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 transaction talks this coming week in Stockholm but a exchange deal would not necessarily help Beijing to rebalance its financial system U S Treasury Secretary Scott Bessent has mentioned 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 declared 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 multiple industries including steel and electric vehicles And secondly to take measures 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 informed financial news organization CNBC He explained China s share of global manufacturing exports at nearly can t get any bigger and it should allegedly 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 contract 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 ruling body subsidies for flooding the global arena 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 necessities to transform into a more consumer-driven business activity Consumer spending accounts for less than of China s financial market 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 means to rebalance the financial market 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 executive 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 economic 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 progress To counter that the executive is spending billions on rebates and subsidies for people who exchange in their cars or appliances for new ones But acknowledging a complication 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 the greater part jobs but they ve suffered from swings in initiative and pressures from the contract war especially since the pandemic Demographic changes are another challenge as China s population shrinks and ages A great number of experts advocate expanding China s social safety net healthcare insurance pensions and other aid systems so that people would feel freer to spend rather than save for a healthcare exigency or retirement Yan Se an economist at Peking University s Guanghua School of Management warned at a latest 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 stated 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 cabinet officers rewarding them for raising consumption or household incomes instead of meeting an economic upsurge 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 demands a different approach he disclosed Chinese leader Xi Jinping has made transforming the country into a mechanism 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 hurriedly adding to anticipated overcapacity just as what happened with the authorities s encouragement of green technologies such as solar panels and wind turbines Various industries including EV makers have pledged to address the issue but chosen local governments are striving to keep money-losing enterprises afloat reluctant to lose tax revenues and jobs or to fail to meet economic development targets Going forward the authorities is calling for more coordination of economic evolution polices in fields such as artificial intelligence so that not every province champions the same industry But governing body moves to counter the impact of higher tariffs tend to assistance sectors already in overcapacity and the share of consumption in the financial system has fallen in modern years A sustained improvement in household consumption will require greater transformation ambition the World Bank announced in its majority latest update on China s economic system