context: There is a growing debate in PRC commentary about how to respond to overcapacity allegations from the West. Against the new rounds of EU and US tariffs on advantageous Chinese exports like electric vehicles, there are now more talks about stepping up outward investment to share PRC production capacities with the world. Beyond this point, Zhang Yansheng 张燕生 China International Economic Exchange Centre chief researcher proposes a more comprehensive strategy akin to a 'brake system' to manage these trade frictions.
Western allegations of overcapacity of the PRC’s 'new three' products is not mainly about market distortion, but geopolitics and great power rivalry, notes Zhang in his latest speech at a think tank forum. This new wave of globalisation led by the West is characterised by the politicisation of economic and trade matters, he adds.
The politicisation of trade may lead to further escalation between great powers, potentially jeopardising world stability, says Zhang. There is a need for the PRC and the US to manage its conflict within reasonable boundaries, and this may be achieved via instituting a ‘brake system’, he adds.
For Zhang, this brake system would encompass
- leveraging WTO and mulitlateralism
- multilateral trade rules can be a referee for the current trade struggles
- the PRC has already brought its claims against the US via the WTO, but more could be done on this end
- joint hands with global south and business communities to build a united front against protectionism and politicisation of trade
- the PRC needs to win a broad understanding and support in the international community
- no matter how competitive its industries have become, the PRC should not engage in a zero-sum game mindset and flood the world with its production capacities
- it should
- engage in more dialogue with other countries
- increase bilateral investment and capacity cooperation
- it should
- referencing the experience of textile exports in the 1990s, reducing some SOE (state-owned enterprises) capacities helped to bolster Chinese private enterprises' capacities and technological advancement
- now PRC textile and apparel products are dominating world markets, but it should also be mindful of not taking away all the market share from Global South countries
As for more concrete policy recommendations, Zhang suggests
- further fiscal reform in the PRC and set up an ‘emerging industries and related exports domestic coordination mechanism’ to address overcapacity
- the mechanism should comprise local governments, SOEs, private enterprises and foreign enterprises
- further integration of business and economic interests with the EU and the US
- facilitate visas, flights, trade and investment
- decoupling must be met with further re-coupling
- facilitate the flows of personnel, goods, services and data
- more joint ventures to build factories in Europe
- seek more cooperation with local enterprises
- set up more wholly-owned factories abroad
- promote two-way investment with the West and expand imports into the PRC
- promote PRC-EU third party cooperation and global cooperation in the 'new three' industries