May 30, 2024

China economy gaining momentum despite calls for hardline US stance: senior diplomat

“The stabilising momentum in China-US relations should not be disrupted by domestic politics.”
Friday’s statement, one of several over the past year by Beijing officials aimed at boosting investor and consumer confidence in China’s struggling economy, was released amid a slew of headwinds.

Qian knocked detractors who voice “concerns and doubts” about China’s economic development and who use such phrases as “struggling for momentum”, “lack of drive” and “dragging down the world”.

“This is further from the truth,” he said. “The ship of China’s economy is breaking turbulent waves of the global economy and moving steadily forward.”

Qian argued critics should note that Beijing achieved its 5.2 per cent growth target in 2023.

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In addition, China’s economy remained a strong engine of global growth, he said, and planners had avoided “massive stimulus” for short-term gain given “sound and solid fundamentals”.

Beijing has sought to project confidence as it tries to right its economic ship. Its swooning property market is a grave concern, accounting for some 25 per cent of the country’s economy and about 70 per cent of household wealth.

On other fronts, local debt levels are mounting, and youth unemployment stood at 15 per cent in December. Last summer, the total surpassed 20 per cent, after which China’s National Bureau of Statistics temporarily stopped releasing figures, citing a need to change how the index was calculated.

Furthermore, deflationary fears have intensified, and consumers during the closely watched Lunar New Year period stayed cautious.

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While the number of domestic tourists was up 34 per cent during the major annual holiday over last year – and 19 per cent above 2019 pre-coronavirus pandemic levels – average spending per person was nine per cent below 2019.

“In short, Chinese households are readily partaking in the service economy but remain frugal in their spending,” said Michael Hirson of 22V Research, a New York-based investment research firm.

“Cautious household spending and investing has been a key factor behind weak domestic demand since the post-Covid reopening and we see few catalysts to reverse it any time soon,” added Hirson, who served as the US Treasury Department’s attaché in China from 2013 to 2016.

Qian countered that the economy was stable, saying 2023 grain output fell only slightly below 2022 levels, R&D spending held strong and a shift was under way to new sources of growth.

Robots weld bodyshells of cars at a workshop of Chinese electric vehicle maker Li Auto Inc. in Changzhou in Jiangsu province in January. Photo: Xinhua
The country’s domestic EV sales could grow 25 per cent to 9.44 million units this year, according to a forecast by Citic Futures. That is down from annual growth rates of 31 per cent last year and 89 per cent in 2022.
Beijing has sought to tackle the mounting economic uncertainties, vowing to embark on a host of pro-growth policies. “Proactive fiscal policy must be moderately strengthened and improved in quality and efficiency,” according to a statement from the Politburo on Thursday.

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On trade, prospects for China look mixed, analysts said, as 2023 exports fell, the US has maintained its insistence on restricting exports of high-end semiconductors and other key technologies and Europe grows warier of Beijing’s ambitious EV plans, which the continent has viewed as a threat to its own efforts.

But Qian said better Sino-American trade relations were mutually beneficial.

“Decoupling between us will not work and will produce no winner,” the diplomat said. “For Chinese companies in the US, unreasonable tariffs, sanctions and suppression are most unwanted.”

Beijing’s bid to bolster confidence with foreign investors comes amid steep stock market declines – partially reversed after recent government intervention – and plunging sentiment.
According to an American Chamber of Commerce in South China survey released on Tuesday, 63 per cent of US firms in China were looking to reinvest in China, down 5 percentage points.

The same survey found that only 11 per cent of non-American foreign firms planned to reinvest in China, down sharply from last year’s 71 per cent.

Trade tensions are also weighing on the economy. More than 60 per cent of American firms and over half of Chinese firms in the South China AmCham survey said they had been negatively affected by tariffs both from Beijing and Washington, with 85 per cent expecting bilateral trade tensions to worsen.

The low level of trust and ongoing mudslinging between the world’s two largest economies was evident in this week’s annual US assessment of China’s membership in the World Trade Organization.

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Washington accused Beijing of a “state-directed, non-market approach” and an array of non-market practices targeting industries for global market domination, according to the 80-page report.

The US added that China’s socialist market economy “has turned decidedly predatory”.

Beijing quickly denied the charges, countering Washington relied on “discriminatory” industrial policies that disrupt global supply chains and used “smear tactics and blame-shifting methods to cover up its violations and sabotage”.

Qian on Friday contended doubters would be proved wrong. “The Chinese economy can handle ups and downs,” he said. “The overall trend of long-term growth will not change.”

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