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Cold Economies

China and the U.S. talk trade as both countries’ economies limp along.

U.S Vice President Joe Biden Visits China

Commerce Secretary Gina Raimondo is the latest member of the Biden administration to make a pilgrimage to China in recent months, joining the likes of Secretary of State Antony Blinken, Treasury Secretary Janet Yellen, and “climate tsar” John Kerry (whose team swears he flew commercial).

Raimondo’s meetings with Chinese officials in Beijing and Shanghai this week seek to ease economic tensions between the two largest global economies, embroiled in what some consider a burgeoning cold war. Meanwhile, domestically, the Chinese economy appears to be having difficulty trudging on, at least compared to China’s modern standards.


Since the end of the Great Recession, China’s annual GDP growth has sat between 6 and 10 percent. In 2023, however, China’s economic growth is hovering at around 3 percent. In part, that is a consequence of the nation’s vain struggle for Covid zero—rolling lockdowns remained in place through the beginning of this year. China’s service sector lost 12 million jobs in total from 2020 to 2022. 

Ending the lockdowns has not resulted in the consumption-fueled stimulus that many Chinese officials hoped would wake the slumbering economy, a development that points to potentially more serious and structural problems. Local governments and state-owned enterprises are heavily burdened with debt and underwhelming productivity levels. China’s manufacturing industry is in the midst of decline. Exports have followed, as has direct investment.

Households, saddled with debts of their own, have opted to save rather than spend more in the post-Covid economy, driven in part thanks to a recent confidence crisis in the housing market. Confidence has been shaken over the last few years because property developers failed to, or were prevented from, delivering on “presold” homes and apartments purchased with interest-paying mortgages by Chinese homebuyers. As of late, home prices are on the decline, especially in nicer urban areas. The Chinese job market hasn’t rebounded from the pandemic either. The youth unemployment rate, which incorporates recent college graduates, lies above 20 percent.

Asia Times deputy editor and economic strategist David P. Goldman told The American Conservative via email that “the property market mess is the result of two years' of government restrictions on credit to the real estate sector.” It is not the beginning of a financial crisis, however, according to Goldman. “It's a politically motivated shakeout with a lot of collateral damage,” specifically when it comes to the central government’s battle with municipalities over highly-leveraged residential developments.

Thus far, Raimondo’s visit seems to be focused on dialogue about dialogue with regards to trade, technology, and a basket of other economic issues; granted, it’s still early in the trip—maybe something more concrete will materialize. After exiting a meeting with Chinese Commerce Minister Wang Wentao, Raimondo told the media, “I think it’s a very good sign that we agreed to concrete dialogue, and I would say, more than just kind of nebulous commitments to continue to talk, this is an official channel.”


Raimondo also announced that the U.S. and China would create two platforms for this dialogue. The first is a working group about commercial issues that brings together business representatives and interests; the second, between the governments on information exchange and export controls, is slated to meet for the first time this Tuesday in Beijing.

American Affairs editor Julius Krein told The American Conservative via email that, when it comes to the U.S.-Sino economic relationship, “the administration’s official line, articulated in Jake Sullivan’s speech a few months ago, is ‘small yard, high fence,’ which seems to mean a strict approach to certain industries tied to national security, and a more relaxed approach to everything else.”

“The signaling around Raimondo’s trip seems to follow this outline, but it’s complicated in a world of dual-use technologies and situations in which the dominance of seemingly low-end production can secure strategic advantages (for instance, rare earth mineral processing can support dominance in batteries and so forth),” Krein said, adding, “I think both the U.S. and China want to tone down tensions but the underlying issues and interests at stake are at some level irreconcilable.”

The Biden administration has already received some heat for seeking to establish “information exchange” with the Chinese over export controls. Last week, before Raimondo left for her China trip, four Republicans penned a letter arguing it is “deeply inappropriate for our foremost adversary to have any influence over controls on sensitive U.S. national security technologies that the American people charged her to protect.” Raimondo has responded to such criticisms by claiming that while the U.S. will be sharing information on its export controls on advanced Chinese technology, issues of national security are not up for negotiation.

