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EU Commission President Ursula von der Leyen seems to have the best interests of the German automotive industry in mind. She wants to examine the extent to which China’s subsidy policy unfairly favors Chinese EV manufacturers due to alleged distortions of competition. After all, the native of Lower Saxony, whose father once served on the board of Volkswagen while he was the state’s prime minister, wants to protect Europeans from the impending influx of Chinese EVs, already poised to enter the market.
However, Volkswagen & Co. are far from thrilled, as our colleagues report. They fear retaliatory measures from the Chinese. While the China business hardly matters for French automakers and they are concerned about their domestic market, China remains by far the most important sales market for German manufacturers. The question of how to deal with China is likely to continue dividing Europeans.
The Taiwanese opposition is also divided. Just under 150 days before the parliamentary and presidential elections, the four opposing candidates seem to be struggling to assert themselves against the ruling DPP (Democratic Progressive Party). With their candidacies, the four are more likely to undermine themselves than to effectively capture votes from the DPP, as analyzed by Taiwan correspondent David Demes.
They can’t score points on the central question of how to deal with the threats from the People’s Republic. The DPP, with its highly China-skeptical stance, enjoys broad support. Friends of the People’s Republic are currently having a hard time in many places, not just in Taiwan.
The European Union is set to significantly intervene in the competition between European and Chinese automakers. European Commission President Ursula von der Leyen announced an anti-subsidy investigation into EVs from China during her State of the European Union (SOTEU) address. This reveals a plan the Commission has been considering for some time.
Von der Leyen also preempted what the investigation might uncover, stating, “World markets would be ‘flooded with cheap Chinese EVs’. Europe is open to competition, ‘not to an uneven race to the bottom’.” She pointed out that China provides huge subsidies to its industry.
The Commission President’s statements make it clear that there is a strong political will within the Commission to impose tariffs on battery EVs imported from China at the conclusion of the investigation.
The German automotive industry is not enthusiastic about the Commission President’s attempt to shield them from competition. Instead, they have publicly expressed their willingness to compete with Chinese competitors, even though the latter can offer very low prices. The Association of the Automotive Industry (VDA) stated that “an anti-subsidy investigation alone does not contribute to solving the existing challenges regarding the competitiveness of the European location.” They advocate for free and rule-based trade.
However, behind this stance lies the fear of retaliatory measures from the Chinese government. Ferdinand Dudenhoeffer from the Center Automotive Research says, “If measures are taken against Chinese imports in Europe, we can expect with absolute certainty that China will react.” A rift with China would severely harm the German automotive industry, a fact recognized by executives in the headquarters in Wolfsburg, Stuttgart and Munich.
China reacted to US tariffs with its own trade blockades shortly after. Moreover, the vulnerability of the German industry is asymmetrical:
So, the plan for tariffs is not the result of German lobbying efforts. Instead, France is considered the initiator. The dependencies here are different: French manufacturers like Stellantis (formerly Peugeot and Citroën) and Renault have only a small market share in China. They have less to lose and more to gain in the trade war with China.
Criticism of von der Leyen’s actions is voiced discreetly among German manufacturers: “The Commission President is acting on behalf of France.” Her actions exacerbate the already complex trade relations with China. There is also resentment towards the French industry. “Ultimately, France is not just targeting competition from China; Paris also wants to weaken German premium brands.”
The announcement by von der Leyen alone is already a significant strain on trade talks. EU Trade Commissioner Valdis Dombrovskis will feel this during his upcoming trip to China.
Regardless of the trade policy weakening the European position, it is also true that Chinese EVs are very cheap. This is due to a well-thought-out, cost-oriented development, stable supply chains and, above all, high production numbers.
However, the low price of Chinese EVs is also due to location advantages for which the state is responsible. This includes low energy costs and state funding. Every province wants to keep its auto champion, offering discounted land, water and wastewater prices.
There is general concern in the industry that von der Leyen is triggering an epic trade conflict between the EU and China. The Chinese Chamber of Commerce in Brussels reacted promptly, illustrating the legitimacy of these concerns. They expressed “great concern and resistance”. The advantage of Chinese electric cars is not due to state subsidies but to industrial superiority. This should be objectively examined by the EU instead of resorting to unilateral economic and trade measures that could hinder or increase the development and operating costs of Chinese BEVs in the European market.
