From Dynasty to Development
The early 20th century was a tumultuous period for China, marked by revolutionary fervour for ousting imperialist rule and the subsequent struggle for modernisation. China’s economy was fragmented and largely agrarian. It was falling behind the West in terms of industrialisation. The regional influence of the bygone Qing dynasty persisted, but it was clear that China would be left behind without rapid modernisation. Beyond global influence, there was an imminent need to assuage the horrific living conditions of the Chinese populace. There existed an urgency to lift the nation into the new century. [1]
Sun Yat-sen & Chinese Nation-Building
Sun Yat-sen, often regarded as the architect of modern China, envisioned a future rooted in nationalism, democracy, and socialism. He articulated this vision through his “Three Principles of the People”. [2] He sought to differentiate the China of the future from the imperialist ideals of the Qing dynasty. Key to his economic philosophy was the idea that poverty was the primary obstacle to progress, not class exploitation. Sun envisioned a mixed economy where state control and market mechanisms would coexist, allowing a more prominent role for entrepreneurs while ensuring that critical industries remained under government oversight.
One of Sun’s most significant contributions was his emphasis on infrastructure development. He recognised that China’s vast geography challenged national unity and economic integration. He advocated for an extensive railway network to connect disparate regions to facilitate trade and mobility.
In addition to infrastructure, Sun sought foreign investment to bolster China’s economy. He advocated for a model where foreign companies would invest, train Chinese workers, and eventually transfer ownership back to Chinese nationals. This approach aimed to ensure China could harness foreign expertise while building its industrial base. However, it did not prove to be a prospect appealing to the foreign investors he wished to court. [3]
Sun’s era was marked by similarly overly ambitious policies that recognised the heart of certain issues but lacked the foresight to develop realistic solutions. This short-sightedness plagued Sun’s vision for the country and was one of the factors that eventually led to the collapse of the Kuomintang (KMT) government.
Mao’s Industrial Revolution
Following Sun’s death in 1925, the Chinese Communist Party (CCP) emerged as a dominant political force after years of civil strife against the KMT. As the KMT fled to Taiwan, it stripped China of a significant amount of its liquid assets. Consequently, when the CCP established control over the mainland in 1949, it inherited a largely agrarian economy devastated by years of conflict.
The approach of the CCP marked a stark departure from Sun’s vision. It set out to develop an economy in line with the socialist ideals it ascribed to, initiating radical land reforms aimed at redistributing land from landlords to peasants. This move sought to dismantle feudal structures but often led to violence and social unrest due to the shift from the status quo. The party nationalised most industries, establishing a command economy where state control over production was paramount. While the aim was to centralise economic activity, the push for private companies to “volunteer” to become state enterprises caused widespread dissatisfaction amongst business owners. [4]
University of Leicester // Promulgation of the Land Reform Act
Under Mao Zedong’s leadership, the CCP’s Five-Year Plans prioritised heavy industry over agriculture. The First Five-Year Plan, from 1953 to 1957, was explicitly modelled on the Soviet experience and focused on rapid industrialisation at the expense of agricultural development. While this plan initially saw successes in urban industrial output, it neglected rural needs, leading to widespread famine during subsequent policies like the Great Leap Forward. The Great Leap Forward aimed at accelerating industrial output through collectivisation but resulted in catastrophic agricultural failures and millions of deaths. [5]
The Mao era laid the groundwork for significant infrastructure development. The construction of factories and urban facilities during this period transformed China’s industrial landscape, though this came at a severe human cost. The CCP’s centralised planning apparatus mirrored Soviet models and channelled resources into heavy industry, leaving agriculture critically under-resourced.
Deng & The Market Makeover
The most transformative economic reforms began in 1978 under Deng Xiaoping’s leadership. These reforms marked a significant shift towards market-oriented policies that diverged sharply from Maoist principles. Deng recognised that previous strategies had failed to deliver sustainable growth or improve living standards for ordinary Chinese citizens.
