• A magazine in Shanghai features Donald Trump in its cover story after his victory in the U.S. elections.

A magazine in Shanghai features Donald Trump in its cover story after his victory in the U.S. elections. (Photo : Getty Images)

The People's Bank of China (PBOC), the country's central bank, is uncertain of what Donald Trump's trade policies truly are, considering the pronouncements made by the newly elected U.S. president during his campaign.

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For PBOC governor Zhou Xiaochuan, Trump's victory has made the country's policy outlook even more complex, amid concerns of China's economic stability and its crucial trade relationship with the U.S., Bloomberg reported.

During his campaign, Trump had threatened to impose tariffs of up to 45 percent on Chinese imports. Standard Chartered Plc said that protectionism may also lead to more international use of the yuan while tariffs may drive the PBOC to allow the further drop of the yuan, according to UBS Group AG.

It is also uncertain if the country's long-term goals such as the yuan internationalization and capital account opening, will continue as this will depend on whether or not Trump will deliver what he had promised during the campaign.

According to Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong, there is now a "huge uncertainty" to keep the PBOC's monetary policy neutral, considering Trump's impact on China.

"It's hard to tell what would be actual policies instead of just campaign rhetoric," Hu wrote in a note.

However, the reality of governing may help ease the threats to impose tariffs and his accusation of China as currency manipulator, as he assumes office on Jan. 20. The report said that there are indications that some contending issues such as building a wall on the Mexican border and the scrapping of Obama's healthcare program.

In their first conversation, Chinese President Xi Jinping reportedly told Trump that the right choice for the two countries is cooperation, to which Trump pledged to have "one of the strongest relationships."

Economists said that since global investors may now prefer more non-U.S. assets, this would be a chance for China to work on elevating the yuan as a global currency.

"If Trump takes up an anti-globalization attitude, that's a chance for the yuan to improve its global status," Guan Tao, a former deputy director of China's State Administration of Foreign Exchange, said. "There'll be opportunities for the renminbi. The need to diversify assets persists, if it's not becoming stronger. China should grasp this opportunity."

For the past 20 months, China has been trying to manage its capital outflows as its foreign reserves dropped from $4 trillion in 2014 to $3.12 trillion.

Another scenario may also pose a challenge to China. The U.S. bond yields may strengthen if Trump pursues fiscal expansion which boosts inflation. In this case, it would be risky for China to ease or lift the limits on capital outflows if the fixed income markets of developed countries improved its returns.

China's economy, which is Zhou's priority, is stable now as recent data showed that factory output is up by 6.1 percent year-on-year in October. The country has recorded three straight quarter of 6.7 percent growth with high manufacturing index for two years.

According to Zhang Ming, the director of international investment research at Chinese Academy of Social Sciences, the second concern for China, next to domestic growth and employment, is external risk.

"The U.S. recovery and stronger dollar is one of the threats to yuan internationalization," Zhang said. "But more threats come from domestic challenges, including weaker economic fundamentals and debt-related risks."

Analysts said that the combination of Trump's promise of trade tariffs, fiscal stimulus, stricter immigration rules and higher interest rates could have a negative effect on the global economy. Goldman Sachs Group Inc. said that this could also affect the growth of the world's economy.

In addition, Trump's currency policy may present both risk and opportunity for China, which is its largest trading partner.

"Trade protection in the U.S. will not be targeted on China alone," Ding Shuang, head of China economic research at Standard Chartered in Hong Kong, said. "Other countries, especially emerging markets, will also suffer. To retaliate, China is likely to embrace regional trade treaties and speed up the Silk Road Initiative to strengthen trade ties with non-U.S. markets. As the U.S. retreats and China steps in, the yuan is likely to be used more globally."

But Yan Se, an economics professor at Peking University, said that it is still too early to tell what Trump can do to make an impact on the economy.

"The uncertainties are rising," Yan said. "We need to be aware of the risks, but we shouldn't be too negative on this. Trump is, after all, a businessman, and very practical."