China can no longer export its domestic problems away
A car wreck of a trade war with Washington is forcing Beijing to beef up consumer spending at home
Fallout from the trade war with the United States is forcing China to boost domestic demand. Faced with collateral damage, Beijing is backing efforts to stimulate spending at home.
Communist Party government agencies have been mapping out a blueprint to pump billions of dollars into the economy, such as supporting jobs and rebates for swapping old vehicles.
Will it be enough to revolutionize an export strategy that has sparked a global backlash?
“Raising the consumption level of 1.4 billion people is extremely challenging,” Yao Yang, of Peking University’s National School of Development, said.
“The reason lies in the lack [of] flexibility. Moreover, the subsidy scale is limited, increasing from 200 billion yuan [US$27.4 billion] last year to 300 billion yuan this year,” he added.
“This amount is still insufficient to meet demand,” Yao stressed at an online conference organized by the China Macroeconomy Forum of Renmin University earlier this month.
China’s growth model is facing immense challenges.
Robin Xing, chief China economist at Morgan Stanley
Export machine:
- Factory activity in the world’s second-largest economy purred along last month if you believe government-backed data from the National Bureau of Statistics.
- The official manufacturing purchasing managers’ index hit 50.5, compared to 50.2 in February. Non-manufacturing activity in the construction and services increased to 50.8.
Delve deeper: Dumping China’s surplus on the US, Europe and parts of Southeast Asia is unsustainable. We have witnessed this in solar panels, wind turbines and EVs.
Between the lines: “China’s model, dominated by manufacturing over the past 20 years, is facing immense challenges,” Robin Xing, the chief China economist at Morgan Stanley, said.
Bottom line: “Surplus capacity [is] putting pressure on Europe, Asia, and South America, making it harder for them to survive,” Xing pointed out.
Big picture: “The goal of increasing domestic consumption by 30% by 2030 would mean adding an additional $3 trillion to the current scale of consumption,” he added.
China Factor comment: US President Donald Trump’s tariffs tsunami has underlined how fragile Beijing’s economic “model” is. It is unsustainable in an unstable world.