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Chinese Production Fosters Economy Cautions West of ‘Survival of the Fittest’ Signal

Trading partners are expressing concerns over a potential supply shock following China’s first-quarter data, which confirms President Xi Jinping’s industrial strategy. The data, released by the National Bureau of Statistics, revealed a 6.1% increase in industrial production and nearly a 10% rise in manufacturing investment. This contributed to a better-than-expected 5.3% GDP growth for the first quarter of 2024. China’s emphasis on a manufacturing boom to counter the property market slowdown is prompting worries among trading partners about the implications for global supply chains.

However, as property sales experience a double-digit decline, analysts are questioning the sustainability of policymakers’ strategy, which prioritizes boosting supply over stimulating domestic demand. This approach comes amid an economy grappling with low consumer and investor confidence, as well as deflationary pressures. “The drivers are pretty clear — more production and exports, along with increased investment in manufacturing,” stated Hui Shan, chief China economist at Goldman Sachs. With the property market facing a three-year downturn, once a significant contributor to economic activity, Xi aims to sustain growth by ramping up factory investment until domestic demand rebounds. The government is focusing on high-end production sectors such as electric vehicles, solar panels, and batteries, implementing subsidy programs to encourage equipment upgrades by companies and incentivizing consumer purchases of new cars and home appliances.

China‘s trading partners, however, are concerned that the focus on manufacturing output rather than domestic demand will lead to another “supply shock” for global markets, like to the one that occurred in 2015–16 when excess steel capacity spread around the globe as the nation’s economy slowed. Officials respond to these claims by claiming that “market forces” are to blame for China’s green businesses, which have profited from extensive government protection and subsidies. China’s second-ranking official Li Qiang lectured German Chancellor Olaf Scholz on fundamental economics on Tuesday after greeting him outside Beijing’s Great Hall of the People.
“Moderate production exceeding demand is conducive to full competition and survival of the fittest,”in response to EU worries that China intended to dump excess electric vehicle production, Li stated.
. “The high-quality production capacity that China’s new energy industry continues to provide will make an important contribution to global green development.”

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