This article was initially published by , Pacific Forum, a Honolulu-based international policy research institute founded in 1975.  ,
China formally introduced the phrase” comprehensive national security” at the National Security Commission’s inaugural meeting in 2014, using financial security as its foundation.
Safeguarding financial security, under this platform, entails improving China’s financial strength while controlling financial dangers and developing financial endurance. However, the unexpected Covid-19 epidemic exposed China’s economic risks, leading to a post-pandemic healing more slow than many watchers had anticipated.
Theories like “peak China” warn of a more intense Beijing if it loses its validity as a result of decades of extraordinary economic growth and face challenges from the outside environment.
Domestically, China is confronted by demographic change and financial risks disproportionately affecting local governments ( LGs ) and the housing sector. The shrinking labor force and fragile social safety net are under strain from the long-term effects of the one-child policy ( 1979-2015 ) and increasing life expectancy.
In the near term, great metropolitan youth , poverty rates , reflect both continuous and architectural issues in the Foreign work market. Urban Chinese youngsters are “lie flat,” rejecting the intense function society, and are putting off work due to the highly competitive environment and financial tension of living in cities.
The Taiwanese LGs ‘ rely on property financing is frequently linked to the country’s exceptionally high housing costs, which can be traced back to the government’s really higher housing prices.
Property sales have been a significant source of income for the LGs since the later 1980s, assisting them in securing funding for public projects. To further raise off-budget money to boost the economy, local government finance vehicles ( LGFVs ) have been created.
This reliance on land financing has caused housing prices to go up, and it has created a chance of an economic balloon by saddleing regional governments, LGFVs, and developers of real estate.
To address the high debt levels in the property market, China implemented a” three-red lines” plan deal in 2020. However, this coverage triggered defaults in some property developers, including Evergrande Group and Country Garden Holdings, stirring the home business problems.
The developers ‘ financial strain has unavoidably slowed the execution of enclosure construction projects and sparked protests among paid construction workers and consumers in China. As a side effect, LGs ‘ land sales have also fallen, giving them greater financial vulnibility as a result of the property sector’s downsizing.
According to , Caixin, China’s invisible debt, accumulated largely through LGFVs has reached US$ 9.8 trillion. The increasing danger to China’s macroeconomic strength has led two major credit score agencies, Moody’s and Fitch Group, to amend the perspective on China from A1/A firm to negative, disconcerting market confidence.
These domestic challenges are compounded by external pressures, further complicating China’s economic landscape. In China, the line between the private and the public has become increasingly ambiguous.
As shown by China’s uncertain policies and tightening control over the economy, protecting economic security appears to mean subordinating economic development to national security.
Foreign investors are now more cautious about making investments in China. Meanwhile, the US-China trade war persists, and the world witnesses a fiercer great power competition, particularly in high-tech.
Economic security does not, however, mean that China has stopped its economic reform or opened its doors to foreign investors. China initiated” supply-side structural reform” in 2015, acknowledging the declining demographic dividends and risks posed by the unsustainable financial and non-financial sectors.
This reform emphasizes cutting overcapacity and excess inventory, deleveraging, reducing costs, and strengthening points of weakness in certain critical industries. Additionally, it emphasizes institutionalization in order to provide domestic and international investors with a transparent investment environment. Expanding on this, in 2020 China adopted the “dual circulation development paradigm“.
This strategy aims to expand domestic consumption, deepen supply-side structural reform, and achieve a high degree of self-reliance in high-tech. China aims to derisk external flaws and strengthen domestic economic resilience rather than completely turning inward.
Intentions are crucial when analyzing China’s economic landscape. From Beijing’s point of view, attempts to control risks may be painful and expensive in the short term, but they are necessary for long-term economic growth. Due to LG debt and the exhausted land supply, the traditional growth model, which was driven by infrastructure investment, is no longer able to be sustained.
Restructuring the real estate industry is necessary to stop upcoming economic bubbles. Additionally, crackdowns on big-tech companies demonstrate China’s commitment to halting capitalism and ensure that these businesses adhere to national priorities for high-tech development and security.
In other words, by tightening control over private sectors in certain industries, China aims to align these enterprises ‘ interests with China’s national goal of high-quality development, curbing rather than killing them.
China’s state-led industrial policy is another controversial topic. Western nations are concerned about China’s potential overcapacity and dumping practices. However, from China’s perspective, this kind of policy is designed to accelerate its high-tech development by providing subsidies to both state-owned and private enterprises, while creating a domestic competition arena.
While a well-functioning exist-market mechanism is maintained, this policy would help cultivate leading firms in high-tech industries that are competitive globally. China sees an opportunity in the US-led alliance’s sanctions and export controls that obstruct Chinese businesses by imposing pressure and incentives on them to close technological gaps with the US and its allies, realizing its aspiration to be a high-tech powerhouse.
China will continue to support free trade agreements and actively promote its Belt and Road Initiative internationally from a long-term perspective. It nevertheless holds that developing its own crucial technology is essential to addressing the world’s pressing internal and external issues.
This strategy would not only provide new engines for economic growth, but also strengthen China’s ability to withstand external threats, guaranteeing its security.
Chinese economic data will eventually reflect the results of its economic policies and reforms. Given its size, the Chinese economy’s future is important to both its citizens and the world, including the United States.
Underestimating and overestimating the Chinese economy could lead to strategic miscalculation because the United States characterizes China as a competitor. In order to manage its complex relationship with China, the United States should take a dual approach, balancing engagement with strategic competition.
On the one hand, the Chinese market, with its growing number of middle-income households, still offers great economic opportunities for the US business. The United States should look for common ground to develop trade agreements and strengthen trade ties with China in sensitive industries.
Further Chinese import tariffs would lead to further bilateral angst, hurt US consumers, and impose a protectionist mindset on China.
On the other hand, the United States should consistently pursue similar industrial policies to encourage research and development with its allies, encouraging race-to-top competition with China, as China has increasingly dominated industries like electric vehicles.
In conclusion, China stands at a critical juncture in its economic transformation. Domestically, while it has implemented policies addressing demographic challenges and controlling risks, it has continued struggling with low consumer consumption.
Internationally, China has dominated the global market shares of EVs, lithium-ion batteries and photovoltaic products, known as the “new three”, through industrial policies.
According to , a study conducted by the , South China Morning Post, more than 86 % of goals listed in” Made in China 2025″ have been achieved despite pushback overseas.
The Chinese economy’s future direction is still uncertain. Given the potential repercussions, it is not in the interests of the United States or other nations to see the Chinese economy collapse.
As Pacific Forum president David Santoro and senior advisor Brad Glosserman note, any strategy aiming to , “defeat” China , rather than outcompeting it could backfire. Regional stability and global prosperity can still be a result of a resilient Chinese economy.
Wenjing Wang ( ww626@georgetown .edu )  , is a graduate student of Asian Studies at Georgetown University, concentrating in Politics and Security, and International Political Economy. Wenjing’s research interests include economic security, US-China relations, and Chinese soft power.
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