{"id":486787,"date":"2026-01-02T09:35:13","date_gmt":"2026-01-02T09:35:13","guid":{"rendered":"https:\/\/www.europesays.com\/us\/486787\/"},"modified":"2026-01-02T09:35:13","modified_gmt":"2026-01-02T09:35:13","slug":"why-china-is-doubling-down-on-its-export-led-growth-model","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/486787\/","title":{"rendered":"Why China is doubling down on its export-led growth model"},"content":{"rendered":"

At a recent high-level government conference in Beijing, senior officials basked in China\u2019s success the past year in its trade war with Donald Trump, boasting that the country\u2019s system of state-directed planning was superior to unfettered US-style capitalism. <\/p>\n

\u201cOur five-year planning system ensures policy consistency and continuity \u2014 something western politicians can never achieve given their constant changes of government,\u201d one senior cadre told the gathering of about 200 people in a central Beijing hotel.<\/p>\n

For Beijing, the tariff war is the clearest evidence yet that President Xi Jinping\u2019s strategy of investing heavily in high-tech production and industrial self-reliance is paying off, despite persistent deflation at home and growing complaints from abroad about soaring Chinese trade surpluses.\u00a0<\/p>\n

Trump\u2019s attempt to unilaterally impose tariffs on Chinese goods last year ended with him being forced to agree to a one-year trade truce <\/a>with Xi at a summit in South Korea during October.\u00a0<\/p>\n

The stand-off, during which China threatened to block US access to the rare earth metals vital to many advanced manufacturing processes, demonstrated for the first time Beijing\u2019s ability to stop even Washington from decisively closing its markets against Chinese-made products.<\/p>\n

Analysts say it will embolden China to push ahead with its export-led growth model and compete with the US for 21st century technological and economic supremacy. Beijing\u2019s new 15th five-year plan for 2026-2030<\/a>, due for release in March, envisages China not only dominating legacy industries such as steel making or toy manufacturing but also future technologies, such as robotics and artificial intelligence.<\/p>\n

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\u201cThis is a zero-sum game,\u201d says Joerg Wuttke, a partner at consultancy DGA Group and former European Union Chamber of Commerce in China president. Based on the five-year plan goals, he predicts China could raise its global share of manufacturing from about 30 per cent to 40 per cent.\u00a0<\/p>\n

\u201cThey\u2019re telling other countries, don\u2019t mess with us, don\u2019t compete with us, you can\u2019t beat us,\u201d he says.<\/p>\n

But even as China touts its domination of global manufacturing \u2014 trade figures released in December show it is set for its first surplus in goods of more than $1tn <\/a>in 2025 \u2014 vulnerabilities are building in its domestic economy. <\/p>\n

A prolonged property market slowdown has undermined local government finances, household sentiment and domestic demand, leading to deflation and falling wages. Policymakers are trying to balance keeping the country\u2019s export machine running while issuing ever more debt to prop up the weakening domestic economy. <\/p>\n

\u201cIn the past few years, it\u2019s been the property sector dragging down the economy,\u201d says Hui Shan, chief China economist at Goldman Sachs.\u00a0\u201cAt this juncture, I think the economy is now dragging down property.\u201d <\/p>\n

The IMF\u2019s managing director, Kristalina Georgieva, said in Beijing in December that China needs \u201cmore forceful measures to be implemented with greater urgency\u201d, urging it to fix its \u201cimbalances\u201d in its economy. Such a large country cannot survive on exports alone, she added. <\/p>\n

\u201cBoosting consumption would unlock\u2009.\u2009.\u2009.\u2009a more durable source of growth.\u201d<\/p>\n

At the Communist party\u2019s<\/strong> Central Economic Work Conference in December, the meeting that sets priorities for the following year, Xi and other senior leaders celebrated China\u2019s \u201csignificant enhancement of its hard power\u201d over the past five years, according to state media. <\/p>\n

Three years after China\u2019s economy emerged from its strict Covid controls, its global export market share has risen to 15 per cent, up from about 13 per cent in 2017, and is set to rise to 16.5 per cent by 2030, according to a study led by Chetan Ahya, chief Asia economist at Morgan Stanley. China\u2019s share of global manufacturing value added has risen to 28 per cent.<\/p>\n

