China’s self-sufficiency ambitions, changes in local consumer tastes, and increase in local competencies will change how the Chinese government sees the utility and the replaceability of foreign companies in the market
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The Keqiang index, comprising the growth in railway freight, power consumption and bank loans, has been used widely as an alternative to China’s notoriously mistrusted GDP growth figure. More recently, many experts have argued that the index has not captured the transformation of China’s economy towards a more technology- and service-driven one, thereby gradually losing its meaningfulness. However, under the current circumstance of large-scale fiscal stimulus and the re-emerging issue of economic data reliability, the Keqiang index might see a revival as a powerful tool to decipher the real dynamics of the Chinese economy.
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China’s wind and solar power saw a spurious growth over the past decade. Recently, China released its 14th Five-year plan for Renewable Energy to determine the action path until 2025. The goals will make a major contribution to China’s targets of a carbon peak before 2030 and carbon neutrality by 2060. However, since late last year, the government relies heavily again on coal power to fire economic growth and ensure energy security. This renewed focus on coal can undermine China’s climate change endeavors going forward.
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China’s government has announced far-reaching plans to bolster the economy through fiscal policy measures. However, the government’s ability to employ an expansive fiscal policy is weakened significantly by reduced fiscal revenues caused by the economic downturn. Therefore, the government has now turned to state-owned financial institutions, asking them to contribute a higher percentage of their profits for fiscal use. This measure, however, can only work as a temporary solution, buying more time for the government to find ways to generate a more sustainable flow of fiscal revenues.
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China is facing a serious economic challenge right now. The government has to address enormous unemployment pressure on the working-age population, especially among young people. This summer alone, 10.7mn fresh college graduates will enter the job market. If the government fails to take effective measures to reverse the economic downturn, the youth unemployment ratio, already at historical heights, is expected to climb much further this year.
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With the war in Ukraine dragging on, a crucial question remains whether China intends and would in fact be able to offset Russia’s economic pain from European sanctions. Several high-ranking US and EU officials already warned of consequences should China choose to do so. So far, there is little evidence that Chinese companies are completely withdrawing from Russia, but exports to Russia have significantly dropped as Chinese companies are trying to avoid secondary sanctions.
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China doubles down on its Zero-Covid approach. President Xi Jinping says that "persistence will lead to victory" (坚持就是胜利). To cushion the economic impacts, the central government released new consumption incentives (incl. Infrastructure). Shanghai, in principle, allowed 1800 companies to produce in "closed loops". But interruptions of logistics and supply chains continue to undermine a swift return to undisrupted production. Especially delays in the logistics chain wreak havoc on global supply chains.
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One of the most crucial goals for China’s economic policymakers is to rebalance the country’s economic growth model, shifting towards more growth from domestic consumption rather than from inefficient fixed asset investments. However, economic data of recent years shows clearly, how challenging this shift of growth paradigm actually is. Now, China’s prevailing “zero-covid” policy and business-oriented support policies may make the process of adjustment even more difficult.
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The State Council of China approved the buildup of six new nuclear power plants in April 2022. The pace of approval has accelerated significantly since 2019, building on the growing maturity of China’s domestic nuclear power technologies. China’s government is now clearly committed to a swift expansion of its nuclear energy capacity and regards nuclear power as an important contribution to achieving energy security while simultaneously reaching its decarbonization goals.
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China’s top economic policymaker, the NDRC, just issued a fifteen-year development plan on the hydrogen and fuel cell sector. It expects real commercialization of fuel cell vehicles and energy storage by 2030 with rapid market growth in heavy-duty applications. Some foreign companies have moved early into this sector, establishing their China presence through Joint Ventures (JV) and strategic cooperation.
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