One reason China is re-engaging: its complex economy

Three months ago, China’s economy appeared to be on a relatively quick recovery path after being shut down to the world during the pandemic. Consumers spent again. Exports rose. Even China’s stagnant housing market has given signs of stabilization.

Not so anymore. Official data released on Monday showed China’s economy’s annual growth rate fell slightly below the government’s target of 3 percent in the spring.

Now, the faltering economy appears to have helped senior Chinese officials shift their willingness to engage in diplomatic negotiations with geopolitical rivals abroad and show more transparency on economic policy at home.

The change in tone is particularly evident in China’s relations with the United States. Despite years of strained relations and concerted efforts to become less dependent on each other, the two countries are closely linked economically, accounting for two-fifths of global output.

In the past month, China has welcomed three senior US officials to Beijing, including President Biden’s climate envoy John Kerry and Treasury Secretary Janet L. Yellen held 10 hours of meetings with top Chinese officials. Up to three Chinese ministers are expected to visit Washington in the coming weeks as the two countries begin to discuss everything from climate change. Military issues.

The Chinese government has launched a charm offensive against domestic and international business leaders.

During the China Development Forum in March and continuing through the World Economic Forum in Tianjin last month, Li Qiang, the country’s premier and second-in-command, gave his personal assurances that China is open for business.

Mr. Li met with China’s big tech companies last Wednesday to encourage them to hire more workers, replacing a nearly three-year push to assert more political control over the sector with an emphasis on economic growth. The powerful National Development and Reform Commission, China’s top economic planning agency, praised the companies’ investments on the same day.

„China’s decision-making is hidden from our view as it has always been, but China’s economic weakness is known to everyone, even China’s leaders, which cannot help but be a source of recent moderation and discretion in foreign policy. Engage Washington,” said the Washington-based Strategic and International Review. said Scott Kennedy, the center’s China expert.

Safety concerns are paramount.

However, analysts noted that any softening of the approach was limited to economic or trade policies that did not involve China’s national security, which has become a defining feature of Chinese policy in recent years. And there are some signs that top leader Xi Jinping has endorsed a broader policy shift toward the United States, a necessary step for any change to take root.

China announced on Saturday that it will conduct joint naval and air force exercises with the Russian military in the Sea of ​​Japan. and Mr. Xi himself gave one Speech on July 6 The official Xinhua news agency is urging the military to „break new ground” in combat readiness, warning that „China’s security situation is facing increasing instability and uncertainty.”

China has taken steps this month that could undermine its reputation as a reliable link in global supply chains. It said it would restrict exports of rare materials needed to make semiconductors in response to U.S. restrictions on sales of advanced semiconductors to China.

„Domestic risks are paramount, so he doesn’t want to take too many risks,” said Jessica Chen Weiss, a political scientist at Cornell University who specializes in Sino-US relations. „But if he punches, he punches back.”

Chinese Foreign Ministry spokesman Mao Ning said at the ministry’s daily briefing on Monday that China’s economic power has not diminished and the development of its relations with countries around the world has not changed. „We believe that the US side can work together with China to push bilateral relations on the path of healthy and sustainable development,” he said.

Some China experts also said they do not believe China’s recent economic problems have limited the country’s approach to foreign engagement.

Da Wei, director of the Center for International Security and Strategy at Tsinghua University in Beijing, said the US is unlikely to change its policies aimed at curbing China’s technological advances. So China has little incentive to compromise regardless of broader economic issues, he said.

„Talking about the short term, like the recent thaw in relations between the U.S. and China, I don’t think the economy has much of an effect,” he said.

The world needs China’s economy.

But for China, recent data suggest that economic pressures may continue to permeate geopolitical ambitions. A key index of home prices fell last month, dampening consumer wealth. Exports – the main driver of China’s economy – are suffering.

And the investment picture has darkened. US companies have complained that doing business in China has become more difficult as the government focuses on national security. Authorities have raided companies and detained employees, particularly among companies that employ Chinese companies to check on multinationals, potential business partners or acquisitions.

The geopolitical environment is central to the decisions companies and investors make about whether to put money into China or rely on it as a base for exports.

China has a lot at stake economically. Tens of thousands of Chinese jobs depend on global trade. The sale of manufactured goods to other countries is three times more than the purchase of these goods from other countries.

Those important trade ties extend beyond the United States. China’s tilt towards Russia in the Ukraine conflict has severely affected its relations with Europe. China’s exports to the European Union fell 14.2 percent in June.

The Baltic states — Lithuania, Latvia and Estonia, which are particularly hostile to Russia — have opted out of China’s diplomatic process for talks with Eastern Europe. Lithuania flirts with close ties with Taiwan, an island democracy that Beijing claims sovereignty over. China retaliated last year by sharply cutting trade with the three Baltic states, notably cutting off almost all imports from Lithuania. This angered the rest of the EU.

China has tried to mend frayed ties in recent months by exchanging more extensive high-level visits with countries such as France and Germany.

It may be too late. Germany unveiled a new national strategy last Thursday that called for less economic dependence on China and advised China to stop using its economic influence in geopolitics. Germany also pledged closer ties with the United States and urged China to stay away from Russia.

China has relied heavily on interference in its trade with other countries in recent years to force them to accept Beijing’s policies. But China has actually dropped import restrictions on Australian goods in recent months.

„Because it is now the world’s largest trading country, China has a special responsibility to operate the system,” said Alan Wolff, former deputy director-general of the WTO.

Li Yu Research contributed.