China has clearly demonstrated its determination to preserve its industry- and investment-based economic model ahead of new trade talks with the European Union and the United States. The Beijing administration announced it will not change its existing policies despite Western pressure to boost domestic consumption.
Defense of the Model and Western Criticism
Western countries argue that China's economic policies prioritize producers, boosting low-cost exports, which puts pressure on the industries of rival economies in global markets. However, the Politburo of the Chinese Communist Party confirmed at its recent meeting that the current economic approach will be maintained and called for targeted support for the economy rather than broad stimulus packages.
In an assessment report, China's Ministry of Commerce rejected Western accusations of industrial overcapacity, arguing the claims contain "logical flaws" and "hidden agendas." The party's official publication, Qiushi magazine, argued that low domestic consumption is a natural result of a development path based on investment and industrialization.
Clear Messages Ahead of Negotiations
Xu Tianchen, chief economist at the Economist Intelligence Unit, said Beijing is sending two clear messages ahead of the upcoming trade negotiations. The first message aims to facilitate talks by asking Western partners to understand the background of China's economic model. The second message draws "red lines" against practices that China sees as discriminatory against its companies and products.
China emphasizes that its economic model still reflects the needs of an economy that is catching up with developed countries, and that its investments in technology and scientific research bring benefits beyond national borders.
Debates on Overproduction and External Dependence
Many experts believe that weak domestic demand is making China's economy increasingly dependent on exports to support growth. Eswar Prasad, trade policy expert at Cornell University and former IMF official, said that when China's large economy relies on foreign markets to compensate for weak domestic consumption, it is hard to convince the world that Chinese exports are "a gift to consumers."
Europe has also begun taking steps to protect its industries. While the daily trade deficit with China averaged around $1 billion last year, German Chancellor Friedrich Merz criticized the undervaluation of the yuan, saying it gives Chinese exports a competitive advantage.
Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis bank, said Beijing has become more confident in managing its trade disputes with the West without offering major concessions. Herrero said the previous experience with US tariffs provided China a model for managing trade conflicts and buying time.
Gradual Reform Efforts and Structural Challenges
Despite its commitment to the current model, China has begun taking limited steps to address economic imbalances. These include stricter scrutiny of local government spending and limiting price competition that squeezes corporate profits.
Chinese officials acknowledge the supply-demand imbalance and stress the importance of boosting domestic consumption, but they prefer to implement reforms gradually to avoid large-scale economic disruptions.
International reports point to persistent structural challenges. The OECD estimates that about 60% of Chinese companies' market share gains stem from state support, while a study by the Bank of Italy reveals that domestic factors, such as weak consumption and overproduction, contribute to 75% of China's export growth.
According to a report by the McKinsey Global Institute, China is adding new production capacity three times faster than Europe and the US combined, but returns on capital are about 40% lower. Analysts note that this keeps discussions alive about the long-term sustainability of China's economic model.
