The balance of payments equilibrium suggests that the current account surplus will be close to zero and the overall trade balance will probably show a shrinking surplus. China is still likely to witness large net exports in certain industries, but this will be counterbalanced by imports and other components of the balance of payments, such as financial flows and income transfers.
Considering these goals, investment is expected to play a crucial role in achieving the anticipated 5 per cent GDP growth for 2024. China’s investment-oriented strategy, though it has its flaws, appears fairly rational in the current circumstances.
Internally, a pervasive lack of confidence among Chinese citizens has stifled consumer spending. Externally, geopolitical competition, including the trade war with the US and heightened trade interventions by developed economies, is proving a considerable impediment to China’s trade goals.
02:40
Chinese Premier Li Qiang delivers his first work report amid concerns about state of the economy
Chinese Premier Li Qiang delivers his first work report amid concerns about state of the economy
For the country’s top leadership, maintaining growth is always of the utmost importance, both economically and politically. They see reviving investment as the most feasible approach to achieving the targeted growth rate.
China’s monetary and fiscal policies are expected to extend robust support to sectors such as artificial intelligence, electric vehicles, supercomputing and quantum computing, telecommunications, and renewable energy. As a result, these policies are likely to precipitate shifts in the composition of the labour force, with a gradual reallocation towards secondary and tertiary sectors.
Nevertheless, these industrial policies risk amplifying economic disparities between communities with hi-tech capacities and those without, exacerbating wealth inequality.
Worse, because of institutional deficiencies, the industrial policies could lead to overinvestment and surplus production capacity in certain sectors. When domestic consumption fails to absorb this excess, exports are required to balance things out. This could inadvertently result in foreign producers bearing the cost of subsidies granted to Chinese manufacturers.
Given the current geopolitical rivalry, leveraging industrial policies to accelerate industrial development could ignite more competition with other countries in strategic technological areas.
Foreign governments might respond by strengthening market access barriers and increasing restrictions on foreign direct investment, escalating trade frictions and potentially sparking more trade wars. This, in turn, could introduce uncertainty into global supply chains and trade relations.
The Japanese government’s adoption of extensive industrial policies after World War II to shield domestic industries elicited profound concerns from the US, which viewed them as distorting international market competition. Coupled with domestic political dynamics, trade disputes ensued.
02:31
China GDP: Beijing’s long to-do list to boost its economy in 2024
China GDP: Beijing’s long to-do list to boost its economy in 2024
As China pursues its latest economic goals, it must pay attention to the delicate balance between ambitious growth and the sustainable management of resources and inequalities, or risk unintended economic and social fissures on a global scale. Effective governance and institutional reforms are essential for the formulation and implementation of domestic industrial policies.
Detailed industrial policy evaluation, including quantitative assessments to verify whether policies achieve their intended objectives, and accountability systems to curb overinvestment, are crucial.
Additionally, pivotal strategies to improve industrial policy management should be implemented. These include: crafting regulations to standardise government market interventions; bolstering innovation support through intellectual property protection and technology transfers; and, engaging in international cooperation to mitigate potential conflicts in transnational industrial competition.
Yuhan Zhang is a scholar based at UC Berkeley specialising in China’s political economy
