Three months ago, it seemed that China’s economy was on track to recover relatively quickly after the world’s lockdown amid the pandemic. Consumers were spending again. Exports picked up. Even China’s beleaguered housing market gave indications that it was stabilizing.
That is no longer the case. Official data released on Monday showed that the annual growth rate of China’s economy fell to just over 3 percent in the spring, well below the government’s target.
Now the faltering economy seems to have contributed to a shift in senior Chinese officials’ willingness to engage in diplomatic talks with geopolitical rivals abroad and to be more open about economic policies at home.
The change of tone is particularly visible in China’s relations with the United States. Despite years of frayed ties and concerted efforts to become less dependent on each other, the two countries remain closely linked economically, accounting for two-fifths of global production.
In the past month, China has welcomed three senior US officials to Beijing, including John Kerry, President Biden’s climate envoy, who arrived on Sunday, and Treasury Secretary Janet L. Yellen, who spent 10 hours meeting with top Chinese officials. Up to three Chinese ministers are expected to travel to Washington in the coming weeks as the two countries have begun discussing everything from climate change to military issues.
The Chinese government is also engaged in a charm offensive targeting domestic and international business leaders.
At the China Development Forum in March and at the World Economic Forum in Tianjin last month, Li Qiang, the country’s premier and second-highest official, offered his personal assurance that China is open for business.
Mr Li met with China’s big tech companies last Wednesday to encourage them to hire more workers, signaling that a nearly three-year effort to gain greater political control over the industry could be replaced by an emphasis on economic growth. The powerful National Development and Reform Commission, China’s top economic planning agency, praised the companies for their investments the same day.
China’s decision-making is as hidden from us as it has ever been, but China’s economic weakness is plain to see for everyone, even China’s leaders, who can’t help but be a source of the recent moderation in foreign policy. policies and a willingness to engage Washington,” said Scott Kennedy, a China specialist at the Center for Strategic and International Studies in Washington.
Security issues remain paramount.
Still, analysts noted that any relaxation of the approach was limited to economic or business policies that do not compromise China’s national security, which has become a defining feature of Chinese policy in recent years. And there are few signs that the top leader, Xi Jinping, has endorsed a broad policy shift towards the United States, a move that would be necessary for any change to take root.
On Saturday, China announced it would hold joint naval and air force exercises with the Russian military in the Sea of Japan. And mr. Xi himself gave a speech on July 6 urging the military to “break new ground” in war preparation, warning that “China’s security situation faces growing instability and uncertainty,” the official news agency said. Xinhua.
China also took steps this month that could undermine its reputation as a reliable link in global supply chains. It said it would limit exports of rare materials needed to make semiconductors, in a move widely seen as retaliation for US restrictions on sales of advanced semiconductors to China.
“Domestic risks are primary, so he has no plans to take any more risks,” said Jessica Chen Weiss, a political scientist at Cornell University who specializes in Sino-American relations. “But if he is hit, he will hit back.”
Mao Ning, a spokeswoman for China’s foreign ministry, said at the ministry’s daily briefing on Monday that China’s economic vitality is undiminished and the development of relations with countries around the world has not changed. “We also hope that the US can work with China to put bilateral relations back on track for healthy and stable growth,” she said.
Some Chinese experts said they also do not believe China’s recent economic problems have limited the country’s approach to foreign involvement.
Da Wei, the director of the Center for International Security and Strategy at Tsinghua University in Beijing, said the United States is unlikely to change its policies to curb China’s technological progress. So China has little incentive to compromise, regardless of broader economic issues, he said.
“Speaking of the short term, like the recent thaw in US-China relations, I don’t think the economy is having much of an effect,” he said.
The Chinese economy needs the world.
But for China, the latest set of data suggests that economic pressures could continue to hamper geopolitical objectives. A major housing price index fell last month, undercutting consumers of wealth. Exports – a crucial driver of the Chinese economy – have been hit hard.
And the investment picture has become murky. US companies have complained that it has become more difficult to do business in China due to the government’s focus on national security. Authorities have raided businesses and detained personnel, particularly due diligence firms, which multinationals hire to monitor Chinese companies that are potential business partners or acquisitions.
The geopolitical environment is central to the decisions companies and investors make to put money in or rely on China as an export base.
There is a lot at stake economically in China. Tens of millions of Chinese jobs depend on world trade. Sales of manufactured goods to other countries more than triple the purchases of these goods from other countries.
Those critical trade relationships extend beyond the United States. China’s inclination towards Russia in the war in Ukraine has seriously damaged its relations with Europe. Chinese exports to the European Union fell by 14.2 percent in June compared to a year earlier.
The Baltic countries – Lithuania, Latvia and Estonia, all of which are particularly hostile to Russia – have left China’s diplomatic process for talks with Eastern Europe. Lithuania has flirted with closer ties to Taiwan, an island democracy over which Beijing claims sovereignty. China retaliated last year by severely curbing trade with all three Baltic countries, in particular halting almost all imports from Lithuania. That angered the rest of the European Union.
China has been trying to mend frayed ties in recent months through an even more extensive exchange of summit visits with countries such as France and Germany.
It may be too late. Germany issued a new national strategy last Thursday calling for reducing economic dependence on China and urging China to stop using its economic leverage in geopolitics. Germany also promised close relations with the United States and urged China to distance itself from Russia.
China has relied heavily in recent years on cutting its trade with other countries to persuade them to accept Beijing’s policies, and did so with Australia after that country proposed an inquiry into the origins of the Covid pandemic. But China has lifted import bans on a range of Australian goods in recent months.
“Because it is now the world’s largest trading nation, China has a special responsibility to make the system work,” said Alan Wolff, a former deputy director-general of the World Trade Organization.
Li you contributed research.
