China's economic policy under pressure: critics warn of collapse!

China's economic policy under pressure: critics warn of collapse!

China's economic policy is facing increasing criticism from both international and domestic ranks. An influential party magazine recently questioned the country's economic strategies and caused a stir. The criticism focuses on overcapacity and ruinous price wars in key industries. These include in particular the photovoltaics, lithium batteries and electric vehicles sectors.

The aggressive price wars force companies to compromise on quality. This inhibits innovation and investment in research and development. Such measures lead to massive waste of social resources and the threat of indebtedness, which could ultimately jeopardize long-term growth. In addition to economists, members of the communist leadership also expressed criticism of these developments.

Criticism of regulation

Local authorities are also in the firing line. They are criticized for regulating either too little or too much. Regulations cannot keep up with the pace of economic development. Incomplete precautions for company bankruptcies prevent the oversupply from being effectively contained. Some local governments create artificial economic havens through preferential taxes and subsidies.

Another point is the dependence on exports, which is reinforced by weak domestic demand. Many Chinese citizens are saving because of a weak social safety net. This economic situation is highly reminiscent of the challenges Japan experienced in the 1990s, which ultimately led to significant debt and deflation risks.

International tensions

China's aggressive trade policy has now made waves internationally, especially in relations with the USA and the EU. EU foreign policy chief Kaja Kallas warns of the long-term effects of this policy on European security and jobs. The ongoing criticism could indicate a necessary realignment of economic policy in order to ensure sustainable growth.

On the global stage, the US under President Trump has introduced an aggressive trade policy with the so-called Liberation Day tariffs. These tariffs are not only aimed at China, but have an impact worldwide. Developing countries are particularly affected by this, while at the same time the USAID is being dismantled. China, for its part, is intensifying its economic presence in the Global South. China is trying to gain influence through duty-free market access, infrastructure projects and investments in green technologies.

China's 14th Five-Year Plan emphasizes the importance of modernizing traditional industries such as textiles and engineering. To strengthen its own economic resilience, China is pursuing a strategy of self-sufficiency and control over global value chains. However, these measures also lead to structural oversupply in many sectors, which further increases price pressure on developing countries and blocks their industrial development.

In response to these pressures, countries such as India, Brazil, Argentina and South Africa are using trade countermeasures to protect their domestic producers. These states are increasingly linking Chinese investments to conditions such as technology transfer and local value creation. Amid these tensions, new political scope is opening up for the countries of the Global South to act as independent actors.

The EU faces the challenge of positioning itself as a credible alternative to China and developing strategic partnerships with the Global South. It could gain influence through targeted support in building industrial capacities and regulatory infrastructure. At the same time, fair trade practices and monitoring instruments must be developed in partner countries in order to meet current global challenges.

Another aspect is the careful implementation of existing instruments, such as the Carbon Border Adjustment Mechanism, to avoid unintended trade barriers. Developing countries must also redefine their position between the major power blocs as new scope for action opens up.

Overall, China's economic policy is at a crucial turning point where deep reforms may be necessary to address both domestic challenges and international tensions.