Chinese President Xi Jinping may need to revise his five-year plan

What could be seen as dumping of cheap goods into export markets is drawing a growing backlash from China's trading partners.

This was the key topic discussed when the US Treasury Secretary Janet Yellen visited China last week and was followed by a US trade delegation, which met with its Chinese counterparts in Washington this week. Treasury said it continued to express concerns about China's non-trade practices and industrial overcapacity. Yellen said nothing was off the table in the response to Chinese overcapacity.

German Chancellor Olaf Scholzvisiting China this week, also called on China to reduce its industrial overcapacity and open its domestic markets.

The leader of the European country with the strongest and deepest economic relations with China has warned that if the trade imbalance in the relationship (a European Union deficit of 291 billion, or $480 billion, the year last) was not resolved, China would inevitably face tariffs in Europe. .

The European Commission is already investigating Chinese subsidies and national protections for electric vehicles, medical devices, solar panels and wind turbines and threatening to impose tariffs on these products. The Commission says it will use all commercial tools at its disposal to ensure fair competition.

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It's not just Europeans or Americans who oppose the flow of Chinese exports. The United Kingdom, India, Japan, Brazil, Argentina and others have all complained about the deluge of cheap Chinese goods and launched investigations into imports from China.

Dumping subsidized goods or products that, due to excess Chinese factory capacity, are sold at subeconomic or unprofitable prices on the global market is an unsustainable strategy.

Not only will this intensify the backlash already building, it will be unsustainable for Chinese factory owners, their financiers, and ultimately the Chinese economy.

The weight of this unproductive overcapacity may already be felt.

Industrial production was 7 percent higher in the first two months of the year compared to the same months last year. However, in March the increase was only 4.5 percent. The growth rate of exports also slowed in March.

Xi Jinping responds to Western criticism telling Germany's Olaf Scholz that both sides should be wary of rising protectionism and objectively examine the issue of production capacity.

China's exports of electric vehicles, lithium batteries, photovoltaic products, etc. have not only enriched global supply and alleviated global inflationary pressure, but also made a great contribution to the global response to climate change and green and low-carbon transformation, he said.

This is all true. But the Americans and Europeans are adamant: they will not allow China to maintain its dominance of green technologies, essential to the fight against climate change, by using unfair trade practices, barriers to entry into domestic markets Chinese and subsidy levels for priority sectors within that country. Beijing's five-year plans.

Having seen domestic industries wiped out by China's targeted export strategies in the past (Europe was once the leader in green technology development and deployment, and it was Tesla in the US that threw the bases of the electric vehicle industry), they seem determined to do so. whatever is necessary to prevent this from happening again.

If the safety valve provided by increasing export volumes begins to close, Beijing will ultimately have no choice but to do more to boost domestic consumption, which is once again faltering. Retail sales, for example, rose 5.5 percent in the first two months of the year, but ended the quarter a month later up just 4.7 percent. March sales were 3.1 percent higher than March last year.

At the heart of the challenges facing Chinese policymakers is the depressed real estate sector, once one of the main drivers of the economy. It continues to contract, with investment down another 9.5 percent in the quarter (following a 9 percent drop in January and February), new construction down 27.8 percent and square footage sold by 19.4 percent.

It's no wonder that Chinese consumers are risk averse, as much of urban household wealth is tied up in real estate.

It is unlikely that Beijing's planned incentives to encourage the trading of appliances and automobiles for new products intended to boost consumer activity could change consumer confidence enough to produce a more balanced economy.

More substantial stimulus measures are needed to finally resolve the problems of the real estate sector, which seems hopeful that time will come to its rescue.

China could meet its GDP growth target this year. One way or another, it always does. But that growth is now so lopsided and the resistance from China's trading partners so strong that the strategy behind it is likely doomed to failure. Xi may need to revise his five-year plan.

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