China’s strategic shift towards prioritising manufacturing as a critical driver of economic growth has raised alarm bells among Bloomberg analysts, who caution that this move could ignite fresh trade conflicts with other major industrial nations.
Faced with economic challenges stemming from the prolonged effects of the COVID-19 pandemic and a two-year real estate sector crisis, Beijing has redirected its focus towards heavy investments in manufacturing. According to data from China’s central bank, lending to industrial enterprises increased significantly in the first three quarters of 2023, by a whopping 38.2% year over year. In contrast, outstanding loans to the property sector experienced a 0.2% decline during the same period.
Data from China’s National Bureau of Statistics reveals an overall surge in investment in the manufacturing sector, growing by 6.3% year-on-year in the first nine months of 2023, with a remarkable 11.3% increase in high-tech manufacturing. Bloomberg Intelligence notes that China has amassed a surplus of manufactured goods, reaching approximately 2% of global GDP—a level unseen since the post-World War II United States. Analysts estimate that around 45% of China’s manufactured goods, ranging from cars to washing machines, are exported due to sluggish domestic demand. Particularly successful in exporting electric vehicles, batteries, and solar panels, China’s exports in these sectors grew by 42% year-on-year in the first three quarters of 2023.
While China’s emphasis on manufacturing has shielded the country from a recession similar to the aftermath of the 2008 US housing market crisis, concerns arise about potential imbalances in global production that could lead to heightened trade tensions with other nations.
Beijing’s pursuit of “industrial upgrading” reportedly impacts imports from countries like Germany, South Korea, and Japan, which are traditional providers of hi-tech components to Chinese factories. Analysts issue warnings about a potential oversupply of goods in sectors where China has made significant investments, echoing Janet Yellen, the US Treasury Secretary, who did so in November.
Arthur Kroeber, head of research at economic consultancy Gavekal Dragonomics, acknowledges the positive technological advancements resulting from China’s focus on manufacturing but raises concerns about the world’s tolerance for China’s expanding trade surpluses. According to analysts, a growing protectionist backlash is already evident, with the US working to restrict China’s access to advanced technology and the EU launching investigations into Chinese electric vehicles. The fear is that these measures could be early indicators of broader trade tensions.