Wang Lutong, responsible for European affairs in the Chinese Ministry of Foreign Affairs, pointed to sales promotion for BEVs in many member states and expressed indignation on X (formerly Twitter). “In what position is the EU Commission to launch anti-subsidy investigation into electric vehicles from China? This is nothing but sheer protectionism.”
Support for the Commission comes from Paris and Berlin, however. French Minister of the Economy and Finance Bruno Le Maire said it was a “very good decision”. If Chinese subsidies violated international rules, “we must punish them”. German Minister for Economic Affairs Robert Habeck expressed a similar view: If there were suspicions of unfair competition, an investigation is the right step.
Bernd Lange (SPD), Chair of the Trade Committee in the European Parliament, also welcomes an examination of whether China subsidizes its auto industry: “The Commission’s decision is correct because there are grounds for suspicion.” Everyone must play by the same, fair rules. Competition for products should be based on quality, not unfair prices. “Otherwise, companies like VW, which guarantee good jobs and strong workers’ rights, have a clear competitive disadvantage.”
However, Lange also warns against prejudging the results: “Every investigation should always be based on facts and not be politically motivated.” Measures should guarantee fair competition and should not be instruments of protectionism.
Lange points out that China has a 60 percent market share in the production of batteries for BEVs. Also, 70 percent of lithium processing takes place in China. This is a reminder not to rashly start a conflict. Lange urges the EU to become more active in industrial policy: “This includes trade agreements with Southeast Asia and more recycling to strengthen our battery production. Innovative thinking instead of protectionism.” Markus Grabitz/TillHoppe/ Felix Lee /Finn Mayer-Kuckuk/AmelieRichter
The announcement of an EU investigation into potential anti-dumping tariffs on Chinese EVs was by far the biggest China-related bombshell dropped by EU Commission President Ursula von der Leyen during her State of the European Union speech. China was also mentioned directly or indirectly in other areas. Here’s an overview:
In mid-July, in scorching midday heat, more than 20,000 people gathered in front of the Presidential Palace in Taipei to demonstrate for fairer housing policies. Hou Yu-ih (KMT), Ko Wen-je (TPP, Taiwan People’s Party) and even Foxconn founder Terry Gou, who had not yet declared his candidacy at the time, all opposition candidates used the opportunity to promote themselves and their cause at the officially non-partisan rally.
Only the incumbent Vice President and presidential candidate of the Democratic Progressive Party (DPP), William Lai, stayed away from the event. As party leader, he was in demand at the DPP’s annual congress at the Taipei Grand Hotel. Ordinary citizens in blistering heat versus government politicians in air-conditioned luxury hotels – an effective opposition staging.
The alleged “corruption” and the DPP’s distance from the people were two of the event’s defining themes. As the ruling party, it is naturally the main target of all attacks by the other three candidates, often appearing as a driven force. Starting with the #MeToo movement that suddenly hit Taiwan in May, putting the DPP in an awkward position, to the issues of housing justice and traffic safety: So far, the party has been unable to set its own thematic accents in the election campaign and has only been able to passively respond to external attacks.
According to political scientist Chen Fang-yu of Soochow University in Taipei, the party has been struggling with this problem for some time. “The party leadership lacks a clear vision and strategy. It is not willing or able to present a master plan for governing the country,” says Chen. Since the 2018 election campaign, the party has distanced itself more and more from the citizens with its election strategies. Nevertheless, Vice President Lai continues to lead the four candidates by more than 10 percentage points in current polls. Hou Yu-ih and Ko Wen-je are competing for second place, while Terry Gou’s entry into the campaign has had no significant impact on the campaign’s dynamics so far.
After months of hesitation, tech billionaire Terry Gou finally announced his decision at the end of August to run as an independent candidate for the presidency. To do so, he must convince more than 289,000 people to sign for him by November 2nd. It is conceivable that his candidacy could attract votes from the blue camp, i.e., KMT-affiliated voters. However, political scientist Chen does not believe that Gou will have a decisive influence on the campaign. “Gou has not managed to expand his support base. As long as he does not form a party, his influence on the blue camp is likely to remain limited,” Chen told Table.Media.