De-collectivisation was one of Deng's first significant reforms. By dismantling collective farming, farmers were allowed greater autonomy over their land and production decisions. This change came as a boon for agricultural productivity and rural incomes, alleviating some of the poverty that had persisted under stricter communist policies. [6]
Deng also opened China to foreign investment by establishing Special Economic Zones (SEZs) along the coast. SEZs were designed to attract foreign businesses by providing favourable conditions such as tax breaks and regulatory exemptions. These zones became instrumental in integrating China into the global economy while allowing technology transfer from foreign firms. [7]
The introduction of market mechanisms within a controlled framework improved efficiency in resource allocation. State-owned enterprises (SOEs) were encouraged to operate with profit motives while still adhering to broader state goals. This dual approach created a hybrid economic model where state planning and market forces coexisted. [8]
Deng’s reforms led to unprecedented economic growth by shifting focus from heavy industry to light manufacturing and services. These policies primed China to move into occupying the place it currently holds in the global economy. Deng’s approach of “opening up” China paid off mass dividends.
As the nation with the second largest GDP [9], China exerts significant influence through its economic statecraft in the global South. Its stranglehold on the manufacturing economy arms it with significant leveraging power over the West. The link between economy and control is inextricable. It is worth examining how China wields this power, domestically and internationally, in its attempts to establish itself as a stronghold against the West and the leader of a multipolar world.
Economic Policies and Impacts
The CCP has established several economic policies during its governance, from Mao’s time to more recent policies established by Xi Jinping. While framed as solely economic, these policies have been used by China to enact its political will on both local and global platforms.
Domestic economic policies are often geared towards fostering in the minds of citizens the image of a stable, fiscally responsible government. The CCP has an extensive say in all pivotal economic development occurring in the nation and thus receives credit for it.
Internationally, China’s aid to various nations through its policies places it in a unique position to gain implicit influence over a region. China also stands to gain significant support on the global stage, particularly in light of decisions that the West would disagree with.
State-Owned Enterprises
China’s state-owned enterprises (SOEs) established under Mao, serve a dual role as the CCP’s economic and political bases. The combination of financial functions and political objectives within SOEs reflects a governance model where the state retains significant control over the economy while simultaneously using these enterprises to reinforce its authority and maintain social stability.
Under current President Xi Jinping’s leadership, the role of SOEs has intensified, with the CCP asserting greater control over these entities. The party’s influence is institutionalised within SOEs through mandatory party committees that oversee decision-making processes. This structure ensures that all major corporate decisions align with party directives, effectively merging corporate governance with political oversight. Such integration allows the CCP to utilise SOEs to implement its policies and maintain social order. [10]
One of the primary ways in which SOEs exert political influence is by promoting economic stability and social welfare. The CCP leverages SOEs to create jobs and maintain public confidence in government policies. For example, during the global financial crisis of 2008, SOEs mobilised to stimulate growth by carrying out large-scale infrastructure projects funded by state-owned banks. This strategy mitigated unemployment and reinforced the image of a CCP capable of managing economic challenges effectively. [11]
SOEs engage in various initiatives to improve living standards, such as providing affordable housing and healthcare services. By positioning themselves as benevolent entities that contribute to societal well-being, SOEs align themselves with Xi’s vision of “common prosperity”. [12]
SOEs also serve as instruments for cultivating national pride and reinforcing political legitimacy. The CCP promotes successful state enterprises as symbols of China’s progress on the global stage. Companies like China National Petroleum Corporation (CNPC) and China Mobile have been lionised as national champions that exemplify China’s technological advancements.
The state’s investment in high-profile projects led by SOEs, such as infrastructure development under the Belt and Road Initiative, further enhances this image. By showcasing these endeavours as contributions to domestic and international development, the CCP strengthens its domestic legitimacy and portrays itself as a responsible global actor. This dual strategy effectively channels nationalistic sentiments into support for the party’s governance.
China’s strategic maintenance of SOEs and the careful power structure embedded within them give the government direct influence over the people. SOEs allow the CCP to tie themselves into several key industries, allowing their continued governance to be perceived as natural and essential.
