocking tactics to save such firms—unlike how Beijing has supported ‘zombie’ state-owned firms in the past. Thus, the first wave of bankruptcies due to the trade war will likely hit private enterprises.
“Many of the bankrupted firms will likely be promising high-tech companies,” Du wrote.
ZTE could be among the first to be in trouble, as it stopped its main business operations after the United States enforced the supplier ban in April. Per the United States’ deal to lift the ban, ZTE must pay a $1.4 billion fine ($1 billion fine and $400 million in escrow).
ZTE was punished because it made false statements about disciplining 35 employees involved with illegally shipping U.S.-origin goods to Iran and North Korea, according to the U.S. Commerce Department.
Though ZTE has since resumed business, how it will pay such a huge penalty fee and regain trust from the international community remain a question.
Reuters and Epoch Times staff member Lin Yan contributed to this report.