Chen believes that Gou’s candidacy could weaken Ko Wen-je rather than Hou Yu-ih. The former surgeon Ko was elected mayor of Taipei with the support of the DPP in 2014 but gradually distanced himself from the party after his election, falling out of favor with the green camp due to his China-friendly stance. For example, he repeatedly referred to both sides of the Taiwan Strait as “one family”. In 2018, Ko founded the “Taiwan People’s Party” (TPP), which has remained primarily a “Ko Wen-je party” to this day and lacks sufficient talent to underpin the party’s election successes with top personnel.
The only TPP member in government responsibility is Ann Kao. The 39-year-old is a former Foxconn employee and was long considered a protege of Terry Gou. Corruption allegations were already raised against her shortly before her election as mayor of the technology hub of Hsinchu last year and are currently being investigated by the public prosecutor’s office. She is also accused of taking advantage of her office. The scandals surrounding their young hope will likely continue to hinder the TPP’s election campaign. The hope of many supporters that Kao could persuade Ko Wen-je and Terry Gou to cooperate has thus burst for the time being. Both Gou and Ko have ruled out relinquishing the highest office of state for a possible coalition with their political opponents.
“Ko’s supporters are mainly people who do not belong to a specific party and represent conservative values. Some of them may now switch from Ko to Gou,” explains political scientist Chen. If Gou’s poll numbers continue to decline, it is expected that the KMT-affiliated part of his supporters will eventually rally behind Hou Yu-ih to prevent a DPP victory.
Meanwhile, the mayor of New Taipei City, Hou Yu-ih, is also controversial within the KMT. Unlike the majority of KMT elites, Hou does not come from a family of Chinese immigrants or a political family. Party chairman Eric Chu had personally declared him the candidate after an opaque process, alienating parts of the party base. As a police officer, Hou was involved in nationally known criminal cases in the 1980s and 1990s and quickly gained fame. In 1989, he was involved in the attempted arrest of opposition publicist Nylon Deng, who eventually set himself on fire before the police could reach him. Hou has defended his role in the arrest operation multiple times, claiming to have only followed orders.
“We can observe that Hou Yu-ih does not distance himself from Ko Wen-je and that elected representatives on both sides rarely criticize each other,” says Chen. Cooperation between the KMT and TPP at the presidential candidate level is rather unlikely, but it is conceivable in parliament, the political scientist continues. It is unlikely that any party will gain an absolute majority in the next parliament. Cooperation between various parties is therefore likely to be unavoidable.
Whether Ko, Hou or Gou, all opposition candidates argue that only they can improve relations with China and “bring Taiwan back from the brink of war” (Terry Gou). They blame the Tsai Ing-wen government for the tense security situation in the Taiwan Strait.
Nevertheless, relations with China have not yet become the dominant campaign issue. Political scientist Chen believes that the opposition should avoid talking too much about China. The relationship between China and Taiwan is a strength of the Tsai Ing-wen government. “Currently, the ‘issue ownership’ is with the DPP on this issue,” says Chen. Public opinion on the issue has not changed significantly since 2020. Back then, a candidate who was too friendly to China gave Tsai Ing-wen an overwhelming victory.
Today’s discussion about China’s position in the global economy is dominated by the politically charged question of whether and when the country will succeed in overtaking the USA as the world’s largest economy.
For those who think in terms of purchasing power parity (PPP), the answer has long been clear. China is the world’s largest economy when you value its goods and especially labor-intensive services, which are not exposed to global price competition, at international prices.
However, if you calculate using current exchange rates, the USA remains ahead, and that will likely be the case for some time because neither China’s working-age population nor its productivity is growing as they did in the past. Additionally, capital productivity, which in China is mainly determined by investments in infrastructure and housing construction, is declining. These investments no longer pay off as they once did.
The third factor of growth, total factor productivity, has weakened, according to IMF studies, because state-owned enterprises, which have become more dominant during the COVID-19 crisis, are preventing the private sector from thriving as it once did. In 2023, the PPP exchange rate was only 60 percent of the current Yuan/Dollar exchange rate, indicating a significant undervaluation. This explains the discrepancy in answers regarding the world’s largest economy.