As the Biden administration seeks to thaw America’s economic relationship with China despite leaving the Trump administration’s economic policies vis-a-vis China largely intact, some have begun to air concerns that China will turn to an aggressive export model to revitalize its domestic economy. The weakness of the renminbi compared to the dollar is conducive to such a strategy, along with the fact that many of the U.S. tariffs can be circumvented by taking Chinese parts and assembling them in countries like Malaysia or Mexico.

It’s possible that a revived Chinese export economy would lower U.S. inflation in the short term, but, as has been the case for decades in the American economy, it would likely damage efforts to revive U.S. manufacturing. Surely the U.S. trade deficit with China would increase in such a scenario, given the difficulty even large U.S. companies have had with breaking into and staying relevant in China’s markets.

An export-driven revival may be more amenable to the Chinese Communist Party than what some economists have suggested: promoting consumer spending, potentially even in the form of cash stimulus similar to what the U.S. did during the Covid-19 pandemic. While President Xi Jinping and the Party apparatus have long talked about getting the Chinese economy to stand on its own two feet and deliver on the promise of “common prosperity” (a slogan once used in the days of Mao as a stand in for collective ownership, but now used by Xi to mean a reduction in inequality), Xi has philosophical objections to consumer-oriented development. Xi believes such an economic outlook fuels decadence and waste in the west.

Xi might have a point, but the objection is seemingly more than philosophical. For decades, the party has focused on infrastructure and other projects funded by the government. Xi seems to prefer the old model over consumer stimulus, with more focus on fiscal discipline, especially when it comes to sectors of the economy that are saddled with debt. Specifically, Xi wants to use the central government to direct development funding towards high-tech sectors of the economy, such as A.I. and semiconductor manufacturing and development, and protect the country from international sactions.

“The emergence of China’s car industry is just one example of an increasingly China-centric integrated regional economy in Asia that could help insulate China from future U.S. sanctions,” Christopher Vassallo, a researcher with the Marathon Initiative, told TAC.

“The Communist Party of China has been very vocal about its objective: Shift China into a digitized, high tech, ‘Fourth Industrial Revolution’ economy,” Goldman said. “Beijing wants to force a shift in investment towards high-tech industry and logistics, and shift weight away from inefficient SOE's to the private sector. That's easy to say, but after three years of beating up Jack Ma and his peers, reviving the animal spirits of the private sector will take a while.”

For those reasons, Goldman said he “see[s] no movement towards a broad stimulus (though monetary policy or consumption subsidies).”

“It seems that Beijing wants to continue to support its advanced manufacturing and tech industries, and secure dominance of more and more global supply chains, while restructuring or weaning the country away from unproductive real estate investment,” Krein told TAC. “It is unclear whether the CPC will be able to accomplish this effectively, but they seem to have a strategy. They also have signaled a clear willingness to sacrifice some growth targets and other metrics in the near term in order to support the longer-term goal of expanding Chinese dominance of critical global supply chains.”

As for Raimondo’s meetings with the Chinese, Goldman said, “I don't know what Raimondo thinks she'll get out of a China visit. She's trying to balance the view of Big Tech, which is deeply embedded in the Chinese market, and the prevailing political wind which is hostile to China.” It appears economic turbulence in China’s domestic economy, much less dialogue with the United States, will cause China to back off its plans to usher in the fourth industrial revolution. Nor will dialogue be primed for success unless the U.S. gets serious about establishing parity on the technological development and manufacturing front.

But Krein doesn’t believe the U.S. has a long-term strategy in response to China’s future economic development. “The only real long-term strategy is rebuilding at least some strategic manufacturing industries domestically and addressing America’s weaknesses in manufacturing, particularly advanced manufacturing. But that is a relatively difficult, long-term proposition.”

“The administration has taken a hard line on certain export controls and through CHIPS and IRA made efforts to support semiconductors and clean energy,” Krein said. “But these are in large part reactive efforts that happened to align with certain existing lobbies, not yet a comprehensive long-term strategy.”

“In that sense, it’s not surprising that this latest Raimondo delegation seems out of step with other administration rhetoric,” Krein explained, “because in many ways they’re just trying to muddle through rather than execute a coherent, long-term vision of what the U.S.-China economic relationship should look like.”


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