China’s self-driving economy threatens to stall amid US roadblocks

China’s roadmap to shield its economy from global shockwaves has hit more than a few speed bumps.

Self-sufficiency in key sectors such as technology, as well as chipping away at an over-reliance on food imports, have become priorities in Beijing’s latest lexicon of buzz words, the “big domestic cycle.”

“[This] should be the main body [to] promote a new development framework,” Vice-Premier Liu He, who is President Xi Jinping’s economic confidant, said at a forum in June.

The idea was originally put forward by his boss and has since been rubber-stamped by the powerful Politburo of the ruling Communist Party. 

Economic policy

Even speculation about what it exactly means has been replaced by clarity as the central government realigns its economic policy amid the fallout from the coronavirus pandemic and a challenging “international environment.”

“Considering the impact of Covid-19 to the world economy and increasing uncertainties in the international environment, a guideline for economic development [should be] based on the domestic cycle [or demand],” Wang Jun, the deputy director of the department of information at the China Center for International Economic Exchanges, told the state-controlled Global Times earlier this week.

In the past eight months, storm clouds have lingered on the global horizon.

The two-year trade war the US initiated against China has made [Beijing] realize that it couldn’t rely on imports of key equipment and core technologies anymore.

Cong Yi, a professor at Tianjin University of Finance and Economics

Deteriorating diplomatic relations with the United States has plunged the world’s two largest economies into a New Cold War. Tensions have also increased between China and the European Union as the world went into lockdown.

Closer to home, South Korea and Japan have been alarmed by Beijing’s rising military presence in the South and East China Seas.

” Hence, the country will surely ramp up its efforts to make key breakthroughs in bottleneck technologies such as semiconductors and high-end manufacturing,” Cong Yi, a professor at the influential Tianjin University of Finance and Economics, said.

Domestic consumption

Still, Xi’s administration will need to boost domestic consumption to kickstart the “new cycle.” 

On Friday, the National Bureau of Statistics reported that retail sales in July shrank by 1.1% compared to the same period last year. It followed a 1.8% drop in June, underlining a sluggish recovery.

“Not the best of economic numbers out of China today with both retail sales and industrial production underwhelming,” Stephen Innes, the chief global markets strategist at AxiCorp in Sydney, said.

“The glaring concerns around retail demand continue to speak volumes that it’s going to take more than stimulus and deep discounts on luxury products to get people shopping again,” he added.

So much for the “domestic cycle?”