Xi Jinping discreetly protects China from sanctions

China is double reduce manufacturing exports to offset challenges posed by a sluggish real estate market and meet the party's 5% GDP growth target for 2024. Despite the threat of tariffs, Xi Jinping is convinced that industrial strength remains the main China's geopolitical advantage against the West. By placing Beijing at the heart of all (or most) global supply chains, the Chinese leader believes it could provide much better insurance against sanctions.

While the West suffers from inflation, China faces falling prices of consumer goods at home due to weak domestic demand. Xi refuses to implement stimulus measures to boost domestic consumption while committing more to supporting the expansion of advanced industrial sectors such as batteries, semiconductors, solar panels, electric vehicles or drones . Without boosting domestic demand, this means Chinese industries will need global markets to absorb their growing supply of products.

In terms of GDP growth, the bet could be successful, at least for the current year. According to official data, in the first three months of 2024, China's exports grew by 7.1% and China's economy grew by 1.6% from the previous quarter, with a projected annual growth of around 6.6%. This GDP growth projection may be too ambitious, given that March data showed a slowdown in exports compared to the same month of 2023. The question arises of how long world markets will be able to absorb Chinese exports, when there are already thousands of Chinese exports. Chinese electric vehicles are currently piling up in European ports. But Beijing appears confident that global demand for Chinese goods will remain robust for the rest of the year.

In recent years, Xi has pursued an economic policy aimed at making China more self-reliant. In the past, this was interpreted as a shift towards a model more dependent on domestic demand than exports. The logic behind this is that if China becomes more dependent on domestic consumption, Beijing will limit its exposure to Western pressures. The Chinese domestic market, however, is not mature enough to become the country's growth engine, especially after the impact of the pandemic and the need to stop relying too much on the real estate sector.

Xi knows that industrial capacity is China's main competitive advantage over the West. And to maintain China's technological and industrial development, it still needs global markets. Nonetheless, China's supremacy in manufacturing supply chains can still lead to a sanctions-proof economy.

Competitors are unhappy as cheap, advanced Chinese manufacturing floods global markets, and Chinese products could face increasing tariffs from the US, EU and even China. 'European Union. friendly nations like Brazil. However, the impact of protectionist measures will take time to be felt, and the specific content of new regulations may not match the words that make headlines.

Despite geopolitical risks, advanced Chinese manufacturers are far more competitive than existing alternatives. To achieve the ambitious goals of the green transition, there is simply no realistic substitute for Chinese suppliers. Relocating production to Europe or America is a much more expensive option and, especially in Europe, the sector will struggle to stay afloat. For example, despite its commitment to helping a struggling European solar sector already suffering layoffs, the EU has retreated on the imposition of customs duties on Chinese solar panels.

Xi's renewed pro-industrial strategy will make China's economic growth and technological development much more dependent on foreign markets, but at the same time it will make the world much more dependent on China. In this scenario, it is much more difficult for the West to implement a sanctions regime similar to that imposed on Russia after its invasion of Ukraine. Despite the talk of decoupling, the reality is that, for now, any brutal economic war against China will always lead to mutually assured economic destruction.