Predatory export push is just a ‘joke’ to Premier Li

Premier Li Qiang cracked a joke during a keynote address at the World Economic Forum summit in Dalian this week. Only the sycophants chuckled at what is known as China’s Summer Davos, where the so-called ‘movers and shakers’ gathered.

In a clumsy attempt to turn fact into fiction, Li rejected claims that massive state funding has been poured into frontier technologies. Innovation, not money, he insisted, was powering the drive in electric vehicles, AI, humanoid robots, and cheap, cutting-edge tech brands.

“People say [our] products are competitive mainly because the Chinese government extends subsidies, but that is not the case … the Chinese government is not that wealthy,” Li, the ruling Communist Party’s most senior official after President Xi Jinping, quipped.

He also dismissed suggestions that the country’s upside-down, US$20 trillion economy is causing China Shock 2.0, sparking trade tensions with the United States and Europe. Instead, it should be embraced as “China Opportunity 2.0,” which critics will argue is a lie.

“What China’s technologies and products in emerging fields bring to the world is not a shock, but an opportunity; not a threat, but empowerment,” Li said.

Yet this model is deeply flawed, and so is Li’s thinking.

Tall tales:

• Still, the money that could ease the plight of Chinese families is being redirected to fuel an export tsunami. The flood is now threatening Europe’s industrial base.
• It comes after US$18 trillion of household wealth was wiped out when the biggest property bubble in history popped in 2021. Since then, domestic demand has tanked.

Delve deeper: Last month, retail sales fell for the first time since the “zero-Covid” policy days in 2022, sliding to 0.6% after rising to a paltry 0.2% in April. In short, China is facing a consumer drought, leaving Beijing frantically trying to export its way out of trouble.

Between the lines: Yet this model is deeply flawed, and so is Li’s thinking. Already, more than 2.3 million manufacturing jobs have been shed in Europe since 2008. If the nightmare scenario accelerates into mass factory closures, then what?

Big picture: “A growth model that depends on selling goods abroad should not be indifferent to the purchasing power of its customers,” Palma Polyak, of the Max Planck Institute for the Study of Societies, wrote in a Substack blog earlier this month.

Bottom line: “Europe is China’s most important export destination after the United States. European consumers and firms absorb a significant share of Chinese production. If European purchasing power collapses, so does demand for Chinese exports,” she said.

China Factor comment: Manufacturing overcapacity saw China rack up a record $1.2 trillion trade surplus last year, which is unsustainable. Remarkably, high-tech hubs in Dalian were at the center of that push, illustrating Beijing’s kamikaze economic strategy.