June 22, 2018 / 5:13 AM / 3 months ago

UPDATE 3-Chinese media says US has 'delusions' as impact of trade war spreads

* China Daily says U.S. protectionism harms its own economy

* Global Times says China should focus on own development

* War of words heating up amid bitter trade dispute with U.S.

* "Protectionism symptom of paranoid delusions" - China Daily (Adds changes in Chinese plans to buy U.S. crude oil, social media comment)

By Ben Blanchard and David Stanway

BEIJING/SHANGHAI, June 22 (Reuters) - U.S. protectionism is self-defeating and a "symptom of paranoid delusions" that must not distract China from its path to modernisation, Chinese media said on Friday as Beijing kept up with its war of words with Washington while markets wilted.

President Donald Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if China retaliates against his previous targeting of $50 billion in imports.

Investor fears of a full-blown trade war have weighed on markets, including Chinese shares, which posted their worst weekly loss since early February. Even ordinary Chinese people aired their unhappiness on social media.

China's commerce ministry accused the United States on Thursday of being "capricious" over trade issues and warned that the interests of U.S. workers and farmers would ultimately be hurt, vowing to hit back with "quantitative" and "qualitative" measures.

The official China Daily said in an editorial the United States had failed to understand that the business it does with China supported millions of American jobs and that the U.S. approach was self-defeating.

The English-language newspaper cited research by the Rhodium Group saying Chinese investment in the United States declined 92 percent to $1.8 billion in the first five months of the year, its lowest level in seven years.

"The woes the administration is inflicting on Chinese companies do not simply translate into boons for U.S. enterprises and the U.S. economy," it said in an editorial headlined "Protectionism symptom of paranoid delusions".

"The fast-shrinking Chinese investment in the U.S. reflects the damage being done to China-U.S.-trade relations ... by the trade crusade of Trump and his trade hawks," it said.

The U.S. administration on Tuesday issued a report about how Chinese policies, and what it described as China's economic aggression, were threatening the technologies and intellectual property of not just the United States but of the world.

While the White House report did not go beyond what the U.S. has said previously - that China engages in theft of technologies and intellectual property (IP) - it did not help to soothe tension. China has repeatedly denied accusations of IP theft.

U.S. FIRMS

The 30-stock Dow Jones Industrial Average slumped for an eighth consecutive session on Thursday as shares including Caterpillar Inc and Boeing Co wilted.

Big U.S. manufacturers and automakers were also under pressure after Germany's Daimler cut its 2018 profit forecast and BMW said it was looking at "strategic options" due to the Sino-U.S. trade war.

Shares of Apple Inc, whose iPhones are assembled in China by Foxconn, also declined.

Foxconn Chairman Terry Gou said on Friday the U.S.-China trade war was the Taiwan company's biggest challenge.

"What they are fighting is not really a trade war, it's a tech war. A tech war is also a manufacturing war," Gou said.

A Sino-U.S. trade war could disrupt supply chains for the technology and auto industries - sectors heavily reliant on outsourced components such as those supplied by Foxconn - and derail growth for the global economy, analysts say.

Uncertainty over how the tariff war would unfold in the near term is also starting to move commercial decisions in the energy sector.

Industry sources told Reuters that Chinese oil buyers will keep taking crude from the United States through September, but plan to cut future purchases to avoid a likely import tariff.

China has put U.S. energy products including crude and refined products on lists of goods that it will hit with import taxes. But no activation date has been specified for this cluster of products yet.

'TUMBLING' INDEX

Shares in Shanghai dropped 4.4 percent for the week, while China's blue-chip CSI300 index fell 3.8 percent.

Hong Kong's Hang Seng index shed 3.2 percent for the week, its poorest weekly showing since late March.

The share losses have prompted sarcastic posts in China's social media, while others compared the falling stocks to China's 2015 market crash.

"The tumbling Shanghai Composite index must be China's so-called quantitative and qualitative counter-measures," one social media user mused.

Not helping sentiment, the yuan extended its decline against the dollar this week, falling to its lowest in more than five months on Friday.

"Chinese exports are now contained, domestic demand has long been weighed by soaring home prices, and the yuan will depreciate, so everyone, hurry up and convert to U.S. dollars," one social media user quipped.

The Global Times, a tabloid published by the ruling Communist Party's official People's Daily, said in an editorial China needed to be realistic about how it could handle the United States and look at other strategies.

"The U.S. has the upper hand over China in technology, defence and international influence, and therefore the country will continue to have a strategic initiative over Beijing for the foreseeable future," it said.

"As long as China remains clear-minded in strategy, level-headed in its U.S. policy, and avoids a full-fledged geopolitical competition or a strategic clash against the U.S., China will be able to withstand U.S. pressure. In other words, China should focus on its domestic affairs."

China should keep promoting its own economic development and ensure its growth exceeds that of the United States in both quantity and quality, the paper said.

"As long as China can effectively utilise its successful policies and experiences accumulated since the reform and opening up, and avoid subversive mistakes, the country will see robust momentum for development," the Global Times said. (Reporting by David Stanway and Ben Blanchard Additional reporting by Ryan Woo and Lusha Zhang Editing by Paul Tait)

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