The Dual Circulation Policy
China’s Dual Circulation policy, introduced in 2020, fundamentally aims to balance two core elements: internal circulation and external circulation. Internal circulation emphasises the domestic economy, focusing on production, distribution, and consumption. This is complemented by efforts to engage with the global economy, referred to as external circulation. [13] According to President Xi Jinping, speaking at a Politburo meeting in May 2020, “domestic circulation should be mainly driven by the domestic market,” while international trade and investment play a supplementary role. [14]
This strategic shift arose from several factors, including rising global protectionism, particularly from the United States, and the disruptions caused by the COVID-19 pandemic. Thus, China sought to reduce its dependence on foreign markets and technologies by bolstering its self-reliance. The policy is enshrined in China’s 14th Five-Year Plan, which outlined goals for economic development through technological advancement and increased domestic demand. [15]
Focusing on internal circulation, the CCP allocated resources to sectors and regions seen as critical for national security and economic stability. Since the CCP has historically relied on local governments to implement its national policies, the CCP incentivises local governments through the Dual Circulation approach. This is particularly essential in regions that face economic crises or social unrest. The central government fosters loyalty among local populations and offsets potential dissent by investing in local infrastructure projects and industries to stimulate the economy.
For instance, significant investments have been made in transportation networks to connect regions with diverse ethnic populations, such as Tibet and Xinjiang, more closely with the rest of China. [16] The CCP proposes that improved connectivity will enhance economic opportunities for local populations and integrate them more deeply into the national framework.
Cities are also encouraged to boost local consumption through initiatives that support small and medium-sized enterprises (SMEs). [17] These are crucial entities for job creation and economic stability. Through a central plan that enhances local economies, the CCP thus also encourages a certain sense of loyalty towards Beijing.
China’s push for self-sufficiency is evident in initiatives such as ‘Made in China 2025’, which aims to strengthen its manufacturing sector and elevate domestic firms within global value chains. This self-reliance narrative resonates with countries seeking similar independence from Western technology providers, attracting partners who share China’s vision of reducing dependency on Western markets, such as Russia. [18]
This focus on self-sufficiency has led to China significantly increasing investments in research and development across various sectors. China primarily aims to reduce dependence on foreign technologies. Advancements in semiconductor manufacturing, for example, would ensure that China can produce essential components for itself. [13]
The Belt and Road Initiative
China’s Belt and Road Initiative (BRI), launched in 2013 by President Xi Jinping, aims to foster economic cooperation by establishing a vast network of railways, highways, maritime ports, and energy pipelines connecting Asia, specifically China, with Europe and Africa. [19] The BRI is often viewed through the lens of economic strategy. However, it is equally an attempt by China to reshape the international order in its favour. By investing in infrastructure projects across various countries, China aims to create a dependence on China that can translate into political leverage.
The initiative has been incorporated into the CCP’s constitution, underscoring its significance to China’s foreign policy framework. As of early 2024, over 140 countries have signed agreements related to the BRI. This extensive reach allows China to assert its political will in regions traditionally dominated by Western powers. [20] Moreover, these projects are often undertaken by China’s SOEs, which gives the Chinese government extensive and direct control over infrastructure projects of participating nations.
BBC // The Hambantota Port
The BRI initiative has been criticised for “debt-trap diplomacy” for the Hambantota Port project in Sri Lanka. Initiated in 2010 with Chinese funding, its intended use was commercial as Hambantota is strategically located along one of the world’s busiest maritime trade routes. However, financial mismanagement and bad returns on investment led Sri Lanka to significant debt.
In 2017, unable to repay its loans, Sri Lanka leased Hambantota Port to a Chinese company for 99 years, raising concerns about Sri Lanka’s new obligation to China and its sovereignty and national security among regional powers such as India. The port’s strategic location enhances China’s control over maritime routes critical for trade and extends its reach into the Indian Ocean, an area historically dominated by India. [21]
Ethiopia has become a focal point for Chinese investment in Africa, highlighted by projects like the Addis Ababa-Djibouti Railway, Africa’s first electrified railway. Funded primarily by Chinese loans and built by Chinese companies, this railway provides Ethiopia with improved connectivity to global markets. Beyond this, over 400 Chinese manufacturing and construction projects are underway in Ethiopia. Much of Ethiopia’s air, road, and rail infrastructure is financed and built by China.
