Japan Institute for National Fundamentals

　
The bottom of China’s property bubble bursting recession is nowhere to be seen. As the peculiar economic system in which the Chinese Communist Party controls the market economy has become dysfunctional, the government’s domestic measures under President Xi Jinping have failed one after another. Instead, China has been enhancing dumping exports, external coercion using its weaponized monopoly on supply chains for parts and raw materials, and technology seizure from Japanese and other foreign companies. All such actions neglect international rules and disrupt the global economy.

While a political chaos has become a matter of concern in Japan due to the ruling parties’ crushing defeat in a House of Representatives election on October 27, both ruling and opposition parties are politically responsible for phasing out the industry sector’s dependence on China. The Japanese government should step up preparations to counter the pressure of the Xi government through Group of Seven cooperation.

China’s economy trapped in all directions

On October 12, the Xi government indicated a large-scale fiscal stimulus package to counter the deflationary recession. However, it has remained unable to specify the amount of money for the package. This is because yuan financial resources that depend on foreign currencies are difficult to be significantly expanded as foreign currency inflow has declined due to a sharp fall in foreign investment and loans. Electric vehicle, solar photovoltaic panel, and other new industry sectors that have been subsidized by the government as a growth driver instead of real estate development are in a financial difficulty due to overproduction and dumped exports. A year-on-year decline in manufacturing profit accelerated to 27% in September, according to Chinese official announcement. Seeing growing risks in the Chinese market, most Western companies have stopped new investment in China and are rushing to withdraw from the country. In the year to June 2024, foreign direct investment in China fell to one-hundredth of the previous year's level.

In U.S. presidential election campaigns, candidates Kamala Harris and Donald Trump are competing to impose high tariffs on imports from China. Europe has also imposed restrictions on EV and other imports from China. Many emerging economies have begun to reject unfairly dumped Chinese products. China’s economy is exactly trapped in all directions.

Rules-neglecting coercion, technology seizure, and dumping

The Xi government is making the most out of the bad situation. China’s strength lies in its monopoly on critical minerals, components, and raw materials, which are at the heart of product supply chains. Since last year, Beijing has been threatening to restrict the supply of graphite for EV batteries as well as rare earths and metals indispensable for high-tech products. It is taking advantage of such threatening to subjugate Japanese automakers and other foreign companies that are extremely dependent on China, keep them in the Chinese market, urge them to provide cutting-edge technologies. Furthermore, Beijing is retaliating against U.S. and European restrictions on imports from China and trying to expand China’s global market shares with dumping exports. China’s series of offensives in defiance of the international trade order is only accelerating.

The key to revitalizing the Japanese economy is to maintain and enhance its industrial competitiveness against China. The China problem was not even an issue during the House of Representatives election campaign. We cannot afford any political vacuum.

Hideo Tamura is a Planning Committee member at the Japan Institute for National Fundamentals and a columnist for the Sankei Shimbun newspaper.