'More semiconductors, less housing: China's new economic plan.'
'an irritation to China's trading partners. China's additional lending also presents a challenge to the West, which has been trying to encourage additional investment in some of the same industries through legislation similar to the Biden administration's Inflation Reduction Act.
The shift to lending to manufacturing underscores Beijing's reluctance to rescue China's debt-overburdened real estate market. Construction and housing make up about a quarter of the economy and are now suffering sharp declines in prices, sales and investment.
China's investment move could boost growth in the coming months and partially offset problems in housing.
The additional''Leveraged financing by the central government instead of local lending will do little to alleviate the long-term drag on economic growth caused by debt accumulation.
"I don't think we have problems for short-term development, but we need to worry about medium- and long-term development," Ding Shuang, chief China economist at Standard Chartered, told a recent forum of Chinese economists and financial experts in Guangzhou. "It can be said that the real estate market has not yet bottomed out. "
China's housing crisis has its roots in four decades of debt speculation that has driven up prices to levels far above rents or household incomes.
China's''The government triggered the latest downturn in the sector by starting to restrict lending a few years ago, and is now reluctant to rescue the sector by ushering in another era of home loans.
The government believed the Chinese economy would bounce back in 2023 when the country's leaders removed most of the "zero Covid restrictions" imposed on the economy last year. But after an initial surge, growth activity slowed in the spring and summer. Vulnerabilities remain: manufacturing activity fell again last month after rising in August and September.
Last week at a conference presided over by Xi Jinping, China's supreme leader, Communist Party and government officials gathered at a closed''meeting to discuss fiscal policy.
According to an official statement, the next steps will be to direct more funding to advanced manufacturing industries, as well as assist local governments.
While the housing market is struggling, government-funded factory construction is going strong.
China has already built enough solar panel factories to meet the world's needs. It has already built enough car factories to produce all the cars sold in China, Europe and the US. And by the end of 2024, China will have built as many petrochemical plants in five years as it now operates in Europe, as well as Japan and South Korea.
Economists at the recent''s Guangzhou conference held by the International Financial Forum, a Chinese think tank, acknowledged that the country faces challenges not seen since Mao's death in 1976. But they predicted that heavy investment in new production technologies would bring results.
"Today we have comparable difficulties as in 1978, so the question now is what will be the future of innovation-driven growth," said Zhan Yansheng, a former senior official of the central government's state planning agency who now works at the China Center for International Economic Exchange.
China's banking system's shift from real estate lending to manufacturing has begun''from imports and bypass U.S. export controls, as well as on categories such as electric vehicle manufacturing and shipbuilding.
Many economists have expressed concern that heavy investment in manufacturing may not fix the overall economy.
The explosion in factory construction threatens to irritate other countries: much of the extra volume is likely to be exported as many Chinese households have cut back on spending.
The US and the European Union have become less inclined to accept further''widening trade deficit with China. The European Union has already launched an investigation into the use of government subsidies by China's electric car industry, opening a new trade standoff between Brussels and Beijing.
Cognizant of these risks, China is improving its ties with developing countries. These countries still have significant but often aging industrial sectors, presenting an opening for exports from China's new high-performance factories. Many countries in the developing state are having trouble renegotiating the large debts they owe Beijing for infrastructure projects, putting them in a difficult position to raise tariffs on Chinese goods.
Chinese factories are consolidating their dominance already''decades.
Since 2000, China's share of global manufacturing has nearly quintupled to 31 percent, according to the United Nations Industrial Development Organization. The United States' share fell to 16 percent, while the share of developing countries, not including China, remained at 19 percent.
Of course, one thing that hasn't changed in China's approach is its reliance on borrowing to stimulate growth.
Officials have been trying to beat its debt addiction for several years. Vice Premier Liu He promised in a speech in 2018 that this would happen within three years.
Instead, local government debt has soared since 2020, reaching nearly $8 trillion last year, and semi-self''The borrowing units of local governments have accumulated trillions more dollars in loans. China's total debt is much larger, relative to the country's economic size, than that of the U.S. and many other developed countries.
Yao Yang, director of Peking University's National School of Development, said in September that efforts to control debt have failed.
"From 2014 to 2018, which was supposed to be an opportunity for debt easing, the debt increased; the situation got worse after 2020," - he said in his speech. "This shows that previous debt mitigation measures were ineffective and in some cases even backfired. "
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