Amid De-Globalization, China Adapts to Declining Exports
The global economic landscape is shifting as “de-globalization” trends reshape international trade. For China, the world’s second-largest economy, declining exports are emerging as a potential long-term challenge. In response, China is navigating a crucial transition to sustain its economic growth and ensure stability.
Shifting the Production Model: From Global Markets to Domestic Innovation
On the supply side, China’s traditional role as a supplier of mid- to low-end industrial goods to global markets is evolving. The focus is now on rapidly transitioning towards providing high-quality products and services that cater to domestic needs, especially in areas such as people’s livelihoods and technological innovation. This shift aims to enhance self-reliance and reduce dependence on external markets.
Boosting Domestic Demand: A Pillar for Economic Stability
With external demand waning, stimulating domestic consumption has become essential. By boosting domestic demand, China seeks to compensate for declining exports and maintain steady economic growth. Encouraging consumer spending and investing in sectors that directly impact residents’ quality of life are key strategies in this endeavor.
The Critical Role of Expansionary Fiscal Policy
In this context, expansionary fiscal policy emerges as a vital tool. As China’s international balance of payments shifts from surplus to equilibrium, government fiscal expenditures exceeding revenues—essentially deficit spending—allow residents and businesses to achieve a net surplus. This approach injects liquidity into the economy, promoting growth and alleviating pressure on various sectors.
Currently, residents, businesses, and local governments face balance sheet pressures, monetary policy transmission is less effective, and savings are not translating into investments. By increasing the fiscal deficit and leveraging government spending, the central government can expand its balance sheet through issuing treasury bonds. This action offsets contractions in other sectors and serves as an effective countercyclical adjustment.
Strategic Allocation of Fiscal Funds
Determining where to allocate fiscal resources is crucial for maximizing economic stimulation. On one hand, investing in debt resolution and transfer payments can restore government investment growth. Direct support for consumption, such as offering cash subsidies or promoting trade-in programs for residents, has an even more immediate impact on stimulating the economy.
On the other hand, enhancing high-quality supply is fundamental for driving demand upgrades and ensuring long-term demand security. In the face of de-globalization hindering the traditional “learning by doing” technological advancement, the government is taking on the responsibility to promote innovation. Through top-level design and concentrated financial support, China aims to drive “independent innovation” in key sectors and facilitate technological progress across entire industrial chains.
Moreover, in a world marked by global turmoil and less effective market-based resource allocation mechanisms, using fiscal funds to restructure grain and energy supply chains is critical. These efforts are essential for safeguarding China’s food and energy security, ensuring stable supplies amid international uncertainties.
Looking Ahead: Ensuring Sustainable Growth
China’s proactive approach in adjusting its fiscal policies reflects a strategic response to global economic shifts. By focusing on expanding domestic demand, promoting technological innovation, and securing essential resources, China aims to sustain its economic growth and navigate the challenges posed by de-globalization. Expansionary fiscal policy stands at the forefront of these efforts, serving as a key instrument in stabilizing the economy and fostering long-term prosperity.
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China's expansionary fiscal policy, expectations of declining exports
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