Economy: China faces imminent economic slowdown

Xi Jinping’s major economic meeting has recently attracted attention. Indeed, Chinese leaders appear to be preparing for a slowdown in growth, while reaffirming their commitment to “high-quality development.” But what does this statement really mean, and what impacts can we anticipate for the global economy? Let’s dive into the details of this meeting and explore the potential ramifications of this strategy for China’s economic future.

A strategic shift towards high-quality development

President Xi Jinping has made it clear that high-quality development will now be the driving force of the world’s second-largest economy. Behind this slogan lies a desire to reorient the Chinese economy toward high-tech manufacturing. This shift, far from being trivial, suggests an increased tolerance for slower but more sustainable growth.

The aim is to move up the value chain through technological innovation, making China less vulnerable to trade restrictions imposed by the United States.

This strategic choice aims to develop sectors such as green technologies, notably electric cars and solar panels, while reducing dependence on old polluting industries.

However, this shift could exacerbate trade tensions with Western partners. Already, rising Chinese exports have led to new tariffs imposed by the United States and the European Union. This strategy could therefore prove doubly sharp, strengthening China's industrial position while intensifying trade conflicts.

Moderate but resilient growth

Becky Liu, head of China macroeconomic strategy at Standard Chartered, points out that tolerance for slightly slower growth is built into this approach.

The bar for short-term economic recovery remains high, implying that China is banking on long-term resilience rather than quick wins.

Recent economic data show a changing Chinese economy, with signs of a slowdown putting pressure on Beijing to further boost domestic consumption.

Second-quarter data disappointed, with retail sales in June growing at the slowest pace since 2022. This slowdown in consumer spending contrasts with export growth, highlighting an imbalance that authorities are seeking to correct.

To rebalance the economy, China is turning to emerging and green sectors, while seeking to boost domestic demand. Current economic policy emphasizes the active expansion of domestic demand, although this priority seems more short-term.

Despite these challenges, Chinese authorities remain committed to meeting their annual economic growth targets of around 5%. This persistence indicates a desire to stabilize the economy while navigating through the current turbulence.

The role of the Communist Party in this transition

The Chinese Communist Party plays a crucial role in implementing these economic strategies. The recent economic meeting highlighted the party's directives, which remain essential for understanding the future direction of the Chinese economy.

The meeting's vague statements must be followed by concrete measures, often elaborated at subsequent Politburo meetings. These meetings are crucial for transforming grand speeches into practical, measurable policies.

Centralized control and rigorous economic planning remain at the heart of Chinese strategy. This model allows for rapid adaptation to global economic changes, although it also implies rigid management that can limit short-term flexibility.

The party emphasizes a long-term vision, seeking to create a robust economy capable of withstanding external shocks. This approach contrasts with the rapid and often volatile economic cycles of Western economies.

China, under Xi Jinping, is preparing for an economic future marked by slower but higher-quality growth. This high-quality development strategy, while ambitious, will have to navigate the challenges of trade tensions and the need for internal rebalancing. The Communist Party’s ability to implement these policies will be critical to the country’s economic future. Meanwhile, Saudi Arabia is threatening to dump French debt.