ConstructAfrica // The African Union Headquarters in Addis Ababa
Moreover, China’s involvement in Ethiopia is not merely for economic purposes; it also serves broader geopolitical goals. In 2003, Ethiopia became the first African country to host the Forum on China-Africa Cooperation. In 2012, China funded and built the $200 million African Union headquarters in Addis Ababa. By establishing Ethiopia as a centre for African politics and positioning itself as essential to Ethiopia, China is effectively looking to shape the future of Africa in a manner that favours it.
This influence extends beyond seeking regional power—it encompasses diplomatic support at international forums where Ethiopia may require backing against Western criticism or intervention. China has often responded to the conflict in Ethiopia involving the Tigray People’s Liberation Front by promoting non-interference and strengthening bilateral ties. China has explicitly spoken out against imposing sanctions on Ethiopia, while the US did precisely that over the Ethiopian government's “gross violations of internationally recognised human rights”. China asserts considerable authority by distancing itself from the conflict while adopting a more sympathetic stance than Western powers. [22]
As China invests heavily in developing countries through the BRI, it promotes an alternative development model that contrasts sharply with Western-led initiatives. This model emphasises state-led growth and infrastructure investment, much like what China follows domestically, over democratic governance and human rights considerations.
Critics argue that this approach undermines existing international norms and institutions established post-World War II. China is effectively reshaping how development is perceived globally by fostering dependence through infrastructure investments while sidestepping traditional governance frameworks. [23]
Furthermore, China’s efforts under the BRI challenge US dominance in global affairs. As countries increasingly turn towards China for investment and development assistance, they may adopt more favourable policies towards Beijing at the expense of their relationships with Western nations.
International Trade and Relations
China employs various trade strategies to engage with its partners. Many of these trade relationships position China as superior to nations with which it has had political contentions, such as Taiwan, Vietnam, and the Philippines. China approaches trade with the other global superpowers more cautiously, prioritising its economy before playing at its political interests. However, it often leverages these relationships for political gain, as seen in its collaboration with nations. Hence, it is critical to understand how China uses its trade policy by examining its approach with a few different regions.
The China Circle
China's economic and trade role within the “China Circle,” comprising mainland China, Hong Kong, and Taiwan, is a key tool for advancing its political agenda. Despite differing views on sovereignty, China's greatest leverage lies in the region's heavy reliance on it for trade.
Hong Kong’s importance to Beijing lies in its role as an economic bridge to the global financial system and a conduit for acquiring technology and intellectual assets from abroad. China leverages Hong Kong’s unique geopolitical status to evade Western sanctions, while the city maintains significant autonomy under the “One Country, Two Systems” framework. Despite the change in the on-ground situation, especially after the National Securities Act of 2020, the world has still treated Hong Kong as a largely distinct entity. [24]
China has leveraged Hong Kong to circumvent U.S. semiconductor export restrictions. Chenghui Ye, CEO of the Hong Kong Applied Science and Technology Research Institute, suggested that relocating American experts to Hong Kong could help Chinese chip companies overcome hiring challenges under U.S. regulations, facilitating the transfer of semiconductor knowledge to the mainland. By exploiting Hong Kong's more lenient trade policies, China integrates with the global economy while maintaining stricter economic controls.
The cross-strait relationship between China and Taiwan illustrates another case where China wields economic power for political purposes. Under previous administrations, such as Ma Ying-jeou’s, Taiwan signed numerous agreements with Beijing to reduce trade barriers and foster economic ties. While these agreements were strategically beneficial for Taiwan’s economy, they also strengthened Beijing’s political leverage over Taipei. Despite historical animosity and ongoing tensions regarding Taiwan’s sovereignty, China remains Taiwan’s largest trading partner. [25]
This is a position China has consistently used to exert pressure on Taipei. Taiwanese exports to mainland China reached an all-time high in 2021, underscoring the island’s reliance on Chinese markets. China can easily influence Taiwanese policy decisions by threatening trade restrictions or altering investment flows.