For Chinese citizens, these comparisons with the USA are irrelevant. They are concerned with whether they will become wealthy before growing old and whether the country’s per capita income growth will encounter a glass ceiling, blocking its permanent rise to high-income status.
Ten years ago, this question dominated many conferences in China regarding the “middle-income trap”. According to World Bank categories, China, with its per capita income, is a “higher middle-income” country and is just under 1000 US dollars away from entering the high-income category, which starts at slightly over 13,000 US dollars.
However, these categorizations are more conducive to political competition than substantive debate about their meaningfulness. They are “constructed” statistically, adjusted, and allow countries to oscillate between categories without changing anything for the citizen. It is more helpful to ask what needs to be done for China’s economic structures to align with those of high-income countries in the future, without a shock setting the country permanently backward.
All five factors are tasks for decades, not years. They are much more critical for the future well-being of Chinese citizens than the two questions situated on the world political stage: whether China’s economy is or will become larger than America’s and in which income category the country belongs.
The higher a country is placed in these categories, the more likely its potential growth will naturally decline, and internal distribution conflicts will intensify. China is not exempt from this challenge. The country’s policymakers would be wise not to use these conflicts as a pretext to turn them into a distribution struggle between nations, as the two questions suggest.
The so-called middle-income trap is a statistical artifact and, thus, a specter. Engaging with it is counterproductive.
Rolf J. Langhammer is a trade expert at the Kiel Institute for the World Economy. He has served as a consultant for a number of international organizations (EU, World Bank, OECD, UNIDO, ADB) as well as for the Federal Ministries for Economic Affairs (BMWI) and Economic Cooperation and Development (BMZ).
During the ongoing floods in China, over 70 crocodiles have escaped from a crocodile farm. The animals reportedly broke free in the southern Chinese city of Maoming in Guangdong province after heavy rains hit the region in recent days. Crocodiles are bred in China for their skin and meat. The escaped reptiles, including six young ones, are now being tracked using sonar equipment. Residents are advised to refrain from going on walks until further notice.
EU Commission President Ursula von der Leyen seems to have the best interests of the German automotive industry in mind. She wants to examine the extent to which China’s subsidy policy unfairly favors Chinese EV manufacturers due to alleged distortions of competition. After all, the native of Lower Saxony, whose father once served on the board of Volkswagen while he was the state’s prime minister, wants to protect Europeans from the impending influx of Chinese EVs, already poised to enter the market.
However, Volkswagen & Co. are far from thrilled, as our colleagues report. They fear retaliatory measures from the Chinese. While the China business hardly matters for French automakers and they are concerned about their domestic market, China remains by far the most important sales market for German manufacturers. The question of how to deal with China is likely to continue dividing Europeans.
The Taiwanese opposition is also divided. Just under 150 days before the parliamentary and presidential elections, the four opposing candidates seem to be struggling to assert themselves against the ruling DPP (Democratic Progressive Party). With their candidacies, the four are more likely to undermine themselves than to effectively capture votes from the DPP, as analyzed by Taiwan correspondent David Demes.
They can’t score points on the central question of how to deal with the threats from the People’s Republic. The DPP, with its highly China-skeptical stance, enjoys broad support. Friends of the People’s Republic are currently having a hard time in many places, not just in Taiwan.
The European Union is set to significantly intervene in the competition between European and Chinese automakers. European Commission President Ursula von der Leyen announced an anti-subsidy investigation into EVs from China during her State of the European Union (SOTEU) address. This reveals a plan the Commission has been considering for some time.
Von der Leyen also preempted what the investigation might uncover, stating, “World markets would be ‘flooded with cheap Chinese EVs’. Europe is open to competition, ‘not to an uneven race to the bottom’.” She pointed out that China provides huge subsidies to its industry.
The Commission President’s statements make it clear that there is a strong political will within the Commission to impose tariffs on battery EVs imported from China at the conclusion of the investigation.
The German automotive industry is not enthusiastic about the Commission President’s attempt to shield them from competition. Instead, they have publicly expressed their willingness to compete with Chinese competitors, even though the latter can offer very low prices. The Association of the Automotive Industry (VDA) stated that “an anti-subsidy investigation alone does not contribute to solving the existing challenges regarding the competitiveness of the European location.” They advocate for free and rule-based trade.
