Balance of Power
Bloomberg, April 8, 2024
President Xi Jinping’s vision for powering China’s economy through a major manufacturing drive is raising tensions with some of his nation’s biggest trading partners.
The domestic need for growth means he’s unlikely to change course.
During her visit to China this week, US Treasury Secretary Janet Yellen implored top Chinese leaders to rethink their industrial strategy, saying the Asian nation was producing more goods than the world could bear.
The trained economist advised policymakers to improve “retirement security” and “affordable education” to reduce household savings and encourage domestic spending, in a bid to rebalance the world’s second-largest economy.
Essentially, she proposed an entire rethink of their economic strategy.
The leadership in Beijing well knows the problems, and even outlined overcapacity as an issue in a major policy document earlier this year.
But an entrenched crisis in the property sector that once drove about a quarter of annual expansion means China can’t afford to abruptly shift plans if it wants to hit an ambitious growth target of around 5% this year.
President Joe Biden’s campaign to severely restrict China’s access to cutting-edge semiconductors only adds to the impetus. China has made technological self-sufficiency a national priority, as it tries to advance domestic chip design and manufacturing to protect against threats from US policy.
With a US presidential election looming in America this November, Beijing is facing increasing pressure from the world’s biggest economy with Republican contender Donald Trump threatening 60% tariffs on China.
As Xi tries to challenge the US-led world order, his main partner in that mission is President Vladimir Putin.
The Chinese leader’s continued support for his Russian counterpart might be leading to more tension with the US, but it’s another area where he’s unlikely to back down.
