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China responds to Peter Navarro's appointment as head of White House trade council

The world's second-largest economy is slowly waking up to the fact that bilateral ties with U.S. President-elect Donald Trump will be nowhere as easy as imagined.

Despite his aggressive China bashing throughout the election campaign, mainland officials long believed that Trump's business acumen would overshadow his sensationalist rhetoric. But that perception has now changed after the Republican chose Peter Navarro, an academic who believes China's capitalism is hurting U.S. interests, to head a newly created trade council on Thursday.

Mainland state-media reacted strongly to the choice of Navarro, with the Global Times warning that it risked a full-blown conflict between the two heavyweight countries.

"China needs to face up to the reality that the Trump team maintains a hard-line attitude toward China. It must discard any illusions and make full preparations for any offensive move by the Trump government," the newspaper said in an editorial published Thursday.

The China Daily, meanwhile, warned that any moves to damage the U.S.-China relationship would result in a loss for both sides.

Commenting on Navarro's appointment, Chinese foreign ministry spokeswoman Hua Chunying told reporters at a press conference that economic and trade cooperation was crucial for not only the two countries, but for global prosperity as well.

But the combination of Navarro and Wilbur Ross, Trump's pick for commerce secretary who is also hawkish on China, doesn't bode well for steady ties.

"Ross and Navarro see the U.S. as already engaged in a trade war that the U.S. is losing...They are willing to do whatever it takes to get out a losing trade war, and that means enormously risky steps," Deborah Elms, executive director at Asia Trade Institute, told CNBC on Friday.

Among those steps are naming Beijing as a currency manipulator, raising tariffs on Chinese products, and more enforcement actions against Chinese dumping, especially steel.

"The Chinese are now frantically reading everything Navarro's written, becoming increasingly worried and scrambling to see who they can reach out to," said Elms. She believes a full-blown trade war may be inevitable if Trump continues to fill top posts by anti-China strategists.

In a July op-ed for CNBC, Navarro and Ross outlined how America's free trade agreements with countries like China have hurt American workers, resulted in chronic trade deficits and stifle economic growth. They warned that only a Reagan or a Trump-like figure could fix U.S. trade policy.

"Beijing will get used to the tensions between the two countries. If Washington dares to provoke China over its core interests, Beijing won't fear setting up a showdown with the U.S., pressuring the latter to pay respect to China," the Global Times editorial said.

But amid all the hype, many analysts cautioned that it was still too early to jump to conclusions.

"Navarro's views may soften over the time as he faces the challenge of actually dealing with China in light of all the issues that the U.S. has at stake in the bilateral relationship," Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai, told CNBC.

"We're not hitting the panic button simply because of the announcement; we have to wait and see what he does."

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