Finance Minister Liu Kun has confirmed that China’s economy is being squeezed by the trade war and warned of another round of “belt-tightening.”

As the standoff between Washington and Beijing drags on after more than a year of tit-for-tat tariffs, concerns are growing about the full impact of the slowdown, which has stunted growth.

In a stark austerity message on Thursday, he highlighted the challenges ahead in a wide-ranging commentary published by the Ministry of Finance.

“The Party and government tighten[ing] their belts [should be] the long-term work of fiscal policy,” he wrote. “It is necessary to continuously increase [our] efforts in providing for the people’s livelihood on the basis of economic development.

“But [we also should not] make promises that we cannot keep due to our [lack of] financial resources,” Liu added.

With the swish of a pen, he immediately ruled out a major stimulus package for the world’s second-largest economy.

He also made it clear that tackling local government debt would remain a priority.

‘Titanic risks’

Last year, a report released by S&P Global, one of the ‘big three’ credit rating agencies, compared “off-balance-sheet borrowing,” which could be as high as “40 trillion yuan or $5.78 trillion,” to “a debt iceberg with titanic credit risks.”

That descriptive comment must have resonated with Liu.

“Greater efforts should be made to allow local governments to borrow from legitimate channels, monitor risk, deal with debt, and supervise and hold [the government] accountable,” he pointed out.

Still, his remarks have to be put into China’s broader economic context.

Earlier this week, the National Bureau of Statistics revealed that factory output had plummeted in July to its lowest level in 17 years.

Retail sales also took a hit last month as Chinese consumers started to feel the pinch from escalating trade tensions.

“Economic conditions worsened across the board [in July],” Julian Evans-Pritchard, a senior China economist with Capital Economics, said in a note.

By midweek, doom and gloom had descended on international markets amid increasing anxiety about the threat of a global recession.

The trade conflict, fears of a UK disorderly Brexit from the European Union and the ongoing pro-democracy protests in Hong Kong left investors running for cover.

“Every central bank around the world is trying to prop up economies and every politician around the world is trying to destroy economies,” Oliver Pursche, the chief market strategist at Bruderman Asset Management in New York, said. “What’s happening in Hong Kong, what’s happening with Brexit and the trade war, it’s all a mess.”

To add to the toxic mix was US President Donald Trump’s panache for being predictable when it comes to being unpredictable.

Trade dispute

Overnight, he told a media briefing that he would call China’s President Xi Jinping “very soon” about the trade dispute.

“They would like to do something. I think we’re having very good discussions with China. They very much want to make a deal,” he said.

“I think the longer it goes the stronger we [the US] get …I have a feeling it’s going to go fairly short,” Trump added following his move to freeze tariffs worth US$156 billion on an array of Chinese imports, such as smartphones, until after the Christmas spending spree by American consumers.

Yet just hours earlier, he appeared to link a trade deal with how Xi’s administration reacts to the unrest in Hong Kong by calling on Beijing to show restraint.

“I have ZERO doubt that if President Xi wants to quickly and humanely solve the Hong Kong problem, he can do it,” he tweeted. “Of course China wants to make a [trade] deal. Let them work humanely with Hong Kong first!”

In the meantime, Finance Minister Liu is preparing to tighten his belt.