Read the following excerpt from the article entitled 'China wants its middle class to spend big ... but they have bills to pay' (Wang 2018) and answer the following question.

China's middle class is something of a mythical entity, with wide-ranging estimates of its size and economic power. Optimists believe a large and growing middle class has the ability to lift China and even the world to a more prosperous level, while pessimists foresee an increasingly burdened group that could cause the economy to stagnate and even lead to political chaos.

Beijing wants the middle class to come to the rescue of China's economy. But rising costs, mounting household debt, worries about their future income as the economy slows and doubts over whether the government can adequately provide for the ageing population have made consumers cautious. In many cases, they are doing the opposite of what the government wants and pulling back from spending. Whether this so-called consumption downgrade is broad-based - and a threat to Beijing's economic plans - or not is a matter of intense debate in Chinese policymaking circles. But it is clear that many in China's middle class are struggling to make ends meet.

China is now betting that its middle classthe largest in the world with more than 400 million consumers, according to the authorities' estimatewill increase their discretionary spending on products and services and help stabilise the economy amid the trade war with the United States. The National Development and Reform Commission, the government's powerful planning agency, last month announced that it had organised a special forum to study increasing salaries for lower-middle, middle- and upper-middle income groups, whose average annual individual disposable earnings range from 13,843 yuan to 34,547 yuan.

(Wang 2018)

Question:Explain, using the aggregate demand and aggregate supply (AD/AS) framework and with the aid of a graph, how a trade war with the US will impact on China's GDP. Using the AD/AS graph, now explain how the middle class can come to the rescue of China's economy. Using economic terms, what are the reasons why the middle class may not increase spending as hoped by the Chinese government? [Hint: trade war will increase prices of Chinese goods in the US.]