China has introduced a series of measures to revitalize its struggling economy, preparing itself for potential challenges posed by the possibility of a second Donald Trump presidency.
One of Beijing’s key initiatives involves addressing the substantial local government debt that has accumulated over years, aiming to prevent it from stalling growth. This step comes as the country faces a multitude of economic challenges, including a property market slump, rising debt, unemployment, and decreased consumer spending.
Trump’s recent election victory signals a potential reintroduction of high tariffs on Chinese goods, up to 60%, which could severely impact China’s economic plans. Analysts suggest Trump sees China as having fallen short on his prior trade deal, and he may be resolute in imposing strict tariffs.
The Biden administration maintained many of the original tariffs from Trump’s first term, even expanding them in some cases, so new tariffs could deal an even harsher blow to China now, as it’s grappling to regain pre-pandemic growth levels. Since loosening strict COVID restrictions, the country’s anticipated rebound has been slower than expected. The International Monetary Fund (IMF) recently lowered its growth projection for China to 4.8% for 2024, with a further decline expected in 2025.
In response, China’s latest strategy, announced by the Standing Committee of the National People’s Congress (NPC), includes plans to inject 6 trillion yuan ($840 billion) over the next two years to help local governments stabilize their debt loads. For decades, these governments financed infrastructure and growth through substantial borrowing, but declining real estate values have left many unable to meet obligations.
Xi Jinping has long championed a shift from rapid growth to “high-quality development,” emphasizing advanced manufacturing and green industries over traditional export-driven growth. Despite this goal, some experts believe China will need to bolster domestic consumption rather than relying primarily on exports.
There is some evidence of success in high-tech sectors, as China now dominates global production of solar panels, electric vehicles (EVs), and lithium-ion batteries. According to the International Energy Agency, China accounts for over 80% of global solar panel production and leads in EVs and battery manufacturing. In 2023, exports in these sectors rose by 30%, totaling over one trillion yuan, helping counterbalance the ongoing property market crisis.
However, this export surge is also facing resistance, especially from Western markets. Recently, the European Union raised tariffs on Chinese EVs up to 45%, and further tariffs from a Trump administration could pose additional challenges for China’s high-tech ambitions. Some economists suggest China could face a risk similar to Japan’s “lost decade” if it does not adapt its growth model and reduce reliance on exports.
As China watches Trump’s potential return to office, it remains to be seen if Beijing’s latest measures will be sufficient to navigate these economic hurdles and sustain growth in the face of rising international tensions.
SOURCE: BBC
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