However, behind this stance lies the fear of retaliatory measures from the Chinese government. Ferdinand Dudenhoeffer from the Center Automotive Research says, “If measures are taken against Chinese imports in Europe, we can expect with absolute certainty that China will react.” A rift with China would severely harm the German automotive industry, a fact recognized by executives in the headquarters in Wolfsburg, Stuttgart and Munich.
China reacted to US tariffs with its own trade blockades shortly after. Moreover, the vulnerability of the German industry is asymmetrical:
So, the plan for tariffs is not the result of German lobbying efforts. Instead, France is considered the initiator. The dependencies here are different: French manufacturers like Stellantis (formerly Peugeot and Citroën) and Renault have only a small market share in China. They have less to lose and more to gain in the trade war with China.
Criticism of von der Leyen’s actions is voiced discreetly among German manufacturers: “The Commission President is acting on behalf of France.” Her actions exacerbate the already complex trade relations with China. There is also resentment towards the French industry. “Ultimately, France is not just targeting competition from China; Paris also wants to weaken German premium brands.”
The announcement by von der Leyen alone is already a significant strain on trade talks. EU Trade Commissioner Valdis Dombrovskis will feel this during his upcoming trip to China.
Regardless of the trade policy weakening the European position, it is also true that Chinese EVs are very cheap. This is due to a well-thought-out, cost-oriented development, stable supply chains and, above all, high production numbers.
However, the low price of Chinese EVs is also due to location advantages for which the state is responsible. This includes low energy costs and state funding. Every province wants to keep its auto champion, offering discounted land, water and wastewater prices.
There is general concern in the industry that von der Leyen is triggering an epic trade conflict between the EU and China. The Chinese Chamber of Commerce in Brussels reacted promptly, illustrating the legitimacy of these concerns. They expressed “great concern and resistance”. The advantage of Chinese electric cars is not due to state subsidies but to industrial superiority. This should be objectively examined by the EU instead of resorting to unilateral economic and trade measures that could hinder or increase the development and operating costs of Chinese BEVs in the European market.
Wang Lutong, responsible for European affairs in the Chinese Ministry of Foreign Affairs, pointed to sales promotion for BEVs in many member states and expressed indignation on X (formerly Twitter). “In what position is the EU Commission to launch anti-subsidy investigation into electric vehicles from China? This is nothing but sheer protectionism.”
Support for the Commission comes from Paris and Berlin, however. French Minister of the Economy and Finance Bruno Le Maire said it was a “very good decision”. If Chinese subsidies violated international rules, “we must punish them”. German Minister for Economic Affairs Robert Habeck expressed a similar view: If there were suspicions of unfair competition, an investigation is the right step.
Bernd Lange (SPD), Chair of the Trade Committee in the European Parliament, also welcomes an examination of whether China subsidizes its auto industry: “The Commission’s decision is correct because there are grounds for suspicion.” Everyone must play by the same, fair rules. Competition for products should be based on quality, not unfair prices. “Otherwise, companies like VW, which guarantee good jobs and strong workers’ rights, have a clear competitive disadvantage.”
However, Lange also warns against prejudging the results: “Every investigation should always be based on facts and not be politically motivated.” Measures should guarantee fair competition and should not be instruments of protectionism.
Lange points out that China has a 60 percent market share in the production of batteries for BEVs. Also, 70 percent of lithium processing takes place in China. This is a reminder not to rashly start a conflict. Lange urges the EU to become more active in industrial policy: “This includes trade agreements with Southeast Asia and more recycling to strengthen our battery production. Innovative thinking instead of protectionism.” Markus Grabitz/TillHoppe/ Felix Lee /Finn Mayer-Kuckuk/AmelieRichter
The announcement of an EU investigation into potential anti-dumping tariffs on Chinese EVs was by far the biggest China-related bombshell dropped by EU Commission President Ursula von der Leyen during her State of the European Union speech. China was also mentioned directly or indirectly in other areas. Here’s an overview:
In mid-July, in scorching midday heat, more than 20,000 people gathered in front of the Presidential Palace in Taipei to demonstrate for fairer housing policies. Hou Yu-ih (KMT), Ko Wen-je (TPP, Taiwan People’s Party) and even Foxconn founder Terry Gou, who had not yet declared his candidacy at the time, all opposition candidates used the opportunity to promote themselves and their cause at the officially non-partisan rally.
