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 business talks this coming week in Stockholm but a exchange deal would not necessarily help Beijing to rebalance its financial market U S Treasury Secretary Scott Bessent has revealed 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 broadcasted 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 quota in plenty of industries including steel and electric vehicles And secondly to take efforts 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 explained financial news structure CNBC He reported 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 deal surpluses with the U S and other countries Bessent s predecessor as treasury secretary Janet Yellen made industrial agenda a focus of a trip to China last year She blamed cabinet subsidies for flooding the global area 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 demands to transform into a more consumer-driven business sector 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 options to rebalance the financial system 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 requirements a consumer-driven commercial sector 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 rise To counter that the authorities is spending billions on rebates and subsidies for people who arrangement in their cars or appliances for new ones But acknowledging a trouble 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 largest part jobs but they ve suffered from swings in guidelines and pressures from the exchange war especially since the pandemic Demographic changes are another challenge as China s population shrinks and ages Several experts advocate expanding China s social safety net fitness insurance pensions and other patronage systems so that people would feel freer to spend rather than save for a biological exigency 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 declared 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 governing body authorities rewarding them for raising consumption or household incomes instead of meeting an economic advance target He doesn t see that happening nationwide but declared it could be tested in a province That would send out a message that China necessities a different approach he mentioned Chinese leader Xi Jinping has made transforming the country into a apparatus 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 promptly adding to probable overcapacity just as what happened with the executive s encouragement of green technologies such as solar panels and wind turbines Various industries including EV makers have pledged to address the issue but specific local governments are striving to keep money-losing enterprises afloat reluctant to lose tax revenues and jobs or to fail to meet economic enhancement targets Going forward the executive 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 executive moves to counter the impact of higher tariffs tend to sponsorship sectors already in overcapacity and the share of consumption in the economic activity has fallen in latest years A sustained improvement in household consumption will require greater revision ambition the World Bank mentioned in its the greater part modern update on China s financial market