US-China trade talks: Can China reduce its export dependence?

China s high dependence on exports will likely be a key focus of a new round of U S -China arrangement talks this coming week in Stockholm but a bargain deal would not necessarily help Beijing to rebalance its financial system U S Treasury Secretary Scott Bessent has stated he hopes the negotiations can take up this issue along with China s purchases of oil from Russia and Iran which undercut American sanctions on those two countries Hopes rose for a breakthrough in talks after U S President Donald Trump reported deals with Japan Indonesia and the Philippines this week The U S wants China to do two things Reduce what both the U S and the European Union see as excess production ceiling in countless industries including steel and electric vehicles And secondly to take initiatives to increase spending by Chinese consumers so the business activity relies more on domestic demand and less on exports We could also discuss the elephant in the room which is this great rebalancing that the Chinese need to do Bessent notified financial news organization CNBC He disclosed China s share of global manufacturing exports at nearly can t get any bigger and it should likely shrink China is tackling the same issues for domestic reasons The issues are not new and China has been working to address them for years more for domestic reasons than to reduce its commerce surpluses with the U S and other countries Bessent s predecessor as treasury secretary Janet Yellen made industrial guidelines a focus of a trip to China last year She blamed executive subsidies for flooding the global sphere with artificially cheap Chinese products The European Union whose top leaders met their Chinese counterparts in Beijing on Thursday has cited subsidies to justify EU tariffs on electric vehicles made in China In the s the U S pressured Japan to boost consumer spending when American manufacturing was overwhelmed by exports from the likes of Toyota and Sony Economists have long argued that China likewise requirements to transform into a more consumer-driven financial market Consumer spending accounts for less than of China s financial sector versus close to in the United States and about in Japan Chinese leaders have spoken about both factory overcapacity and weak consumer spending as long-term problems and have sought over the past years to find procedures to rebalance the commercial sector away from export manufacturing and massive investments in dams roads railways and other infrastructure Fierce price wars have prompted critical reports in official media saying that companies are racing to the bottom skimping on quality and even safety to reduce costs With strong administration encouragement they ve also expanded overseas where they can charge higher prices but still undercut local competitors creating a political backlash Economists say China necessities a consumer-driven business activity All that competition and price cutting has left China battling deflation or falling prices When companies receive less for their products they tend to invest less That can lead to job cuts and lower wages sapping business activity and spending power contrary to the long-term goal of increasing the share of consumer spending in driving overall advance To counter that the administration is spending billions on rebates and subsidies for people who business in their cars or appliances for new ones But acknowledging a dilemma and solving it are two different things Economists say more fundamental changes are needed to boost consumption and rein in overcapacity Such changes can only come incrementally over time Private Chinese companies and foreign-invested companies create the majority of jobs but they ve suffered from swings in approach and pressures from the commerce war especially since the pandemic Demographic changes are another challenge as China s population shrinks and ages A large number of experts advocate expanding China s social safety net wellbeing insurance pensions and other promotion systems so that people would feel freer to spend rather than save for a therapeutic crisis or retirement Yan Se an economist at Peking University s Guanghua School of Management warned at a contemporary forum that deflation will become a long-term issue if China doesn t step up its welfare benefits Chinese people deserve a better life he explained Facing external threats China wants to be more self-reliant One possibility put forward at the same forum by Liu Qiao the dean of the business school would be to change incentives for local establishment representatives rewarding them for raising consumption or household incomes instead of meeting an economic rise target He doesn t see that happening nationwide but announced it could be tested in a province That would send out a message that China necessities a different approach he reported Chinese leader Xi Jinping has made transforming the country into a innovation superpower a top priority It s a goal that has gained urgency as the U S has tightened restrictions on China s access to high-end semiconductors and other advanced knowhow Output in high-tech manufacturing is growing briskly adding to promising overcapacity just as what happened with the cabinet s encouragement of green technologies such as solar panels and wind turbines Various industries including EV makers have pledged to address the issue but several local governments are striving to keep money-losing enterprises afloat reluctant to lose tax revenues and jobs or to fail to meet economic improvement targets Going forward the administration is calling for more coordination of economic enhancement polices in fields such as artificial intelligence so that not every province champions the same industry But regime moves to counter the impact of higher tariffs tend to help sectors already in overcapacity and the share of consumption in the market has fallen in current years A sustained improvement in household consumption will require greater adjustment ambition the World Bank stated in its preponderance latest update on China s economic system