China is trying to fix its economy - Trump could derail those plans

China is making efforts to improve its economy, especially with the possibility of Donald Trump returning to the presidency. The country has introduced new strategies to stimulate its economy, which has been facing difficulties. One significant issue is the substantial debt that local governments have accumulated, and China aims to address this to prevent it from hindering economic growth. Trump, who won the recent election, campaigned on a promise to impose high tariffs on imports, including those from China. His victory could complicate Xi Jinping's ambitions to turn China into a leader in technology and could further strain the relationship between the two largest economies in the world. Since the pandemic, China has been grappling with various challenges, including a downturn in the property market, increasing government debt, rising unemployment, and low consumer spending. As a result, the stakes are high for the latest announcements from the Standing Committee of the National People's Congress, which is the executive body of China's legislature. During his first term, Trump imposed tariffs on Chinese goods that reached as high as 25%. Analysts like Bill Bishop believe that Trump is serious about his plans for new tariffs, suggesting that he views China as having failed to uphold its end of the trade agreement and that he believes the pandemic and China contributed to his loss in the 2020 election. The pressure from Washington did not diminish after Trump left office in 2021. The Biden administration maintained many of the tariffs and even expanded some of them. While the initial wave of tariffs was painful for China, the country now finds itself in a more precarious position. The economy has struggled to regain its pre-pandemic growth levels since it abruptly lifted strict COVID restrictions two years ago. Instead of experiencing the rapid recovery that many anticipated, China has become a regular source of disappointing economic news. Even before Trump's election victory, the International Monetary Fund (IMF) had projected a modest growth rate for China. The IMF now expects the Chinese economy to grow by only 4. 8% in 2024, which is at the lower end of Beijing's target of around 5%. For the upcoming year, the IMF forecasts that China's annual growth rate will decline further to 4. 5%. The latest plan involves allocating an additional 6 trillion yuan, equivalent to approximately $840 billion, to assist local governments that have accumulated unsustainable levels of debt. For many years, local governments have played a crucial role in driving growth by borrowing large sums of money, much of which was used for infrastructure projects. However, a downturn in the property sector has left some cities unable to meet their financial obligations. Despite these challenges, China's leaders were not entirely caught off guard by the end of years of rapid growth. In 2017, President Xi Jinping stated that the country aimed to transition from 'rapid growth to a stage of high-quality development. ' This phrase has since been frequently used by Chinese officials to describe a shift towards an economy driven by advanced manufacturing and green industries. However, some economists argue that China cannot simply rely on exports to resolve its economic troubles. Stephen Roach, the former chairman of Morgan Stanley Asia, warns that China risks falling into a prolonged period of stagnation similar to what Japan experienced after its stock and property bubble burst in the 1990s. To avoid this fate, he suggests that China should tap into 'untapped consumer demand' and move away from an economy reliant on exports and investments. This shift would not only promote more sustainable growth but also reduce trade tensions and China's vulnerability to external shocks. Such a robust economic model could help China withstand the challenges posed by Trump's potential return to power. As China seeks to transition to a new economy, it faces old problems. The country, known as the world's factory for low-cost goods, is now trying to replicate its success with high-tech exports. It has already established itself as a global leader in solar panels, electric vehicles, and lithium-ion batteries. According to the International Energy Agency (IEA), China currently accounts for at least 80% of solar panel production and is the largest manufacturer of electric vehicles and their batteries. The IEA reported last year that China's investments in clean energy represented a third of the world's total, showcasing the country's remarkable progress in expanding renewable energy capacity. David Lubin, a senior research fellow at Chatham House, notes that there is a concerted effort to support high-tech manufacturing in China, and this initiative has been quite successful. Exports of electric vehicles, lithium-ion batteries, and solar panels surged by 30% in 2023, surpassing one trillion yuan, or approximately $139 billion, for the first time, as China continued to strengthen its global dominance in these industries. This growth in exports has helped mitigate the impact of the ongoing property crisis on China's economy. However, along with the increase in exports, there has been a rise in resistance from Western countries, not just the United States. Recently, the European Union raised tariffs on Chinese-made electric vehicles to as high as 45%. Experts like Katrina Ell from Moody's Analytics point out that the main issue is that major consumers of these goods, including Europe and the U. S. , are becoming increasingly hesitant to accept them. As Trump prepares to return to the Oval Office with a commitment to impose stricter measures on Chinese imports, China must carefully consider whether its latest initiatives to boost its slowing economy will be sufficient.