China's economy is weakening, but its power is getting stronger
China's growth rate is slowing and China won't overtake the US anytime soon, but in key areas China is gaining a dominant global position
11.09.2023
Hugo Gaarden
China is going through a period of nothing but negative economic news. Growth will be low, major housing groups are facing collapse, consumption is extremely low and youth unemployment has skyrocketed.
As a result, Western economists are making gloomy predictions: that there will be low growth for many years, that President Xi's term will be characterized by stagnation, both economically and politically, and that China may never overtake the US in economic weight. At the same time, it has become a standard refrain in news reports and political statements that China is exerting "economic coercion" and poses a growing international threat.
But what many fail to realize is that China has achieved global dominance in many areas and this trend is accelerating at a rapid pace. This can be seen in business and foreign policy. This is in stark contrast to, for example, Germany's current downturn. The driving force of the German economy, the automotive industry, usually sustains society, but now it too is in decline because China is leading the way with electric cars.
International economic institutes expect China, despite its weakening, to grow next year and in 2025 by around 5-6 per cent, which is significantly more than Europe and the US. However, this does not change the fact that China may experience lower growth for many years and that it may not be until the 1930s that China overtakes the US in GDP. But no one should forget that China accounted for 40 per cent of the world's growth from 2008-2021. Since 1970, industrial production in all industrialized countries has fallen dramatically to between 10 and 20 per cent of GDP, while China has maintained a share of around 30 per cent. Even smart digital products have to pass through a factory floor, and the rest of the world, even Germany, is forgetting this.
In recent days, Munich has been the scene of the annual auto show, and it was totally dominated by Chinese electric cars. Even the German car companies had to admit that the Chinese quality and even the design were on par with their own. Chinese exports of both electric and petrol cars have quadrupled in the last three years, and this year China overtook Japan as the world's largest exporter of electric cars. No one thought this was possible 10 years ago.
China has installed half of the world's wind power and battery manufacturer CATL is the world's largest, supplying batteries for a third of the world's electric cars. The Chinese are at the forefront of software in cars. In big cities, some models like the Nio have become so advanced that they automatically change lanes and brake when necessary, and the driver follows the on-board computer's directions to an available parking space. 10 per cent of Beijing's cars are electric. There are 300 stations that automatically swap batteries. The process takes 2-3 minutes and the car can drive an additional 500 kilometres. Cars can be charged with power cables at 7700 charging stations in the capital. A charge costs only a third of the price of petrol, and a mid-range electric car costs around 20,000 dollar.
China is undergoing an evolution in manufacturing and exports: First came washing machines. Then came mobile phones. And now electric cars. Despite US bans on the export of the most advanced chips, Huawei has managed to make products that are on par with the best Western products - by using standard chips and has even made a chip that is almost on par with the world's best.
Many believe that President Xi Jinping is ignoring the economy because he is preoccupied with national security and international power. But it's actually two parallel processes. China needs to become independent in key areas, and the crackdown on high-tech giants and large-scale entrepreneurs is not just to prevent corporations from gaining too much power. It's also to "clean up" and set new standards for business, and to slow down the price explosion in the housing market. Now, the tech giants' CEOs have a common message: they praise Xi's way of managing the economy. A new balance of power between the state and the private sector has been established.
The US trade sanctions against China have not stopped the flow of goods from China to the US at all, writes the Economist. Now, the goods simply take a detour through other countries, such as Southeast Asia and Mexico, where they get a new label stuck on them. China's "dominance is unchanged", as the Economist writes. "All the talk of de-coupling is a sham."
China has the aim to be the leading nation in the fourth industrial revolution - the high-tech of digitalisation and artificial intelligence. Huawei has created a parallel company that allows Google to supply its apps, which were otherwise removed from Huawei phones in the US and Europe. This shows that the US sanctions are pure politics. Call it hypocrisy.
China won't have a few decades of decline like Japan. China has become a superpower and has a colossal raw power that the US is now realizing. This is evidenced by the fact that several top ministers have visited China without Chinese ministers feeling compelled to go to Washington. It is the US that is knocking on the door to normalize relations.
Xi Jinping did not attend the G20 summit in New Delhi, which was attended by both democratic and authoritarian leaders, and this seems like a deliberate move in the power game. Xi was the chief architect of the recent BRICS summit in South Africa. He brought together a stronger group of BRICS, not least with the financial and oil-rich Arab countries, and this was deliberately done to strengthen the South to gain greater clout against US dominance, for example in the global financial sector.
China wants an alternative to the West, and it seems that China will first strengthen the South, where China has significant influence, before China will engage in stronger co-operation with the US, for example in the G20. The two superpowers must first be at eye level, and US sanctions must first be scrapped before there will be a broader co-operation. This is basically how China has always behaved. Now it's just happening raw for unsweetened. China has not become the doddering lamb's tail that many naively believed it to be.