China's shift to the production of advanced products and technological hardware, such as electric vehicles, solar panels, robotics
China is facing a prolonged period of introversion and low economic performance, a prospect that will likely have global implications after 45 years of rapid expansion and globalization. China's gross domestic product rose 6.3 percent year-on-year in the second quarter, below market expectations for 7.3 percent, after the world's second-largest economy emerged from the pandemic. On a quarterly basis, economic output rose 0.8%, slower than the 2.2% increase recorded in the first three months of the year. Youth unemployment, meanwhile, hit a record high of 21.3% in June. Against this backdrop, the Chinese government is promoting a series of measures aimed at stimulating the economy, with leaders pledging to support the struggling real estate sector, stable employment and domestic consumer demand.
China's economy is still reeling from the “triple shock” of a prolonged lockdown, a struggling property sector and a raft of regulatory changes linked to President Xi Jinping's “shared prosperity” vision, says Rory Green, head of research at China and Asia at TS Lombard. For the global economy, the most immediate consequence of the Chinese slowdown will be on commodities and the industrial cycle, as China reshapes its economy to reduce its reliance on the real estate sector. “China will continue to invest heavily , but mostly in advanced manufacturing, technology hardware, such as electric vehicles, solar panels, robotics, semiconductors, etc.,” says Green. The real estate sector is out of the equation, and as a result China does not need iron ore from Brazil or Australia, machinery from Germany or appliances from around the world, making the country a less important player in the global industrial cycle. .
The Chinese economy's disengagement from real estate and a shift toward more advanced manufacturing is evident in China's massive push into electric vehicles, which has seen it overtake Japan as the world's largest auto exporter. “This shift, where Beijing and Berlin were kind of benefiting from each other and are now competitors, is another big consequence of the structural slowdown,” Green says. China is still making products of a higher quality, not all of which can be consumed domestically, resulting in greater global competition in a range of advanced industrial products.
Although it is not yet clear how they will deal with Chinese households, the private sector and state-owned enterprises are transitioning from a model based on real estate and investment to one fueled by advanced construction, the country is at a “tipping point”. The political economy is changing, partly by design, but also partly because the real estate sector is “virtually dead or dying” and a new growth model is emerging, analysts say.
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