After Tsai Ing-wen assumed office in 2016, Beijing responded by applying pressure through various means, including curtailing tourism from mainland China to Taiwan and restricting imports from Taiwanese companies perceived as politically opposed to Beijing. [26] In May 2024, following the inauguration of Lai Ching-te, China suspended preferential tariff arrangements on 134 items. [27]
China aims to isolate Taiwan diplomatically by fostering closer ties with countries that recognise Beijing over Taipei, often through substantial financial aid or investment. Several nations have shifted their recognition from Taipei to Beijing following lucrative investment deals or aid packages offered by the Chinese government. [28] This strategy effectively diminishes Taiwan’s international standing while reinforcing China’s claim over the island.
In response, Taiwan has sought to diversify its economic options by strengthening ties with Southeast Asian countries and other regional partners through Tsai’s New Southbound Policy. However, these efforts have been met with hesitation due to China’s pre-existing ties with several of the targeted nations. [29]
South-East Asia
Source: ASEAN
A notable example of China’s trade policy in Southeast Asia is the establishment of the ASEAN-China Free Trade Area (ACFTA) in 2010. The agreement aimed to reduce tariffs and strengthen trade relations between China and ASEAN member states. The ACFTA has increased bilateral trade, making China ASEAN’s largest trading partner for 14 consecutive years. The economic benefits of this arrangement have made ASEAN countries largely dependent on Chinese markets and investment. [30] The ACFTA acts as a platform for China to project political power in the region. For instance, during the COVID-19 pandemic, China provided vaccines and medical supplies to several ASEAN countries, reinforcing its image as a benevolent partner. [31]
Global Times // President Xi Jinping meeting with Cambodia’s
Prime Minister Hun Sen in 2023
China’s relationship with Cambodia is particularly significant among ASEAN nations. As Cambodia’s largest investor, trading partner, and donor, this investment serves two purposes. First, China seeks to promote its governance and development model as an alternative to the West. Politically, the CCP views the regime in Cambodia as “like-minded”, making it strategic to nurture such an alliance. [32]
Secondly, this heavy investment from China has made Cambodia much more likely to support China’s political stances. The Cambodian government strongly supports Beijing’s reunification position on Taiwan. Cambodia has consistently backed China’s bilateral negotiation approach for South China Sea disputes. It blocked ASEAN statements on the issue in 2012 and 2016 and opposed joint ASEAN naval drills in the South China Sea. By developing multiple close allies, China ensures its politics have backing in any forum.
The South China Sea remains the primary point of contention in China’s regional strategy. China’s aggressive claims over contested waters have raised tensions with several Southeast Asian nations, including Vietnam and the Philippines. Nations with opposing claims to the South China Sea have criticised China’s reliance on weak claims based on historical ownership, further aggravated by China’s advancements on several islands. To mitigate these tensions, China has employed a dual strategy of asserting its territorial claims while offering economic incentives to countries with conflicting views. [33]
For example, despite ongoing disputes with Vietnam over fishing rights and oil exploration, China has engaged in extensive trade with Vietnam, including significant investments in infrastructure projects under the Belt and Road Initiative. [34] China uses trade as a dangling carrot on a stick by offering economic and trade benefits while maintaining pressure on countries to align with its geopolitical objectives.
Southeast Asian regions have no choice but to contend with China’s massive economic presence and are forced to temper their stances despite expressing active dissent against China’s actions. Attempts by the US to dominate the region have varying levels of success as China’s mere proximity and bilateral arrangements provide it with a better negotiating position.
