Recently released series of official data from the Chinese Communist Party indicate that China’s economic growth has slowed down more than expected, further exacerbating the tense situation in foreign trade. In September, data showed a slowdown in industrial output and retail sales growth, as well as a significant decline in stock market and real estate investment. At the same time, unemployment rates have risen, and inflation remains a pressing issue in China.
However, the Chinese Communist Party officials are still reluctant to revive the economy through large-scale stimulus plans. Instead, they continue to intensify investments in advanced manufacturing and export-oriented growth strategies. Under the escalating trade tensions with the United States and Europe, overseas markets have become increasingly unwilling and unable to absorb China’s high value-added export products.
Top officials from the U.S. Treasury Department visited China again to discuss the issue of China’s overcapacity. However, the communiques published after the meetings still show differences in viewpoints.
According to The Washington Post, during the Covid pandemic, the Chinese Communist Party implemented three years of strict “Zero-COVID” policies, leading to a prolonged economic stagnation that has failed to recover. Economists had anticipated that ending these inhumane policies would unleash pent-up demand and inject new momentum into the Chinese economy, but these expectations have not materialized.
Instead, economic growth remains sluggish with most indicators moving in the wrong direction. Recent data shows a comprehensive slowdown in economic growth in August. According to official data from the Chinese National Bureau of Statistics, retail sales growth rate was lower than that of July due to Chinese households showing a preference for saving rather than consumption.
The significant weakness in the Chinese economy is largely attributed to the sluggish job market. In August, the urban unemployment rate rose to 5.3%, the highest level in six months. Finding employment is particularly challenging for young people, with the urban youth unemployment rate reaching 17% in July.
Despite increasing calls from domestic and international scholars and foreign officials for Beijing to strengthen the social welfare system, stabilize the real estate market, or provide cash assistance to struggling families to encourage consumer spending, the Chinese Communist Party is reluctant to implement proactive stimulus policies to boost consumer demand.
This reluctance is tied to the communist ideology of the Chinese Communist Party. Professor Zhu Ning from the Shanghai Jiaotong University’s School of Finance told The Washington Post, “Economists, including myself, are increasingly unanimous in believing that (authorities) should distribute cash to the public, although I know this is not feasible.”
He pointed out that there are practical barriers and significant costs involved in distributing checks to the masses. “I think policymakers are skeptical of the Western approach of distributing cash to deal with the pandemic and do not want to emulate it,” Zhu Ning said.
Instead, the Chinese government is focusing on subsidizing the manufacturing sector, partly because the Communist Party views achieving self-sufficiency in critical technologies such as semiconductors as an important mission. In March this year, Chinese Premier Li Keqiang announced a government investment exceeding $10 billion to upgrade core manufacturing technologies and industrial supply chains.
Under these government subsidies, Chinese manufacturing investments have grown by 9% year-on-year since January. Meanwhile, according to Chinese customs data, China’s global exports grew for the fifth consecutive month in August, with a year-on-year increase exceeding 8%.
However, the rapid growth of the Chinese manufacturing sector has also sparked backlash. In recent months, the escalating economic tensions between Beijing and other countries around the world have intensified as a result of the sharp increase in Chinese exports.
The United States and the European Union are concerned that Beijing is employing unfair trade practices, such as massive state subsidies, to support industries, leading to a flood of Chinese products like electric vehicles, solar panels, and steel into the global market that could harm industries and employment in other countries.
China’s share in global manufacturing has reached 30%, with the country’s manufacturing trade surplus accounting for a significant share of the world’s GDP and growing rapidly at a rate of 2%. This share now surpasses the combined manufacturing surpluses of Japan and Germany at their peak.
The Washington Post points out that China’s economic slowdown could exacerbate this issue, as reduced domestic demand will only force Chinese enterprises to redouble efforts to explore overseas markets.
Logan Wright, China Research Director at Rhodium Group, stated, “The United States is concerned that weakening domestic demand in China means that China will export more products to other regions of the world.”
“Beijing is pursuing a strategy increasingly at odds with the rest of the world,” he added.
The U.S. government is attempting to address this new Chinese strategy through trade measures such as tariffs and diplomatic means. In May this year, the Biden administration announced an increase in tariffs on Chinese manufactured goods, including imposing 100% tariffs on electric vehicles, 50% tariffs on solar panels, and 25% tariffs on steel products, which will take effect from the end of September.
Jay Shambaugh, the U.S. Deputy Secretary of the Treasury responsible for international affairs, led a U.S. delegation to China this week to express concerns about China’s export surplus. However, based on the press releases issued by both sides, the U.S. and China remain on separate wavelengths.
A press release from the U.S. Treasury Department on Friday stated that the two sides exchanged views on policies supporting domestic and global economic balanced growth. The U.S. side continued discussions on concerns raised by Treasury Secretary Janet Yellen during her visit to China in April, including signs of overcapacity in certain sectors of the Chinese economy, China’s non-market policies and practices and their impact on U.S. workers and businesses, as well as Chinese enterprises’ support for Russia in the Ukraine war.
The U.S. side stated that at the end of the meeting, the two sides exchanged views on the domestic macroeconomic outlook and discussed areas for cooperation, including debt issues and financing challenges in emerging and developing economies.
The press release from the Chinese Ministry of Finance stated that China expressed serious concerns about U.S. actions such as increasing tariffs, investment restrictions, sanctions related to Russia, and measures that suppress and affect the interests of Chinese enterprises, and that “the two sides agreed to continue communications.”
In a public think tank event in July, Shambaugh explicitly stated that if necessary, the United States would take defensive actions, but it would be best if China took actions to address the growing concerns of its major trading partners and cooperated to solve these issues.
Shambaugh noted that many countries, including the United States, Europe, and even some Asian countries considered relatively friendly to China, are raising tariffs and other trade barriers to resist the impact of cheap Chinese goods 2.0.
He emphasized that China can no longer rely on global growth as it did from 1990 to 2010.