China’s latest plan to dominate global trade
When China publishes the final version of its report last five year plan This week, it will target the lowest economic growth rate in the last quarter century.
This is not good news for the rest of the world.
Speaking before President Xi Jinping and thousands of party delegates at the opening session of the National People’s Congress last week, Chinese Premier Li Qiang said the official target for GDP growth would be 4.5 percent to 5 percent. This is the lowest target since 1991 and a modest decline from last year’s target of “around 5 percent”, which China said it had achieved.
The downgrade comes in a turbulent geopolitical and world economic environment, where Donald Trump’s trade war for all and America’s increasing military adventurism are causing international trade patterns to reshape and, along with the war in Iran, threatening global energy supplies and economic growth.
In his speech at the congress, Li said, “Geopolitical risks are increasing. While global economic momentum remains slow, multilateralism and free trade are under serious threat.”
The outlook for the global economy has become uncertain and threatening, while at the same time China’s domestic economy remains weak and unstable; The supply of goods exceeds demand, and exports provide a safety valve, but this leads to increased trade tensions with countries other than the United States.
But with the new goals of the five-year plan, China will play a role in creating ever-increasing trade imbalances that threaten growth and employment around the world.
By some estimates, more than 50 countries have taken measures to protect their economies and local manufacturing centers from being overwhelmed by a wave of cheap Chinese goods.
While the data announced last week showed that exports increased by 21.8 percent in the first two months of this year, this wave still continues. China’s trade surplus It reached a record of US$213.6 billion ($300 billion), an increase of 25.3 percent in those months.
Last year, China achieved a record annual trade surplus of US$1.2 trillion by redirecting exports diverted from the US to other markets despite Trump’s tariffs; This has resulted in increased trade tensions with economies ranging from the European Union to Southeast Asia and South America.
China hopes to alleviate some of these tensions by increasing its imports from the rest of the world; Li said China will proactively open its markets and promote more balanced trade, making this one of the goals of this year’s planning.
Imports increased by almost 20 percent in the first two months of the year, but a nearly 16 percent increase in fuel imports as China stockpiled fuel in anticipation of conflict in the Middle East also increased imports.
China, the world’s largest oil importer Strategic reserves between 1.2 billion and 1.5 billion barrels It is tapping into oil and accelerating the electrification of its economy to reduce its vulnerability to imported energy.
While its exports are soaring (and creating increased protectionism elsewhere), the local economy is still struggling with the 2021 collapse of the real estate market. House prices have fallen more than 30 percent since 2021, and a sector that once generated 25 percent to 30 percent of China’s economic growth has roughly halved its contribution, which has a flow-on effect on household wealth, confidence and spending.
Noting that the market is still in a “period of adjustment” and “the imbalance between strong supply and weak demand is severe,” Li said Beijing will continue (albeit at a reduced level) the barter policies it has implemented to stimulate domestic consumption.
It is seeking a “notable” increase in domestic consumption, although it is not yet clear how it will achieve this, other than vague references to boosting employment and household incomes through social security and state transfers.
This is not because Chinese consumers are not spending (consumption accounts for about 40 percent of GDP), but rather because growth in consumption is lagging behind growth in investment, which is heavily subsidized by various layers of government.
This led to excess capacity, intense competition and price wars among domestic producers, an increase in exports that alarmed other countries, and deflation in the domestic market.
In the latest five-year plan, Beijing heralded a reduction in its subsidies (which the International Monetary Fund estimates at about 4 percent of China’s GDP) and a focus on exports of artificial intelligence, green energy equipment and other high-tech goods and services, leaving out solar panels and batteries.
In the face of Trump’s “America First” approach to trade, China is also redoubling its efforts to promote technological self-sufficiency and superiority. It wants to reduce its dependence on and vulnerability to offshore-derived advanced technologies.
Artificial intelligence, quantum computing, biofabrication, 6G mobile networks, robotics, pharmaceuticals, advanced semiconductors, hydrogen and fusion energy, and brain-computer interfaces are all among the sectors targeted by the new plan.
Xi Jinping has previously said China should expand its advantages in 21st century technologies and supply chains, including its dominance in strategic minerals. A key element of this plan is to embed AI throughout the economy, with the goal of integrating the technology into 90 percent of the economy.
There is a window of opportunity for China to strengthen its leadership in advanced manufacturing while maintaining its dominance of rare earths and other minerals vital to state-of-the-art manufacturing (and military hardware) before efforts by the United States and others to develop alternative supply sources erode its dominance of raw materials for 21st century technologies.
Beijing’s ability to direct companies and provincial and local governments to support its strategies also means that its plans are being executed in a way that would not occur in Western economies, although this creates significant inefficiencies. Chinese companies and officials are doing as they are told.
The call for an intense focus on advanced technologies will be answered and will almost inevitably produce consequences, including a shift of excess capacity from existing industries to new ones (or perhaps just an extension of it) and a new wave of high-tech exports hitting global markets.
As China pursues self-sufficiency in technology, it is also seeking to strengthen energy security; The war in Iran focuses more on this goal.
It aims to increase domestic oil and gas production, including the expansion of coal-to-oil projects, with a goal of increasing domestic energy production from just over 5 billion tonnes of coal equivalent last year to 5.8 billion tonnes by 2030. The important foundation of clean energy.
More than half of current energy production comes from non-fossil fuel sources. So while it is not immune to the disruption in oil supplies caused by the war when Iran closed the Strait of Hormuz, its reduced dependence on oil and gas and its oil reserves means that China is in a better position than most major economies to withstand prolonged disruptions in global oil supplies.
It appears that the new five-year plan will not contain any material differences from the strategies initiated by its predecessors; This is hardly surprising, given that Xi presided over four of these plans (out of five).
For the rest of the world, reducing China’s targeted growth rate for an economy facing deflationary and demographic threats and continuing to invest heavily in its industrial platform likely means lower global growth and the offloading of China’s excess industrial capacity onto global markets already fearful of deindustrialization.
Premier Li may have complained at the beginning of the congress about threats to multilateralism and free trade, and America may be the biggest culprit so far. But with the new goals of the five-year plan, China will play a role in creating ever-increasing trade imbalances that threaten growth and employment around the world.
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Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and deputy editor of the Business Spectator website and associate editor and senior columnist at The Australian.Connect via email.
