China is stepping up efforts to support its economy as it braces for potential economic headwinds from President-elect Donald Trump’s return to office. The key concern: Trump’s proposed tariffs of up to 60% on Chinese-made goods that could exacerbate the country’s existing economic troubles.
New Measures to Combat Local Government Debt
The Standing Committee of the National People’s Congress (NPC) unveiled a fiscal package that includes a substantial 6 trillion yuan ($840bn) fund to alleviate local government debt. This initiative, set to run through 2026, aims to curb debt levels that have accumulated from decades of infrastructure-driven growth, now strained by a property market slump and falling revenues. The goal is to prevent this debt burden from further dragging down China’s economic growth, projected by the IMF to dip to 4.5% in 2025.
Bill Bishop, a China analyst, emphasized the significance of Trump’s tariff threats, warning that “Trump should be taken at his word” given his previous actions during his first term and subsequent rhetoric.
China’s Economic Slowdown and Structural Shifts
The Chinese economy has struggled to regain momentum post-pandemic, disappointing expectations of a quick recovery. Xi Jinping’s ambitions to transition China from rapid growth to “high-quality development” driven by advanced manufacturing and green industries remain under pressure. The economy faces the looming challenge of moving away from its heavy reliance on export and investment-led growth to a more consumer-driven model, as urged by experts like Stephen Roach, former chairman of Morgan Stanley Asia.
High-Tech Manufacturing and Export Resistance
China has made strides in high-tech sectors, dominating solar panel, EV, and lithium-ion battery production. In 2023, exports of these products grew by 30%, surpassing one trillion yuan for the first time. This boost provided some insulation against the ongoing property crisis. However, this success has also met resistance abroad, with the European Union imposing tariffs of up to 45% on Chinese-built EVs and Trump’s proposed tariffs threatening further strain.
David Lubin of Chatham House noted, “There is an overall effort to support high-tech manufacturing in China… This has been very successful.” Yet, Katrina Ell of Moody’s Analytics cautioned that Western reluctance to receive Chinese exports poses a significant hurdle.
The Road Ahead: Navigating Trump’s Trade Policies
Trump’s pledge to implement steep tariffs revives the challenges of his first term, which saw tariffs of up to 25% on Chinese imports. The Biden administration maintained many of these measures, extending their impact on the global trade landscape. As Trump prepares to take office, his campaign rhetoric and past actions indicate a renewed emphasis on protectionism that could strain China’s export-dependent economy even further.
The question now is whether the recent economic measures will be sufficient to cushion the blow and stabilize China’s growth. Experts like Alicia Garcia-Herrero of Natixis believe that “China’s overcapacity will increase,” putting more pressure on finding sustainable growth avenues amid rising global trade barriers.
Beijing’s response to these impending challenges will be critical as it seeks to bolster its economy against a backdrop of complex international trade dynamics and domestic economic vulnerabilities.
