China’s aggressive efforts to boost its manufacturing sector, particularly in high-tech areas like semiconductors and electric vehicles (EVs), are causing concern over a potential influx of cheap exports driven by overcapacity. According to a Reuters report citing data from China’s central bank, loans to the manufacturing sector surged by 38.2% by the end of September, raising worries among trading partners, especially in Europe.
Jens Eskelund, President of the European Chamber of Commerce in Beijing, expressed concerns about massive overcapacity being pushed globally, particularly in batteries, solar, and chemicals, despite lower consumption within China.
China’s leadership has strategically directed financing toward high-tech manufacturing, focusing on advanced sectors such as EVs and aerospace components. This shift has prompted concerns about potential trade conflicts, with Eskelund likening it to “two trains that are going to collide.” The industrial policy of China is expected to be a key topic at the Asia Pacific Economic Cooperation (APEC) forum, and discussions are anticipated during the meeting between Chinese President Xi Jinping and U.S. President Joe Biden.
Economists caution that this surge in investment differs from past episodes, emphasizing the narrower focus on high-tech and advanced manufacturing. Frederic Neumann, Chief Asia Economist at HSBC, notes that China is strategically shifting investment spending from real estate to manufacturing, aligning with its 14th five-year plan.
Despite signs of excess capacity, Chinese authorities are proceeding with their plans, increasing loans to green development, advanced manufacturing, and strategic industries. Many regions are prioritizing high-tech and green development, leading to concerns about global markets struggling to absorb the additional capacity generated by China’s focused investment.
Lu Zhengwei, Chief Economist at Industrial Bank in Shanghai, sees the race to invest in advanced sectors as beneficial for China’s long-term development. However, the surge in high-tech production could exacerbate global trade tensions as countries prioritize their domestic high-tech industries.
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