Its trade goods surplus with the US had fallen to $239bn as of September 2025 on a 12-month trailing basis from a peak of $418bn in December 2018, according to US Census Bureau data \u2014 though much of the difference is thought to have been products redirected to the US through other countries, such as Vietnam and Mexico.<\/p>\n

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Ahya attributes part of China\u2019s latest export success to its state-led model, which pushes investment into emerging sectors such as green energy, \u201ceven if ahead of [its] time\u201d. China backs its bets with direct state investment in infrastructure and manufacturing, state bank lending, tax incentives and subsidies. <\/p>\n

Other economists say the whole society is geared towards production \u2014 from the financial and education systems down to rules governing residency that create a huge pool of cheap migrant labour.\u00a0\u00a0<\/p>\n

China\u2019s strategy is to reduce its own dependence on other countries while increasing their reliance on its supply chains, analysts say. The next five-year plan should call for \u201csubstantial improvements in scientific and technological self-reliance\u201d, according to recommendations from the Communist party\u2019s Central Committee.<\/p>\n

The aim of the leadership is to build \u201can economic fortress\u201d, says one government adviser in Beijing, achieving self-reliance in everything from food to tech but keeping trade open for Chinese exports and to absorb foreign technology. It also plans to fortify its export machine by setting up factories in other countries, allowing it to circumvent tariffs and further embedding Chinese companies into global supply chains, and trading in intermediate goods.\u00a0<\/p>\n

\u201cIn countries such as Vietnam and across south-east Asia, many primary goods are exported from China as intermediate products, processed locally, and then re-exported under foreign brands \u2014 forming a new and increasingly important trade pattern,\u201d said the senior government official at the conference in Beijing. <\/p>\n

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In the meantime, China would welcome foreign investment into its domestic market, the official said, provided it fostered \u201cadvanced manufacturing, modern services, high-tech industries and sectors related to energy conservation and carbon reduction\u201d.<\/p>\n

The days of US, European and Japanese manufacturers using China as a cheap assembly line are ending. Many such companies report a growing sense that they are unwelcome in China unless they bring superior or new technology.\u00a0<\/p>\n

A recent report from the EU Chamber of Commerce in China, \u201cDealing With Supply Chain Dependencies\u201d, stated that \u201cEuropean companies in some strategic sectors are being pushed out, due to regulatory barriers or formidable competition that has benefited from China\u2019s industrial policies.\u201d<\/p>\n

During a recent visit to Beijing, one senior European businessman says he was shocked by the reception he received at one of the ministries.\u00a0Previously welcomed as a valued foreign investor, he said a senior figure at the ministry treated him like a diplomatic adversary and accused Europe of being an unreliable partner.<\/p>\n

Others told him the Europeans should stop fixating on Russia\u2019s invasion of Ukraine and human rights.\u00a0\u201cWe like Donald Trump,\u201d another official told him. \u201cWhy? Because he doesn\u2019t talk about Ukraine and human rights. We can make deals with him.\u201d<\/p>\n

Europe is China\u2019s biggest export market after south-east Asia, but Beijing\u2019s success in the trade war with Trump has made it more dismissive of all-comers, the person says. <\/p>\n

\u201cChina is single-handedly focused on the United States,\u201d the person says. \u201cThey think that if they can handle Trump, they can handle Europe easily.\u201d He adds: \u201cThe Chinese believe that \u2018we can always deal with Europe on our terms. And if it\u2019s not on our terms, we don\u2019t talk to them\u2019.\u201d<\/p>\n

Yet for Europe and China\u2019s other large trading partners, the country\u2019s increasing trade imbalances are becoming, in the words of French President Emmanuel Macron, \u201cunbearable\u201d.\u00a0<\/p>\n

In an article <\/a>in the FT last month, Macron called on China to \u201caddress its internal imbalances\u201d or \u201cEurope will have no choice but to adopt more protectionist measures\u201d. Its goods surplus with the EU last year was \u20ac305.8bn, compared with \u20ac297bn in 2023 and a record \u20ac397bn in 2022.<\/p>\n

