The Impact of Beijing’s Growth Plans on China and the World

The CCP’s visions clash with economic realities in China and its trade partners.

Commentary

China’s economy is a tale of competing realities.

The Slowdown Is Real

On the one hand, China faces a drawn-out domestic economic crisis with multiple effects throughout the economy, most of which remain unresolved. A big factor continues to be the real estate sector. Not only have large commercial real estate development firms such as Evergrande gone away, but the residential home market is still at risk. June home prices saw their biggest drop in almost a decade.

But the real estate sector doesn’t exist in a bubble. It is closely tied to the financial industry, which is also at risk. There are over 4,000 banks in China, and over 90 percent of them have exposure to the real estate sector. Falling housing prices are, of course, linked to falling demand.

Weak consumption and falling demand are typically linked to falling income and negative consumer sentiment, also known as negative consumer confidence, which is prevalent in China at this time. So, too, are high unemployment rates, especially among younger workers, and high levels of local government debt, which is another risk hanging over smaller banks that could threaten the financial sector.

Will a Focus on High Tech, Green Exports Pay Off?

But not all is negative in the Chinese economy. Beijing has put forward a plan for economic renewal. However, unlike after the financial crisis or COVID-19 lockdowns, stimulus checks to families to offset income and liquidity losses don’t seem to be in the cards for China’s middle class. That may not be wise. Not only are incomes shrinking, but an aging population is putting more stress on social services for the growing number of retirees who contribute less productivity. Combined with the high unemployment among the young, the economy is seeing falling productivity from both the young and the old.

Rather than replacing lost income at the family level, Chinese Communist Party (CCP) planners are focusing on strengthening high-tech industries such as renewable energy, artificial intelligence, and chip-making. They’re also seeking to harden supply chains to grow the economy through exports. It’s not a new strategy, but will it be as successful as it has been in the past?

It appears to be paying off at the moment. China saw its trade surplus reach a record level of $99 billion for the month of June of this year. But it’s not all good news on the technology export front. As the global leader in solar panels, Chinese manufacturers have been seeking to capture greater market share through price wars with competitors fueled by government subsidies. The outcome is that overcapacity is driving prices down, threatening to destroy solar manufacturers in Europe. But it’s also destroying profitability for Chinese solar firms as well.

Consequently, the European Union (EU) has been reviewing China’s predatory practices in solar panels and other so-called green industries, including the massive electric vehicle (EV) market. Just last month, the EU imposed high tariffs on Chinese EV makers, potentially launching a new era of tariffs against China and adding to the level of distrust of China among its largest trading partners.

However, the EU isn’t the only trading partner pushing back against China’s high-tech export efforts. The United States has continued its policy of restricting strategic chip access to China, while Beijing continues to invest tens of billions of dollars into its domestic chip research, development, and manufacturing capabilities. In short, the United States and China are fully engaged in a “chip war,” while the EU and China are battling over EV and solar panel market share and other trade issues.

‘Made in China 2025’ Never Went Away

The implications of these competitions extend to China’s high-tech export plans for greater economic development. You may recall the “Made in China 2025” policy announced by CCP leader Xi Jinping in 2015, which called for China to become the high-tech center of the world. The plan was to make the rest of the world dependent on China for high-tech products, with their own technology industrial bases essentially hollowed out. The talk of “Made in China ”was later “abandoned” due to negative reactions from Western trading partners.

But in reality, the policy was never abandoned, and remains the key to China’s industrial policy. This makes sense in light of the fact that since the CCP has taken more control over the Chinese economy, there are fewer economic options at their disposal that would not challenge their authority and grip over the nation. In other words, ultimately, the CCP values control and its power position over the economic well-being of the Chinese people, just as it values and seeks to gain more power over its trading partners, especially the United States and the EU.

What’s more, the slowdown in China’s domestic market is impacting Western companies’ profits. China sales make up about 20 percent of Apple’s total revenue, and sales there are down by 6.5 percent. But Apple is certainly not alone in suffering from China’s domestic economic downturn. McDonald’s, Marriott, Procter & Gamble, and others have also seen losses.

The CCP’s Balancing Act Between Growth, Stability, Power

But viewed from a broader and long-term context, the authorities in Beijing certainly know that demographic, global trade, and geopolitical trends don’t bode well for a robust rebound in domestic demand or overall economic growth. This is problematic for the CCP for several reasons. At home, in the near term, as economic conditions continue to stagnate, the risk of unrest grows. Though not widely reported, protests against Xi’s one-man rule are rising as economic conditions decline.

In geopolitical terms, growing anti-China sentiment is likely to continue in both Europe and the United States, China’s main trading partners, as well as in the Asia-Pacific region and India, as a result of Beijing’s aggressive foreign policy and support for Russia’s invasion of Ukraine. A consequence of that is that the CCP’s soft power appeal is waning, both among its major trading partners as well as with its numerous partners in the stalled Belt and Road Initiative, which is seeing its appeal fade among its participants.

However, China still enjoys undeniable advantages as a critical manufacturer for the world, with growing military strength and declining American military and political influence abroad. One key factor for the CCP and domestic quietude may be whether the high-tech industrial sector can develop quickly enough to restore jobs and confidence at home and offset the de-risking that’s becoming more prevalent in Europe and the United States.

It’s a balancing act for the CCP that—given the added historical caveat that an aggressive foreign policy often results from economic distress at home—will continue to impact the rest of the world.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.

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