Beijing, Jul 26 (AP) China’s heavy reliance on exports is expected to be a central issue during the upcoming US-China trade talks in Stockholm. However, experts believe that even a new trade deal may not be enough to help Beijing shift its economic focus towards domestic consumption.
US Treasury Secretary Scott Bessent has indicated that the talks will address China’s export dominance as well as its purchases of oil from Russia and Iran, which challenge American sanctions. Hopes for progress rose after US President Donald Trump struck deals with Japan, Indonesia, and the Philippines earlier this week.
The US aims for China to reduce what it and the EU consider to be overproduction in industries like steel and electric vehicles, while also boosting domestic consumption. “China’s share of global manufacturing exports is nearly 30% — it cannot keep growing, and it should shrink,” Bessent told CNBC.
China’s Domestic Challenges
While these concerns are not new, China has already been working to address industrial overcapacity and weak consumer spending, primarily for domestic reasons. Consumer spending accounts for less than 40% of China’s GDP compared to around 70% in the US. Government efforts to pivot towards a consumption-driven economy have been ongoing for decades but with limited success.
Fierce competition among manufacturers has also triggered price wars and deflation, which in turn curb business investment and wage growth. To counter this, Beijing has introduced subsidies and rebates for consumers to trade in appliances and cars.
Structural Reforms Needed
Economists argue that long-term solutions require broader reforms, such as expanding social safety nets, improving pensions, and enhancing healthcare, which would encourage households to spend more freely. Demographic changes, including an aging population, add to the complexity.
Self-Reliance and Technology Goals
China’s leadership, under Xi Jinping, is also pushing for self-reliance in high-tech sectors like semiconductors and AI, particularly as the US tightens restrictions. While this boosts high-tech output, it risks creating overcapacity, as seen in solar and wind energy industries.
Local governments are often reluctant to close unprofitable businesses due to job losses and tax implications. The World Bank has emphasized that improving household consumption will require deeper and more ambitious reforms.