Aside from China\u2019s industrial policies and barriers to entry, a further problem for its trading partners is its currency. The renminbi depreciated by about 8 per cent against the euro during 2025 in nominal terms, and economists estimate that the real effective exchange rate \u2014 a weighted average against a broader basket of currencies \u2014 has fallen 18 per cent from its peak in March 2022.<\/p>\n

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This real depreciation is being driven by China\u2019s persistent deflationary pressures. Producer prices have declined every month for more than three years as supply outstrips domestic demand in almost all sectors. <\/p>\n

The decline in prices also masks an increase in the volume of China\u2019s exports, which has increased its global market share. \u201cIn real terms, the increase in that gap between exports and imports has been larger than in nominal terms,\u201d says Louis Kuijs, chief economist of Asia Pacific at S&P Global Ratings, who estimates that China\u2019s goods export volumes have risen 43 per cent since early 2020 but imports of goods have risen just 15 per cent.<\/p>\n

China\u2019s real exchange rate is likely to continue falling over the next two to three years, given Beijing\u2019s limited efforts to combat domestic deflation, according to New York-based Rhodium Group.<\/p>\n

\u201cA weak renminbi, persistent deflation and excess capacity in China will\u2009.\u2009.\u2009. steadily erode the bite of conventional trade defence tools,\u201d Rhodium said in a December report on the outlook for the renminbi. \u201cThat leaves European policymakers with hard choices: either accept ever-growing exports from China\u2009.\u2009.\u2009.\u2009or move towards structural action that restricts trade.\u201d<\/p>\n

But for China\u2019s trading partners, using tariffs or other steps to counter its surpluses is bound to meet with stiff resistance \u2014 as Trump discovered.\u00a0<\/p>\n

\u201cOther countries will find it increasingly difficult to impose tariffs on China because\u2009.\u2009.\u2009.\u2009the supply chain leverage that China has is indeed quite powerful,\u201d says Goldman\u2019s Shan.<\/p>\n

China\u2019s control of rare earths \u2014 it accounts for 90 per cent of global refining capacity \u2014 is mirrored across several other industries, such as batteries for electric vehicles and drones and the refining of the lithium and cobalt that goes into them, says Eddie Fishman, author of Chokepoints.\u00a0<\/p>\n

\u201cWe saw earlier this year, even if big US tariffs might be able to inflict pain on China, you can\u2019t do it without causing a recession at home,\u201d Fishman says.<\/p>\n

One of China\u2019s most striking supply chain chokeholds from a western perspective, he says, are active pharmaceutical ingredients used to make medicines. In some, he estimates that China has 80 per cent market share. \u00a0<\/p>\n

As China moves up the value chain, dominating the technologies of tomorrow such as electric vehicles, the US and other countries are becoming more vulnerable, he adds.\u00a0<\/p>\n

Even in semiconductors, while the US retains a technological edge, China\u2019s strong position in legacy chips was shown during the recent dispute at Nexperia. When the Dutch government seized temporary control of the Netherlands-based but Chinese-owned company, Beijing responded by blocking Nexperia\u2019s exports. <\/p>\n

The US has its own leverage, such as its control of the global financial system through the dollar, but Donald Trump\u2019s threats to the institutional independence of the Federal Reserve and China\u2019s own efforts to internationalise its payments system and diversify its reserves risk eroding that.\u00a0<\/p>\n

\u201cI think if China is allowed to persist with this economic model\u2009.\u2009.\u2009. and the west doesn\u2019t respond with anything besides hoping that market forces sort it out, then yes, China is going to seize more chokepoints over time,\u201d says Fishman.\u00a0<\/p>\n

China\u2019s trading partners among emerging economies are especially vulnerable to this kind of coercion, economists say. Developing countries need Chinese inputs for their own manufacturing sectors, but are at risk of losing their industry because of cheap imports.\u00a0<\/p>\n

