China Attempts to Overcome Economic Slowdown with Dumping

China's economy is striving to escape from crises, particularly in the real estate sector and overproduction. There are seemingly hopeful signs for the Chinese leadership, but these are likely short-lived. The methods China is employing to exit the crisis are far from market-based, and countries receiving Chinese goods, including electric cars, will resist China's attempts to solve its problems at their expense.

On May 29, the IMF revised its GDP growth forecasts for China for 2024 and 2025. After previously predicting a 4.6% GDP growth, the IMF now expects 5%. This revision was based on strong first-quarter economic data from China. Is China emerging from its slowdown spiral, or is the IMF succumbing to wishful thinking?

It is unlikely that the IMF is deliberately issuing poor forecasts; rather, it traditionally takes China's official statistics at face value, which are often distorted for political reasons. For Chinese leaders, a 6% GDP growth figure is sacred. It is seen as the goal of economic policy, a tool to support the militaristic machine, and proof of the correctness of the political course. Therefore, even seemingly inflated forecasts of a 5% increase for 2024, 4.6% for 2025, and down to 3.3% by 2029 are entirely unacceptable and nightmarish for China's leadership.

Beijing is trying to act preemptively. Firstly, one of the engines of China's economy—the real estate market—is in deep crisis. This crisis has already impacted the financial sector. The government is attempting to overcome this challenge with broad financial support for mega construction corporations. However, this will only provide short-term relief since the crisis is caused by non-market interventions by regional governments to stimulate the construction industry.

Secondly, the Chinese government has embarked on an aggressive export expansion. One might ask, aren't the shelves of shops and car dealership showrooms already overflowing with Chinese products? Yes, they are. But this is not enough for Beijing. State stimulation of exports has already led to the creation of excessive industrial capacities. The government believes these enterprises should not sit idle, even though it was mistaken in encouraging their establishment.

At least two reasons explain why developed countries have begun restricting imports of cheap Chinese goods. During the COVID-19 pandemic, consumers of Chinese electronics were hit hard by supply chain disruptions. The shortage of components even led to the shutdown of European and American car factories. This has already prompted a diversification of supply chains, with new capacities being established in Malaysia, Thailand, Vietnam, and Indonesia. If not for Russia's invasion of Ukraine, Kyiv would have seen a massive influx of European investment, as Ukraine was also considered an alternative industrial hub right on the EU's border.

Russia's invasion has led to another type of consequence for Chinese exports. Initially, China quietly, and then increasingly actively, supported Russia in its invasion of Ukraine, supplying dual-use products and even more sensitive items. For this reason, and due to Beijing's muscle-flexing in the Taiwan Strait, the US and some EU countries have begun restricting China's access to advanced technologies and their own markets.

Beijing's attempts to achieve global leadership in green energy and electric vehicles (EV) have also caused considerable concern and irritation among the US and EU governments.

Just before the European elections, European Commission President Ursula von der Leyen hinted at the possible imposition of tariffs on Chinese goods. This is a significant signal, as von der Leyen is highly likely to secure a second term in her current position. However, she insists on more individual measures for now: "We share some of our [American] colleagues' concerns, but we have a different approach, a much more tailored approach." "Should it [the presence of aggressive subsidies] be confirmed, as I suspect, that such [Chinese] subsidies exist, then I can guarantee that the level of the duties we would impose is correspondent to the level of damage," she explained during pre-election debates.

Currently, as European parties vigorously compete for seats in the European Parliament amid the election campaign, various strategies on how to counter Beijing's aggressive trade practices are being proposed. Many are inspired by the example of the US, which sharply increased tariffs on Chinese goods, including microchips, solar panels, and electric vehicles, in mid-May.