As China prepares to hold its Third Plenum to discuss economic and political policy measures for the next 5-10 years, there are growing concerns about the impact the world’s second-largest economy is having on global trade.
The meeting, which will bring Chinese Communist Party leaders together in Beijing from July 15-18, comes as the United States and the European Union have accused Beijing of flooding foreign markets with cheap goods that threaten to distort trade and bring on a second China shock to markets across the globe.
It also comes as China is struggling with a range of challenges from a property market crisis, to rising unemployment and weak consumer spending.
The U.S. has already responded to those concerns, with new tariff actions on a range of goods, from aluminum and steel to electric vehicles, or EVs, and solar panels. The EU also recently announced tariffs for EVs.
Earlier this week, just days before the meeting, Jay Shambaugh, the U.S. Treasury Department’s Undersecretary of International Affairs, called on Beijing to address the issue of overcapacity.
“We’re growing concerned that China’s enduring macroeconomic imbalances and non-market policies and practices pose a significant risk to workers and business in the United States and in the rest of the world,” Shambaugh said at a Council on Foreign Relations event Wednesday.
Shambaugh also acknowledged how high levels of savings and low levels of consumption are key contributors as to why China has such large macroeconomic imbalances.
“China has maintained an exceptionally high savings rate for decades,” he said. “The corollary of high savings is low levels of household consumption. At less than 40% of GDP, China’s consumption is low relative to other countries at similar levels of income.”
Analysts, however, say it is unlikely that Beijing will change its export-heavy approach to economic growth during the Third Plenum, which will gather top-level communist party officials and be chaired by the country’s leader Xi Jinping.
Alexander Davey, analyst at Mercator Institute for China Studies, said that for now, Beijing seems less concerned over China’s lack of consumer spending and more focused on economic growth.
“It’s not within China’s playbook to increase household consumption or stimulus,” he told VOA. “They [the Chinese] see their pathway forward is through technological breakthrough, through offering something that the U.S. or Europe has not yet developed…[which] allows them to be at the top of the value chain and to be the leader and set the price on the goods that they have developed.”
Previous Third Plenums have been used to announce economic reforms such as Deng Xiaoping announcing the opening of China’s economy in 1978, the further reinforcement of the socialist market economy in 1993 by Jiang Zemin. In 2013, Xi Jinping pledged to let market forces play a decisive role in the economy.
China launches spending initiatives
In its own efforts to boost consumer spending and restart the Chinese economy after a cascade of strict lockdowns during the COVID pandemic, China has launched initiatives aimed at increasing consumption.
In April, Beijing announced an ambitious trade-in-plan — which authorities hoped would generate $29.3 billion in spending and boost the country’s overall GDP by up to 0.5%. The plan allows consumers to trade in their old cars and home appliances for newer, more environmentally friendly ones.
The programs aim to get consumers to spend more and support China’s efforts to go green, but according to Alicia Garcia-Herrero, chief economist Asia Pacific at French investment bank Natixis, have been relatively unsuccessful.
“The programs to support purchases of cars and so on have been quite disappointing so far,” she said in a response to VOA on WhatsApp. “Some of the subsidies have disappeared because the fiscal situation of the local governments [which] is really worrisome.”
Garcia-Herrero says that with so much uncertainty about the overall situation — China’s economy and geopolitical tensions — it is difficult to encourage people to spend more.
“Disposable income is not growing No. 1, and No. 2, people just want to continue to save because they are very worried about the future,” she says.
Shambaugh also took note of China’s high savings rate in his speech this week, noting how China’s savings rate has been roughly “45 to 50% of GDP” over the last 20 years.
“China comprises 28% of total global savings, but around 18% of global GDP,” he said.
Culture aims to lift poor, says analyst
Matthew Wong, a Chinese international student who is currently studying at Johns Hopkins University, points to China’s “saving culture.”
“If it’s not necessary, Chinese people won’t buy it … especially parents, their whole philosophy, a lot of them, is like, I don’t need to spend money to enjoy myself,” said Wong, whose life has straddled the Pacific, growing up in China and later studying in the United States “It’s all about, all about the next generation, that’s why there’s a big saving culture in China.”
Davey agrees that perspective plays a large part in understanding how China will move forward.
“When we look at it [China’s economy] from the outside, there might be problems we see, but they are problems we see from a Western perspective,” said Davey. “So that’s why bonuses of CEOs is not something on the agenda [in China] where it may be in the U.S., you know.”
In China, he added, “it’s about getting the poor people up and actually squashing down the uber wealthy.”
Garcia-Herrero said she expects China will continue to develop their technology and look to the exports market for economic growth.
She said that “increasing household income would be warranted, but the problem is that China has been increasing wages since 2010 to 2018 or so above productivity. Nowadays this is not possible … China needs to continue to export, this is their way out.”
Shambaugh is hoping China will make some economic changes moving forward.
“The best outcome, though, would be for China to acknowledge the growing concerns among its major trading partners and work with us to address them,” he said.
