Can China Export Its Way Out of Its Economic Slump?

China has monopolized the world’s solar panel sales and has overtaken Japan as the world’s largest auto exporter. Global sales of low-tech products such as shoes are also growing.

The Chinese government is now pushing hard as an exporting country to stabilize an economy that has clearly suffered under its own problems, such as the real estate crisis and slowing spending by cautious consumers after nearly three years of tight regulation due to the pandemic. We are considering whether to exercise reasonable powers. The decision could affect the entire global economy and spark a backlash among trading partners already weighed down by China’s exports.

“It would not bode well for the global economic outlook for the world’s second largest economy to rely on the rest of the world to spur growth,” said Cornell University economist Eswar Prasad.

Chinese government officials said they plan to invest in upgrading industries and boosting domestic commerce, as well as flooding overseas markets with industrial products such as electric cars. But economists say the experience of countries struggling with consumer spending suggests that a wave of Chinese exports is likely.

Relying on exports for juice growth is a tried and tested formula for China. And the Chinese government has strong leverage on its own currency, the yuan, allowing it to depreciate about 7% against the dollar since mid-January. This makes the relative cost of Chinese products cheaper for buyers in other countries.

“The normal way a country gets out of a real estate slump is to get out of it by exporting,” said Brad Setzer, a former international economic policy maker in the Obama and Biden administrations and now a member of the Council on Foreign Relations. speaks.

China’s property problems are deep-seated. A plethora of vacant and unfinished homes are plentiful, and the construction industry, which used to be the country’s largest industry, has slumped. Developers are drowning in debt. On Friday, two Chinese real estate firms stopped paying part of their foreign debts, and shares in developers have sold off in recent days. Hundreds of millions of households across the country have become cautious about spending money, as home prices, a major asset for Chinese households, have fallen.

At the same time, local governments, which spent heavily during the pandemic, are soaring in debt and struggling to provide health care to residents and pay civil servants’ salaries and pensions.

Thailand and other Southeast Asian countries exported to escape the economic crisis after the 1997 and 1998 Asian financial crisis. After the global bank failures of 2008 and 2009, Ireland and Spain did the same. After the European financial crisis the following year, Greece did the same. .

But China could draw a political backlash from countries worried that massive exports could erode their economies, losing jobs for workers and market share for businesses.

In Europe, China’s main market for a wide range of goods, officials and business leaders are already struggling to cope with the influx of Chinese cars, suggesting they are wary of China’s surging trade surplus. ing. And the close ties between Russia and China, now blamed in much of Europe for their invasion of Ukraine, have raised alarm in Europe about the continent’s dependence on China.

China is rather stepping up exports to Southeast Asia, which further processes these goods and sends them to Europe and the West, said Deborah Elms, executive director of Singapore-based trade consultancy Asia Trade Center. It says.

But China also has real challenges. The trade surplus in manufactured goods is so large, Setzer calculates that it is one-tenth of China’s economy as a whole, and may be hard to grow.

According to the United Nations Industrial Development Organization, China accounts for nearly one-third of global manufacturing output.

Future growth could be particularly challenging now as some of China’s biggest export markets show signs of weakness as interest rates are raised to combat inflation.

“Demand is weaker than last year,” said Zhou Shaopeng, a sales manager at a plastic pipe manufacturer in Hebei province.

However, the recent depreciation of the Chinese currency could trigger a recovery in exports. Government statements in recent weeks have highlighted plans to streamline trade within China’s borders as well as exports.

Zhan Yubo, director of the Western Economics Laboratory at the Shanghai Academy of Social Sciences, a government advisory body, said, “China is waking up to how to combine the two, how to integrate them. Perhaps this is just It’s more important than foreign trade,” he said. .

Experts said that while increased exports pose political risks, one area where China has room to expand overseas sales is new technology. China’s electric vehicle influence has quadrupled the value of its car exports in just two years to more than $6 billion a month. Last month, the company’s automobile exports exceeded smartphone exports for the first time.

Twenty years of heavy investment in electric vehicles and other innovations, as seen at the factory in the eastern suburbs of Shanghai, have generated increased sales and increased employment.

Tesla has a sprawling factory in Shanghai and, in addition to supplying the Chinese market, already exports a number of cars across Europe and Asia. General Motors also has a large factory in the city. Underpinning these operations is a dense network of suppliers.

Kunyi Electronic Technology, one of the companies that makes specialized tools for researchers working on self-driving cars, invested 45% of its revenue last year in research and development, said the company’s CEO. ), Chen Zhongming said. The company has tripled its workforce to 450 in the last three years.

China’s domestic and foreign automakers are now “willing to put more of their revenues into research and development,” he said.

SinoFuelCell, a Shanghai-based company that manufactures hydrogen-based propulsion systems primarily for freight trucks, is focused on reducing costs to make fuel cells more competitive compared to internal combustion engines.

“In the past, one person was in charge of one machine, but now one person can be in charge of two machines,” he says in front of the factory where fuel cell assembly machines are lined up. General Manager David Dye said while walking through the “Next month, a robot will take care of his six machines.”

Green energy is another area where China is growing. The company’s solar panel exports have tripled over the past three years to nearly $5 billion a month. Yang Qing, an energy analyst at the London Stock Exchange Group, said China’s exports are likely to continue growing even as countries such as the European Union and North America increase their own production. rice field.

Experts such as the World Bank say China should try to shore up its economy by boosting health insurance, pensions and other social safety nets so that Chinese households can spend their money more confidently. ing.

But such changes take time. For now, China is still pouring money into investments, including many factories, as well as building roads and railways.

“Investments create jobs,” Zhang said. “Employment generates income and salaries, and income and salaries generate consumption.”

Lee Yu Contributed to research.

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