Only the incumbent Vice President and presidential candidate of the Democratic Progressive Party (DPP), William Lai, stayed away from the event. As party leader, he was in demand at the DPP’s annual congress at the Taipei Grand Hotel. Ordinary citizens in blistering heat versus government politicians in air-conditioned luxury hotels – an effective opposition staging.
The alleged “corruption” and the DPP’s distance from the people were two of the event’s defining themes. As the ruling party, it is naturally the main target of all attacks by the other three candidates, often appearing as a driven force. Starting with the #MeToo movement that suddenly hit Taiwan in May, putting the DPP in an awkward position, to the issues of housing justice and traffic safety: So far, the party has been unable to set its own thematic accents in the election campaign and has only been able to passively respond to external attacks.
According to political scientist Chen Fang-yu of Soochow University in Taipei, the party has been struggling with this problem for some time. “The party leadership lacks a clear vision and strategy. It is not willing or able to present a master plan for governing the country,” says Chen. Since the 2018 election campaign, the party has distanced itself more and more from the citizens with its election strategies. Nevertheless, Vice President Lai continues to lead the four candidates by more than 10 percentage points in current polls. Hou Yu-ih and Ko Wen-je are competing for second place, while Terry Gou’s entry into the campaign has had no significant impact on the campaign’s dynamics so far.
After months of hesitation, tech billionaire Terry Gou finally announced his decision at the end of August to run as an independent candidate for the presidency. To do so, he must convince more than 289,000 people to sign for him by November 2nd. It is conceivable that his candidacy could attract votes from the blue camp, i.e., KMT-affiliated voters. However, political scientist Chen does not believe that Gou will have a decisive influence on the campaign. “Gou has not managed to expand his support base. As long as he does not form a party, his influence on the blue camp is likely to remain limited,” Chen told Table.Media.
Chen believes that Gou’s candidacy could weaken Ko Wen-je rather than Hou Yu-ih. The former surgeon Ko was elected mayor of Taipei with the support of the DPP in 2014 but gradually distanced himself from the party after his election, falling out of favor with the green camp due to his China-friendly stance. For example, he repeatedly referred to both sides of the Taiwan Strait as “one family”. In 2018, Ko founded the “Taiwan People’s Party” (TPP), which has remained primarily a “Ko Wen-je party” to this day and lacks sufficient talent to underpin the party’s election successes with top personnel.
The only TPP member in government responsibility is Ann Kao. The 39-year-old is a former Foxconn employee and was long considered a protege of Terry Gou. Corruption allegations were already raised against her shortly before her election as mayor of the technology hub of Hsinchu last year and are currently being investigated by the public prosecutor’s office. She is also accused of taking advantage of her office. The scandals surrounding their young hope will likely continue to hinder the TPP’s election campaign. The hope of many supporters that Kao could persuade Ko Wen-je and Terry Gou to cooperate has thus burst for the time being. Both Gou and Ko have ruled out relinquishing the highest office of state for a possible coalition with their political opponents.
“Ko’s supporters are mainly people who do not belong to a specific party and represent conservative values. Some of them may now switch from Ko to Gou,” explains political scientist Chen. If Gou’s poll numbers continue to decline, it is expected that the KMT-affiliated part of his supporters will eventually rally behind Hou Yu-ih to prevent a DPP victory.
Meanwhile, the mayor of New Taipei City, Hou Yu-ih, is also controversial within the KMT. Unlike the majority of KMT elites, Hou does not come from a family of Chinese immigrants or a political family. Party chairman Eric Chu had personally declared him the candidate after an opaque process, alienating parts of the party base. As a police officer, Hou was involved in nationally known criminal cases in the 1980s and 1990s and quickly gained fame. In 1989, he was involved in the attempted arrest of opposition publicist Nylon Deng, who eventually set himself on fire before the police could reach him. Hou has defended his role in the arrest operation multiple times, claiming to have only followed orders.
