Gina Raimondo, the Commerce Secretary, is the latest Biden administration member to visit China. She joins the likes Secretary of State Antony Blinken and Treasury Secretary Janet Yellen as well as “climate tsar”, John Kerry, whose team insists he flew on commercial.
Raimondo met with Chinese officials this week in Beijing and Shanghai to try to ease tensions in the economy between two of the world’s largest economies. The two are embroiled in a cold war that some see as escalating. In the meantime, China’s economy is struggling to keep up with modern standards.
China’s GDP has grown between 6 and 10% per year since the Great Recession ended. China’s GDP growth in 2023 is expected to hover at about 3 per cent. This is partly due to the vain effort of the country to achieve Covid zero – rolling lockdowns were in place until the start of this year. China’s service industry lost 12,000,000 jobs between 2020 and 2022.
The lifting of the lockdowns did not produce the consumption-driven stimulus that Chinese officials had hoped would awaken the slumbering Chinese economy. This development could indicate more serious structural issues. Local governments and state-owned companies are burdened by debt and have low productivity. China’s manufacturing sector is experiencing decline. Exports have followed, as has direct investment.
In the post-Covid era, households have chosen to save instead of spend more, in part due to the recent crisis in confidence in the housing markets. Over the past few years, confidence has been shaken because Chinese homebuyers have not received their “presold” apartments and homes that they had purchased using interest-paying mortgages. In recent years, home price has been declining, particularly in the nicer urban areas. Neither has the Chinese job market recovered from the pandemic. The youth employment rate is above 20 percent, including recent college graduates.
Asia Times economic strategist David P. Goldman, via email, told the American Conservative that the “property market mess” is the result two years of government restrictions on lending to the real estate industry. However, Goldman said it is not the start of a financial crises. It’s a political shakeout that has caused collateral damage, especially when it comes to central government’s fight with municipalities over highly leveraged residential developments.
Raimondo has so far focused his visit on a dialogue about dialog in regards to trade and technology. It’s early in the trip, but maybe something more concrete will happen. Raimondo said to the media after a meeting with Chinese Minister of Commerce Wang Wentao that “It’s a good sign we agreed to a concrete dialogue and this is more than nebulous promises to continue talking, this channel is official.”
Raimondo announced the U.S. would also create two platforms to facilitate this dialogue. The first group is a commercial working group that brings together representatives of business and their interests. The second is between the governments and will meet in Beijing for the first meeting on Tuesday.
American affairseditor Julius Krein informed The American Conservative by email that the administration’s official position, expressed in Jake Sullivan’s speech a couple of months ago, was’small yard, tall fence’, which appears to mean a tight approach to certain industries linked to national security and a relaxed approach to all other industries.
The signaling surrounding Raimondo’s visit seems to follow the outline above, but in a world where dual-use technology and situations exist in which dominance over seemingly low-end products can lead to strategic advantages (for example, rare earth processing can support a dominance in batteries, and so on), Krein explained. He added, “I believe both the U.S.
Biden’s administration has received criticism for attempting to establish an “information exchange” between the Chinese and US regarding export controls. Four Republicans wrote a Letter last week before Raimondo went to China, stating that it was “deeply inappropriate” for the Chinese to be able to influence controls over sensitive U.S. technologies of national security that she is charged to protect.
Some have expressed concern that China may turn to an export-oriented model to revive its domestic economy as the Biden administration tries to warm up America’s relationship with China, despite the Trump administration leaving most of the Trump policies in place. This strategy is facilitated by the weakness of the renminbi in comparison to the dollar, as well as the fact that the U.S. Tariffs can be avoided by assembling Chinese parts in Malaysia or Mexico.
A revived Chinese export industry could lower U.S. prices in the short-term, but as it has done for decades, it will likely harm efforts to revitalize U.S. manufacturing. In such a scenario the U.S. would have a larger trade deficit with China, as even large U.S. firms struggle to break into China’s market and remain relevant.
The Chinese Communist Party may prefer an export-driven recovery to other economists’ suggestions: encouraging consumer spending. This could even take the form of cash stimuli similar to those the U.S. provided during the Covid-19 epidemic. While President Xi Jinping, the Party apparatus and others have talked for years about achieving the Chinese economy’s independence and delivering on the promise “common prosper” (a slogan that was used during the Mao era to represent collective ownership but is now used by Xi as a way to reduce inequality), Xi holds philosophical objections against consumer-oriented growth. Xi thinks that such a consumer-oriented approach fuels waste and decadence in the West.
Xi may have a valid point, but his objection seems to be more than merely philosophical. The party has been focusing on government-funded infrastructure projects and other projects for decades. Xi appears to prefer the old-style model to consumer stimuli, and is more focused on fiscal discipline when it comes to sectors that are burdened with debt. Xi is looking to the central government for funding to be directed towards high-tech industries, like A.I. The central government will be used to direct development funding towards high-tech sectors of the economy, such as A.I.
Christopher Vassallo of the Marathon Initiative told TAC that “the emergence of China’s car industry is only one example of a regional economy increasingly centered on China in Asia, which could help to insulate China against future U.S. sanction,”
Goldman stated that the Communist Party of China is very vocal in its goal: to transform China into a high-tech, digitalized economy, or a “Fourth Industrial Revolution”. Beijing wants to shift investment away from SOEs and towards the private sector, and force them to invest in high-tech industries and logistics. It’s easy to say but, after three years of berating Jack Ma and his colleagues, it will take some time for the private sector to regain its animal spirit.
Goldman stated that he does not “see[s] any movement towards a broad stimulant (through monetary policy or consumer subsidies).
Krein, TAC’s Krein, said: “It appears that Beijing is trying to maintain its dominance in global supply chains and support its advanced manufacturing, tech, and technology industries while reorganizing or weaning China away from unproductive property investment.” It is not clear whether the CPC can achieve this, but it appears that they have a plan. The CPC has also shown a willingness to sacrifice certain growth targets and metrics in the short term to achieve the long-term goal to expand Chinese dominance in critical global supply chains.
Goldman stated that he did not know what Raimondo expected to gain from her China trip. She is trying to balance Big Tech’s view, which is deeply rooted in the Chinese market and the political winds that are hostile to China. The dialogue will not be successful unless the U.S. is serious about setting up parity in technological development and manufacturing.
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Krein does not believe that the U.S. is prepared to respond to China’s economic growth in the future. “The only long-term solution is to rebuild at least a few strategic manufacturing industries in the United States and address America’s manufacturing weaknesses, especially advanced manufacturing. “But that’s a long-term, difficult proposition.”
Krein stated that “the administration has taken a tough line on export controls, and made efforts through CHIPS and IRA to support semiconductors as well as clean energy.” But these efforts are largely reactive and aligned with existing lobby groups, rather than a long-term comprehensive strategy.
Krein said that it is not surprising that the latest Raimondo delegation seems to be out of sync with other administration’s rhetoric, because they are trying in many ways to get by, rather than executing a coherent and long-term vision for what U.S. China economic relations should look like.