One reason China wants to get involved again: its troubled economy

Three months ago, the Chinese economy appeared to be on the way to recovering relatively quickly after closing off from the world during the epidemic. Consumers were spending again. Exports rebounded. Even China’s beleaguered housing market has given hints it is stabilizing.

This is no longer the case. Official data released on Monday revealed that the annual pace of growth in China’s economy eased to just over 3 percent in the spring, well below the government’s target.

Now the faltering economy appears to have helped shift the willingness of senior Chinese officials to engage in diplomatic talks with geopolitical rivals abroad, and to show more openness to economic policy at home.

The change in tone is particularly evident in China’s relations with the United States. Despite several years of strained relations and a concerted effort to become less dependent on each other, the two countries are still closely linked economically, and together account for two-fifths of global output.

Last month, China hosted three senior US officials in Beijing, including John Kerry, President Biden’s climate envoy, who arrived Sunday, and Treasury Secretary Janet L. Yellen, who held 10 hours of meetings with top Chinese officials. Up to three Chinese ministers are expected to travel to Washington in the coming weeks, as the two countries begin to discuss everything from climate change to Military issues.

The Chinese government has also launched a glamorous attack directed at domestic and international business leaders.

During the China Development Forum in March and the continuation of last month’s World Economic Forum in Tianjin, Li Qiang, the country’s prime minister and second-highest-ranking official, gave his personal reassurances that China is open for business.

Last Wednesday, Mr. Li met with China’s big tech companies to encourage them to hire more workers, a sign that nearly three years of pressure to assert greater political control over the sector may be replaced by a focus on economic growth. The powerful National Development and Reform Commission, China’s largest economic planning agency, praised companies on the same day for their investment.

“China’s decision-making is as hidden from our view as it ever was, but China’s economic vulnerability is evident to everyone, even China’s leaders, who cannot help but be one of the sources of the latest foreign policy moderation and preparedness,” said Scott Kennedy, a China specialist at the Center. Strategic and International Studies in Washington.

However, analysts noted that any softening of the approach has remained limited to economic or trade policies that do not involve China’s national security, which have become a hallmark of Chinese politics in recent years. And there is little sign that the supreme leader, Xi Jinping, has endorsed a broad shift in policy toward the United States, a step that will be necessary for any change to take hold.

On Saturday, China announced that it will conduct joint naval and air exercises with the Russian army in the Sea of ​​Japan. And Mr. Shi himself gave a July 6 speech He urged the military to “break new ground” in preparing for war, warning that “China’s security situation is facing increasing instability and uncertainty,” according to the official Xinhua News Agency.

China also took steps this month that could undermine its reputation as a reliable link in global supply chains. It said it would limit exports of scarce materials needed to make semiconductors, in a move widely seen as retaliation for US restrictions on the sale of advanced semiconductors to China.

“The domestic risks are key, so he’s not looking to take more risks,” said Jessica Chen Weiss, a Cornell University political science professor who specializes in Sino-US relations. “But if he gets punched, he will punch him again.”

China’s economic vitality has not declined and the development of relations with countries around the world has not changed, said Mao Ning, spokeswoman for the Chinese Foreign Ministry, at the ministry’s daily press briefing on Monday. “We also hope the US side can work with China to push bilateral relations to the track of healthy and stable development,” she said.

Some Chinese experts said they also don’t think China’s recent economic woes have constrained the country’s approach to abroad.

Da Wei, director of the Center for International Security and Strategy at Tsinghua University in Beijing, said the United States is unlikely to change its policies aimed at curbing China’s technological progress. So China has little incentive to compromise regardless of broader economic issues, he said.

“Speaking of the short term, such as the recent improvement in relations between the United States and China, I don’t think the economy has much impact,” he said.

But for China, the latest batch of data suggests that economic pressures may continue to interfere with geopolitical goals. A major housing price index fell last month, depleting consumer wealth. Exports – the primary engine of the Chinese economy – are suffering.

And the investment picture became ambiguous. American companies have complained about the difficulty in doing business in China amid the government’s focus on national security. Authorities have carried out raids of companies and detained employees, particularly among due diligence firms, which are hired by multinational corporations to check which Chinese firms are potential business partners or takeovers.

The geopolitical environment is central to the decisions companies and investors make about pouring money into China or relying on it as a base for exports.

China has a lot at stake in economic terms. Tens of millions of Chinese jobs depend on global trade. Its sales of manufactured goods to other countries are more than three times its purchases of these goods from other countries.

These important trade relationships extend beyond the United States. China’s tilt toward Russia in the Ukraine war has severely damaged its relations with Europe. China’s exports to the European Union fell 14.2 percent in June compared to a year earlier.

The Baltic states — Lithuania, Latvia, and Estonia, all particularly hostile to Russia — have already withdrawn from China’s diplomatic process for talks with Eastern Europe. And Lithuania has entered closer ties with Taiwan, an island democracy over which Beijing claims sovereignty. China responded last year by sharply cutting trade with the three Baltic states, in particular stopping all imports from Lithuania. This angered the rest of the European Union.

China has tried to mend strained relations in the past few months with extensive exchanges of high-level visits with countries such as France and Germany.

It may be too late. Germany released a new national strategy last Thursday that called for less economic dependence on China and urged China to stop using its economic influence in geopolitics. Germany also pledged close ties with the United States and urged China to distance itself from Russia.

China has relied heavily on boycotting its trade with other countries in the past few years to try to persuade them to accept Beijing’s policies, and it did so with Australia after that country proposed an investigation into the origins of the Covid epidemic. But China has already dropped import bans on a range of Australian goods in recent months.

“As it is now the largest trading country in the world, China has a special responsibility to make the system work,” said Alan Wolf, former deputy director-general of the World Trade Organization.

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