Russia
The collapse of the Soviet Union in 1991 marked a turning point in Sino-Russian relations, eventually leading to a gradual warming of relations. The early 2000s saw significant strides in diplomatic engagement, culminating in the signing of the Treaty of Good-Neighborliness and Friendly Cooperation in 2001. [35] This treaty laid the groundwork for deeper economic ties, which would become increasingly vital as both nations faced external pressures from the West.
The relationship gained momentum following Russia’s annexation of Crimea in 2014, which prompted Western sanctions against Moscow. Russia had to seek new economic partners to mitigate the impact of these sanctions and turned towards China, resulting in a surge in bilateral trade. [36]
Source: CNBC
China’s burgeoning economy has created a demand for energy resources, positioning Russia as a crucial supplier. China has become one of Russia’s largest energy export markets, prompting projects like the Power of Siberia gas pipeline. These projects ensure China’s energy needs while also providing Russia with a reliable market for its hydrocarbons. [37]
As China faces an economic downturn and persistent youth unemployment and Russia deals with the ramifications of its military actions in Ukraine, their reliance on each other has intensified. Both countries share a common vision for a multipolar world order that challenges the US hegemony. Their collaboration is a counter to Western influence, allowing them to present an opposing front on global issues ranging from security to trade policies. [38]
Source: CSIS
China’s support for Russia during its military campaign in Ukraine highlights this alignment. While Beijing has refrained from supplying lethal weapons to Moscow, it has provided crucial economic support through increased imports of Russian energy and raw materials, enabling Russia to sustain its military efforts while mitigating some effects of Western sanctions.[39]
As Russian dependence on Chinese technology and consumer goods increases, particularly in sectors such as electronics and machinery, questions arise regarding the long-term implications for Russian autonomy. The phenomenon of “yuanisation,” where the Chinese yuan increasingly replaces traditional currencies in trade with Russia, poses a problem for Russia.[40]
China appears to emerge as the forerunner in this collaboration to develop a non-Western pole, however, this is largely due to Russia’s present involvement in a conflict. Unlike most other relations, China here is significantly dependent on Russia’s resources and hence uses this partnership more to build alliances against the West than to solely influence Russia’s decisions.
USA
China’s accession to the World Trade Organisation (WTO) in 2001 marked the rapid development of the US-China trade relationship. China’s integration into the global economy facilitated its rapid economic growth, with its GDP increasing more than five-fold over the last two decades. The US has benefited from this relationship by accessing cheaper goods and a growing market for American exports. By 2023, China had become the third-largest export market for the United States, supporting over one million jobs domestically.
Source: Statista
China has significant economic leverage in the relationship through its trade surplus, which reached approximately $245 billion in 2024, shifting the equation in its favour. For the USA, policymakers have said the trade deficit with China reflects unfair trade practices such as intellectual property theft and forced technology transfers. These concerns ultimately culminated in a series of tariffs imposed by the Trump administration beginning in 2018, which marked the onset of a trade war that would shape US-China relations for years to come.
The trade war officially began in January 2018 when President Trump implemented tariffs on Chinese goods to address what he termed as “unfair trade practices.” The administration’s approach was characterised by nationalist protectionism aimed at reducing the trade deficit and compelling China to reform its economic policies. In retaliation, China imposed tariffs on American products, leading to a tit-for-tat escalation that affected various sectors such as agriculture and manufacturing.
The Phase One trade agreement signed in January 2020 sought to send these tensions, at least superficially. Under this deal, China committed to purchasing an additional $200 billion worth of US goods over two years, including manufactured goods, energy products, and agricultural commodities. However, Chinese compliance with these commitments has been inconsistent and criticised. [41] [42]
With Biden taking office in January 2021, US-China relations were projected to shift towards a more collaborative approach. However, Biden largely retained many of Trump’s tariffs while introducing new measures to curb China’s technological ambitions, including export controls on advanced technologies critical for military applications and restrictions on investments in sensitive sectors. The Biden administration’s strategy is to treat the competition with China as not merely an economic issue but also one of national security. [43]
On the other hand, China has successfully navigated challenges posed by US tariffs and restrictions through its manufacturing capability. But, its aims to transition towards a more consumption-driven economy have been largely hindered. There seem to be further roadblocks in China’s path, however, with the Republicans clinching the 2024 Presidential election with a majority in the House and Senate.
