China has tools to handle trade war, central bank chief says

Yi Gang, governor of the People's Bank of China. Bloomberg

China's central bank chief said on Friday the country has plenty of policy tools left to handle the trade war with the US.

There is "tremendous" room to counter the deepening trade war, People's Bank of China governor Yi Gang said in an interview with Bloomberg TV.

“We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy toolkit, I think the room for adjustment is tremendous,” said Mr Yi.

Ties between China and the US have deteriorated sharply after trade negotiations stalled last month without a deal to lift bruising tariffs on goods worth $360 billion in two-way trade.

China said on Thursday that it would soon release detailed information about a planned blacklist - of "unreliable" foreign companies and individuals - that analysts expect will target firms cutting off supplies to Chinese tech giant Huawei.

Last month the US administration placed Huawei and dozens of its affiliates on an entity list on grounds of national security, curbing their access to crucial US-made components and software - though a 90-day reprieve was later issued.

Mr Yi has participated in several rounds of the trade negotiations with Washington and is scheduled to meet US Treasury Secretary Steven Mnuchin during the G20 gathering of financial policymakers in Japan.

He said the meeting with Mr Mnuchin would be “productive talk, as always”, but trade war discussions would be “uncertain and difficult”.

Chinese currency yuan, or renminbi, has also rapidly depreciated against the dollar as trade tensions have ramped up in recent weeks, nearing the critical seven to the dollar exchange rate.

“The trade war would have a temporary depreciation pressure on renminbi, but you see, after the noise, the renminbi will continue to be very stable and relatively strong compared to emerging market currencies,” said Mr Yi.

"I am very confident the renminbi will continue to be stable at a more or less equilibrium level,” he added.