China announced it will not abandon its industry and investment-focused economic model despite increasing trade pressure from Western countries. Beijing reiterated this firm stance ahead of upcoming trade talks with the EU and the US.
The Politburo of the Communist Party of China, at its recent meeting, confirmed that the current economic approach would be maintained and called for targeted support to the economy rather than broad stimulus packages. The Chinese Ministry of Commerce also, in a published assessment report, rejected Western industrial overcapacity accusations, claiming these allegations contain "logical errors" and "hidden agendas."
Red lines before negotiations
Xu Tianchen, chief economist at the Economist Intelligence Unit, stated that Beijing delivered two clear messages ahead of upcoming negotiations. The first message aims to facilitate talks by asking Western partners to understand the background of China's economic model. The second message draws "red lines" against practices it views as discriminatory towards Chinese companies and products.
China emphasizes that its economic model still reflects the needs of an economy in the process of catching up with developed countries, and that its investments in technology and scientific research provide benefits beyond national borders.
Europe's reaction and the numbers
Europe has begun taking steps to protect its industries. Last year, the daily trade deficit with China averaged one billion dollars, while German Chancellor Friedrich Merz criticized that keeping the yuan undervalued gives Chinese exports a competitive advantage.
International reports point to ongoing structural challenges. The OECD estimates that about 60% of Chinese companies' market share gains stem from state support, while a study by the Bank of Italy reveals that domestic factors such as weak consumption and overproduction contributed to 75% of China's export growth.
According to a report by the McKinsey Global Institute, China is adding new production capacity three times faster than Europe and the US combined, but its return on capital is about 40% lower.
Expert assessments
Eswar Prasad, a trade policy expert from Cornell University and former IMF official, said it is difficult to convince the world that Chinese exports are "a gift to consumers" in an environment where China's large economy relies on foreign markets to compensate for weak domestic consumption.
Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis Bank, noted that Beijing has become more confident in managing its trade disputes with the West without making significant concessions. Herrero stated that the previous experience with US tariffs provided China with a model for managing trade conflicts and buying time.
Despite maintaining its commitment to the current model, China has begun taking limited steps to address economic imbalances. These include strict oversight of local government spending and curbing price competition that suppresses corporate profits.