\u201cChinese mercantilism is at least as big a threat, if not much bigger, to the prospects of emerging countries as American tariffs are,\u201d says George Magnus, research associate at Oxford university\u2019s China Centre and former chief economist of UBS.<\/p>\n

A thousand kilometres from Beijing<\/strong>, in China\u2019s ancient capital Xi\u2019an, Chen does not share the confidence of the party\u2019s economic cadres.<\/p>\n

\u201cIt was better in previous years,\u201d says the food stall owner, who declined to give his full name, as he looks out at the throngs of tourists passing through the vast Grand Tang Dynasty Everbright City shopping district. \u201cSales began to decline [in 2024] and have not been good [in 2025].\u201d<\/p>\n

The buildings here are modelled on those of the dynasty that ruled China from the 7th to the 10th century, and many tourists rent period costumes to pose for photos. But there are few other signs they are spending money.<\/p>\n

Since last year, President Xi has increasingly emphasised the importance of domestic demand for the economy, with the party\u2019s magazine Qiushi releasing a collection of his past speeches on the subject in December.<\/p>\n

The party has announced birth subsidies, lifted restrictions on real estate prices and, in a bid to tackle deflation, launched a campaign against \u201cinvolution\u201d, seeking to stop companies engaging in destructive price competition.\u00a0<\/p>\n

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But the party\u2019s piecemeal moves have failed to decisively lift sentiment or reflate the economy.\u00a0Retail sales expanded 1.3 per cent in November against a year earlier, the slowest pace of growth since December 2022, when China lifted its Covid restrictions. Property prices and investment <\/a>have plunged. While a large part of the investment fall could be due to statistical issues, analysts believe at least some of it is real.\u00a0<\/p>\n

The faltering domestic economy, weakened by a property slump that started in 2021 when Beijing sought to deleverage the sector, is the alter ego of China\u2019s export boom. Deflation makes China\u2019s goods more competitive on international markets, but at home it erodes corporate profitability and increases debt relative to profit or revenues. Private sector economists have warned for years about the limits of China\u2019s export and investment-led growth model, but now even some government advisers are chiming in.\u00a0<\/p>\n

At the conference in Beijing, a government adviser from a prominent state think-tank pointed out that China\u2019s GDP deflator, the widest measure of prices in the economy, had been negative for a record 10 consecutive quarters, surpassing the seven-quarter record set during the Asian financial crisis in the late 1990s.<\/p>\n

\u201cPersistent price declines create a disconnect between the data and how the economy feels, since they affect both household incomes and corporate profits,\u201d the adviser said. \u201cFalling prices not only distort perceptions but also dampen expectations, making it harder to boost consumption or drive investment.\u201d<\/p>\n

To boost domestic demand, the adviser argued, China should increase the share of fiscal spending devoted to public services such as education, childcare, healthcare and social security \u2014 measures that would indirectly lift household purchasing power. The greater potential, he added, lies in services rather than goods.<\/p>\n

Goldman\u2019s Shan says tackling the root macroeconomic causes of the domestic slowdown, such as the property slump, would be the best way of reflating the economy. <\/p>\n

For now, however, there is no end in sight for Xi\u2019s supply-side driven economic path. A large-scale domestic stimulus targeting household incomes would mean directing funds away from the investment and high-tech manufacturing-led model, which was still favoured by policymakers.\u00a0<\/p>\n

\u201cPolicymakers think of it [the supply-driven model] as a success, not a failure,\u201d says Shan. \u201cAnd with the rare earth leverage helping China to manage trade tensions, it\u2019s going to extend the runway for China\u2019s exports too.\u201d<\/p>\n

With additional contributions from Cheng Leng and Wenjie Ding in Beijing<\/p>\n","protected":false},"excerpt":{"rendered":"At a recent high-level government conference in Beijing, senior officials basked in China\u2019s success the past year in…\n","protected":false},"author":3,"featured_media":486788,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[50,103],"class_list":{"0":"post-486787","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-world","8":"tag-news","9":"tag-world"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115824828572533136","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/486787","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=486787"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/486787\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/486788"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=486787"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=486787"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=486787"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}