Three months ago it appeared that China’s economy was on track to recover relatively quickly after being closed off to the world during the pandemic. Consumers are spending again. Exports picked up. Even China’s beleaguered housing market has given hints that it is stabilizing.
That is no longer the case. Official data released on Monday revealed that the annual rate of growth in China’s economy fell to just over 3 percent in the spring, well below the government’s target.
Now the faltering economy appears to be helping to prompt a shift in the willingness of senior Chinese officials to engage in diplomatic talks with geopolitical rivals abroad, and to show more openness about economic policy at home.
The change in tone is particularly visible in China’s relations with the United States. Despite several years of disjointed ties and concerted efforts to become less dependent on each other, the two countries remain closely linked economically, together accounting for two-fifths of global output.
In the past month, China welcomed three senior US officials to Beijing, including John Kerry, President Biden’s climate envoy, who arrived on Sunday, and Treasury Secretary Janet L. Yellen, who held 10 hours of meetings with top Chinese officials. Up to three Chinese ministers are expected to travel to Washington in the coming weeks as the two countries begin discussions on everything from climate change to military affairs.
The Chinese government has also launched a charm offensive aimed at domestic and international business leaders.
During the China Development Forum in March and continuing through the World Economic Forum last month in Tianjin, Li Qiang, the country’s premier and second-highest official, offered his personal assurances that China is open for business.
Mr Li met last Wednesday with China’s big technology companies to urge them to hire more workers, in a signal that a nearly three-year push to assert greater political control over the sector may be replaced by an emphasis on economic growth. The powerful National Development and Reform Commission, China’s top economic planning agency, praised the companies for their investments on the same day.
“China’s decision-making is as hidden from our view as it has ever been, but China’s economic weakness is obvious to everyone, even China’s leaders, who cannot help but be one source of the recent moderation in foreign policy and will. engage Washington,” said Scott Kennedy, a China specialist at the Center for Strategic and International Studies in Washington.
Safety concerns remain paramount.
However, analysts noted that any softening in approach remained limited to economic or trade policies that do not involve China’s national security, which has become a defining feature of Chinese politics in recent years. And there are few signs that the main leader, Xi Jinping, has endorsed a broad policy shift toward the United States, a step that would be necessary for any change to take root.
On Saturday, China announced that it will hold joint naval and air force exercises with the Russian military in the Sea of Japan. And Mr. Xi himself gave a speech on July 6 urging the military to “break new ground” in military preparedness, warning that “China’s security situation is facing increasing instability and uncertainty,” according to the official Xinhua news agency.
China has also taken steps this month that could undermine its reputation as a trusted link in global supply chains. It said it would limit exports of rare materials needed to make semiconductors, in a move widely seen as retaliation for US restrictions on the sale of advanced semiconductors to China.
“Domestic risks are primary, so he’s not looking to take more risks,” said Jessica Chen Weiss, a Cornell University political scientist specializing in China-US relations. “But if he gets punched, he’ll punch back.”
Mao Ning, spokesman for the Chinese Ministry of Foreign Affairs, said on Monday at the daily conference of the ministry that China’s economic vitality is undiminished and its development of relations with countries around the world has not changed. “We also hope that the US side can work with China to push the bilateral relations back to the path of healthy and stable growth,” she said.
Some Chinese experts said they also do not believe China’s recent economic problems have limited the country’s access to foreign engagement.
Da Wei, the director of the Center for International Security and Strategy at Tsinghua University in Beijing, said the US is unlikely to change its policies aimed at curbing China’s technological advances. So China has little incentive to make compromises regardless of broader economic issues, he said.
“Talking about the short term, like the recent thaw in relations between the United States and China, I don’t think the economy has much of an impact,” he said.
China’s economy needs the world.
But for China, the latest set of data suggests that economic pressures could continue to intrude on geopolitical goals. A key index of house prices fell last month, showering consumers with wealth. Exports – a crucial driver of the Chinese economy – are suffering.
And the investment picture has dimmed. American companies have complained that it has become more difficult to do business in China amid the government’s focus on national security. The authorities have carried out raids against companies and detained employees, particularly among due diligence companies that multinationals hire to monitor Chinese companies that are potential business partners or acquisitions.
The geopolitical environment is central to the decisions companies and investors make about whether to put money into China or rely on it as a base for exports.
China has a lot at stake economically. Tens of millions of Chinese jobs depend on global trade. Its sales of manufactured goods to other countries are more than three times its purchases of those goods from other countries.
Those critical trade ties extend beyond the United States. China’s tilt towards Russia on the Ukraine war has seriously hurt its relations with Europe. China’s exports to the European Union fell by 14.2 percent in June from a year earlier.
The Baltic countries — Lithuania, Latvia and Estonia, all particularly hostile to Russia — left China’s diplomatic process for talks with Eastern Europe. Lithuania has flirted with closer ties with Taiwan, an island democracy over which Beijing claims sovereignty. China retaliated last year by severely reducing trade with all three Baltic countries, notably halting almost all imports from Lithuania. This angered the rest of the European Union.
China has tried to patch up frayed ties in recent months with an even more extensive exchange of high-level visits with countries such as France and Germany.
It might be too late. Germany released a new national strategy last Thursday that called for reducing economic dependence on China and urged China to stop using its economic leverage in geopolitics. Germany also promised close relations with the United States and urged China to distance itself from Russia.
China has relied heavily on disrupting its trade with other countries in the past few years to try to persuade them to accept Beijing’s policies, doing so with Australia after that country suggested an investigation into the origins of the Covid pandemic. But China has effectively lifted import bans on a range of Australian goods in recent months.
“Because it is now the world’s largest trading nation, China has a special responsibility to make the system work,” said Alan Wolff, former deputy director-general of the World Trade Organization.
He You contributed research.