One Reason China Is Willing to Engage Again: Its Troubled Economy

Three months ago, China’s economy appeared to be on a relatively quick recovery track after being isolated from the rest of the world by the pandemic. Consumers started spending again. Exports picked up. Even China’s beleaguered housing market suggested it was stabilizing.

That is no longer the case. Official data released on Monday showed that annual growth in China’s economy fell to just over 3% in the spring, well below the government’s target.

Now, the economic slump appears to have contributed to a shift in Chinese officials’ willingness to participate in diplomatic negotiations with overseas geopolitical rivals and show a more open stance on domestic economic policy.

The change in tone is particularly noticeable in the relationship between China and the United States. Despite years of deteriorating relations and concerted efforts to reduce interdependence, the two countries remain economically close and together account for two-fifths of global output. ing.

China last month sent three senior U.S. officials to Beijing, including President Biden’s special envoy for climate change John Kerry, who arrived on Sunday, and Treasury Secretary Janet L. Yellen, who met with Chinese officials for 10 hours. welcomed. The two countries have begun discussing everything from climate change to climate change, and up to three Chinese ministers are scheduled to visit Washington in the coming weeks. military issues.

The Chinese government is also launching an allure offensive aimed at domestic and foreign business leaders.

From the China Development Forum in March to the World Economic Forum in Tianjin last month, Li Qiang, the country’s premier and second-highest-ranking official, personally reassured China was open to business.

Mr. Li met with China’s tech giants last Wednesday, suggesting a nearly three-year effort to advocate greater political control over the sector could be replaced by an emphasis on economic growth. encouraged to hire more workers. The powerful National Development and Reform Commission, China’s top economic planning agency, praised the two companies’ investments on the same day.

“China’s decision-making, as it has always been, remains hidden from our view, but China’s economic weakness is evident to everyone, even its leaders, and has recently China’s moderate foreign policy and willingness to diplomacy inevitably “engages Washington,” said Scott Kennedy, a China expert at Washington’s Center for Strategic and International Affairs.

Still, analysts said the softening of the approach remains limited to economic and business policies unrelated to China’s national security, which has characterized China policy in recent years. And there are few signs that Supreme Leader Xi Jinping has endorsed the broad policy shift toward the United States that is necessary for any change to take root.

China announced on Saturday that it would conduct joint military exercises with the Russian Navy and Air Force in the Sea of ​​Japan. And Mr. Xi himself said: July 6 speech It urged the military to “break new ground” in war preparations and warned that “China’s security situation faces increasing instability and uncertainty,” according to the state-run Xinhua News Agency.

China has taken steps this month that could damage its reputation as a reliable link in global supply chains. It announced restrictions on exports of rare materials needed to make semiconductors, widely seen as retaliation for the U.S. restrictions on selling advanced semiconductors to China.

“He’s not willing to take more risks because domestic risks are the main ones,” said Jessica Chen Weiss, a Cornell University political scientist who specializes in U.S.-China relations. “But if you get punched, he’ll punch back.”

China’s foreign ministry spokesman Mao Ning told a regular ministry briefing on Monday that China’s economic vitality had not waned and there was no change in the development of relations with countries around the world. “We also hope that the US side will work with China to return the bilateral relationship to a healthy and stable growth track,” he said.

Some China experts also said they do not believe China’s recent economic problems are constraining its approach to foreign engagement.

Da Wei, director of the Center for International Security Strategy at Tsinghua University in Beijing, said the United States was unlikely to change its policies aimed at curbing China’s technological progress. As such, China has little incentive to compromise on broader economic issues, he said.

“In the short term, such as the recent thaw in U.S.-China relations, I don’t think there will be a big impact on the economy,” he said.

But for China, the latest set of data suggests economic pressures may continue to intrude on geopolitical goals. A key indicator of house prices fell last month, robbing consumers of wealth. Exports, a key engine of the Chinese economy, are in trouble.

And the investment landscape is opaque. U.S. companies complain that doing business in China is becoming increasingly difficult as the government focuses on national security. Authorities conducted corporate raids and detained officials, particularly due diligence firms hired by multinationals to check potential business partners and potential takeover Chinese companies.

The geopolitical environment is central to the decisions companies and investors make about whether to pour money into China or rely on it as an export base.

China is in big trouble economically. Tens of millions of Chinese jobs depend on global trade. His sales of manufactured goods to other countries are more than three times higher than his purchases of goods from other countries.

These important trade relationships extend beyond the United States. Relations with Europe have seriously soured as China leans toward Russia over the war in Ukraine. China’s June exports to the European Union fell 14.2% year-on-year.

The three Baltic states (Lithuania, Latvia and Estonia, all particularly hostile to Russia) have pulled out of China’s diplomatic process for negotiations with Eastern Europe. Lithuania has close ties with Taiwan, an island democracy claimed by Beijing. China retaliated last year by slashing trade with all three Baltic states and halting nearly all imports from Lithuania in particular. This infuriated the rest of the European Union.

In recent months, China has sought to mend its souring ties with even bigger summit-level visits to countries such as France and Germany.

It may be too late. Germany unveiled a new national strategy last Thursday calling for a reduction in its economic dependence on China and urging China to stop using its economic clout in geopolitics. Germany has also pledged closer ties with the United States and urged China to distance itself from Russia.

China has relied heavily in recent years on suspending trade with other countries to persuade them to accept Beijing’s policies, prompting the country to hint at an investigation into the origins of the novel coronavirus pandemic. And so did Australia. In practice, however, China has lifted import bans on various Australian products in recent months.

“China is now the world’s largest trading nation, so it has a special responsibility to make this system work,” said Alan Wolff, former deputy director-general of the World Trade Organization.

Lee Yu Contributed to research.

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