Source: The New Yorker
One of President-elect Trump’s defining policy promises is to ramp up tariffs on China to an additional 10% on top of existing ones. [44] This drastic increase from previous tariffs is intended to protect American manufacturing and bring jobs back to the US. Historical responses to tariff increments have included retaliatory tariffs targeting US agricultural products, currency manipulation, and export tax rebates.
China’s current economic situation is unique. It is struggling domestically due to an ailing economy [45], so measures such as weakening the RenMinBi (China’s national currency) may further diminish the government’s image with the populace.
However, China is in a more secure place in terms of international trade with regional and global partners than it was during Trump’s first term. Its ability to rely on non-US trade partners allows China more freedom in withdrawing from specific sectors with the USA.
China has also framed its approach to trade with the USA as a matter of national sovereignty and economic security. The CCP uses narratives of external threats, particularly from the US, to rally domestic support for its policies and reinforce national unity. By portraying itself as a victim of unfair treatment by the USA, China seeks to justify any undertaken drastic measures as being against perceived foreign aggression. Given the heightening tensions between the two nations, the future of their economic relationship will be further defined by competition rather than cooperation.
The (Silk) Road Ahead
Despite the image portrayed by the various policies the CCP had undertaken and the grandstanding on the global stage, China’s economy told a much different story in 2024. [46] COVID-19 left behind a faltering and scared consumer base and empty businesses, as China saw heavy lockdowns, much more intense than those imposed elsewhere. With the long-term effects of the now-defunct One Child Policy becoming evident, the Chinese economy is waning.
Source: The New York Times
Consumer hesitancy to make large purchases has caused a collapse in the real estate sector. For years, China’s infrastructure projects and property sector have been vital for generating revenue and enhancing its public image. Billions of yuan poured into the construction sector to sustain infrastructure have failed to bear fruition, with big-name developers collapsing under massive debt and subsequently taking investors down with them. The real estate sector underpinned the savings of families, Chinese banks, and local governments for decades, and the present crisis sent those savings into turmoil. [47]
With local governments facing immense debts, China has had to take several measures to address its faltering economy and jumpstart growth again. The past year saw the central government cutting interest rates, cancelling restrictions on home buying, and easing the debt burden on local governments with plans involving $1.4 trillion in relief. [48] Beijing further agreed to allow for a bigger fiscal deficit in 2025 to help increase spending. [49]
This is a marked change from China’s typically favoured state-led growth to providing a direct stimulus. Beijing’s more proactive approach to the economy showcases recognition of the urgency of the present crisis. Despite the setbacks, Beijing had set a growth target of 5% for 2024 [50], and according to International Monetary Fund (IMF) projections, China would be achieving a figure of around 4.8%. [51] It remains to be seen whether China’s maintained 5% growth target for 2025 will bear fruit.
The web of politico-economic connections that China has built internationally relies on its ability to supply seemingly never-ending construction projects and limitless manufacturing capabilities. Any signs of weakness in this climate would undermine China’s economic state and overall political influence. This new-found proactiveness is just as much to satiate the populace as it is to maintain China’s image on the global stage.
China in the present day has achieved and far exceeded its goals of modernisation posed in the 1920s. Its slow cementing of political alliances has provided it a safety net in terms of global influence. The support and development it provides to its allies is a rather curious echo of the development China itself undertook in the 20th century. By replicating this model globally, China positions itself as an ideal to aspire to and a benefactor supporting nations in achieving that ideal.
While China may have adopted a more hands-off approach to fiscal policy domestically, its international approach has consistently involved direct presence and aid. This contrasts with the Western policy of prioritising political persuasion over economic means. The sustainability of China’s model and the long-term loyalty of the allies it cultivates remains to be tested. If China’s gamble on economic statecraft succeeds, the rewards will extend far beyond monetary gains.
Article by:
GS Shreya
President
PES MUN Society
Comments