“We can observe that Hou Yu-ih does not distance himself from Ko Wen-je and that elected representatives on both sides rarely criticize each other,” says Chen. Cooperation between the KMT and TPP at the presidential candidate level is rather unlikely, but it is conceivable in parliament, the political scientist continues. It is unlikely that any party will gain an absolute majority in the next parliament. Cooperation between various parties is therefore likely to be unavoidable.
Whether Ko, Hou or Gou, all opposition candidates argue that only they can improve relations with China and “bring Taiwan back from the brink of war” (Terry Gou). They blame the Tsai Ing-wen government for the tense security situation in the Taiwan Strait.
Nevertheless, relations with China have not yet become the dominant campaign issue. Political scientist Chen believes that the opposition should avoid talking too much about China. The relationship between China and Taiwan is a strength of the Tsai Ing-wen government. “Currently, the ‘issue ownership’ is with the DPP on this issue,” says Chen. Public opinion on the issue has not changed significantly since 2020. Back then, a candidate who was too friendly to China gave Tsai Ing-wen an overwhelming victory.
Today’s discussion about China’s position in the global economy is dominated by the politically charged question of whether and when the country will succeed in overtaking the USA as the world’s largest economy.
For those who think in terms of purchasing power parity (PPP), the answer has long been clear. China is the world’s largest economy when you value its goods and especially labor-intensive services, which are not exposed to global price competition, at international prices.
However, if you calculate using current exchange rates, the USA remains ahead, and that will likely be the case for some time because neither China’s working-age population nor its productivity is growing as they did in the past. Additionally, capital productivity, which in China is mainly determined by investments in infrastructure and housing construction, is declining. These investments no longer pay off as they once did.
The third factor of growth, total factor productivity, has weakened, according to IMF studies, because state-owned enterprises, which have become more dominant during the COVID-19 crisis, are preventing the private sector from thriving as it once did. In 2023, the PPP exchange rate was only 60 percent of the current Yuan/Dollar exchange rate, indicating a significant undervaluation. This explains the discrepancy in answers regarding the world’s largest economy.
For Chinese citizens, these comparisons with the USA are irrelevant. They are concerned with whether they will become wealthy before growing old and whether the country’s per capita income growth will encounter a glass ceiling, blocking its permanent rise to high-income status.
Ten years ago, this question dominated many conferences in China regarding the “middle-income trap”. According to World Bank categories, China, with its per capita income, is a “higher middle-income” country and is just under 1000 US dollars away from entering the high-income category, which starts at slightly over 13,000 US dollars.
However, these categorizations are more conducive to political competition than substantive debate about their meaningfulness. They are “constructed” statistically, adjusted, and allow countries to oscillate between categories without changing anything for the citizen. It is more helpful to ask what needs to be done for China’s economic structures to align with those of high-income countries in the future, without a shock setting the country permanently backward.
All five factors are tasks for decades, not years. They are much more critical for the future well-being of Chinese citizens than the two questions situated on the world political stage: whether China’s economy is or will become larger than America’s and in which income category the country belongs.
The higher a country is placed in these categories, the more likely its potential growth will naturally decline, and internal distribution conflicts will intensify. China is not exempt from this challenge. The country’s policymakers would be wise not to use these conflicts as a pretext to turn them into a distribution struggle between nations, as the two questions suggest.
The so-called middle-income trap is a statistical artifact and, thus, a specter. Engaging with it is counterproductive.
Rolf J. Langhammer is a trade expert at the Kiel Institute for the World Economy. He has served as a consultant for a number of international organizations (EU, World Bank, OECD, UNIDO, ADB) as well as for the Federal Ministries for Economic Affairs (BMWI) and Economic Cooperation and Development (BMZ).
During the ongoing floods in China, over 70 crocodiles have escaped from a crocodile farm. The animals reportedly broke free in the southern Chinese city of Maoming in Guangdong province after heavy rains hit the region in recent days. Crocodiles are bred in China for their skin and meat. The escaped reptiles, including six young ones, are now being tracked using sonar equipment. Residents are advised to refrain from going on walks until further notice.