Chinese President Xi Jinping's new economic growth strategy raises concerns about a new trade war as Beijing attempts to reshape the Asian nation's economic model.
The Xi government's solution is to pour money into manufacturing as property-related activity, which once spurred about a fifth of the economy's expansion but has since turned into a drag on growth two years ago.
China's Economic Growth Strategy
Chinese President Xi Jinping's new economic growth strategy is raising concerns internationally over a new trade war.
A part of the shift in focus is what they call the "new three" growth drivers of electric vehicles, batteries, and renewable energy. This would support the world's de-carbonization efforts and fuel demand for commodities such as copper and lithium.
So far, China's strategy is helping the country avoid the recessions that struck Japan in the 1990s and the United States in 2008. These came when their housing markets melted down. Furthermore, the world's second-largest economy is growing roughly 5% a year.
However, the efforts are also fueling imbalances, setting the stage for renewed global trade tensions between Beijing and the developed world. It also pits China against emerging economies that are working to push and reach the lower rungs of the industrialization ladder, as per Bloomberg.
Recently, the US and the European Union have warned about China's overcapacity. Europe, for one, initiated a series of trade investigations on the Asian country. This led Beijing to launch an anti-dumping probe into EU liquor products such as brandy last week.
Analysts saw the latter's move targeted France, the main backer of the bloc's action on Chinese electric vehicle subsidies. United States President Joe Biden had also moved to tighten measures to deny Beijing advanced technology.
The Chinese president's manufacturing focus is driven by many economic, security, and social stability objectives. The nation's policy advisers and government-linked economists argue that it includes a desire to avoid problems such as widening income inequality and rising populism.
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Risk of a New Trade War
With the new efforts, Beijing's manufactured goods surplus relative to the global gross domestic product is around 2%. According to the Straits Times, this level has remained relatively unseen since the US after World War II.
It was also estimated that 45% of China's manufacturing output is being exported as the country's 1.4 billion people cannot buy sufficient goods such as EVs, ships, and household appliances to meet the increased supply.
The Asian nation's "industrial upgrading" efforts means pushing into sectors now dominated by the wealthiest nations. This has led to lower imports from other countries, including Germany, South Korea, and Japan.
These nations have traditionally run trade surpluses with China because they provided their factories with high-tech components. The export value of China's EVs, batteries, and solar panels grew 42% yearly in the first three quarters of last year.
The situation came after Xi acknowledged during his New Year's Eve speech that China's businesses are struggling and that job seekers are having difficulty finding work. According to CNN, it was the first time the Chinese president mentioned the economic challenges in his annual messages since he started giving them in 2013.
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