On my first trip to China in more than three years, I awoke to an unusually bright blue sky over Beijing. The forsythia and cherry trees were in full bloom and the city glittered.
For me, that was a metaphor for at least part of my week-long visit this spring. China is back on many levels. The offices were packed with workers going about their normally long days. Executives overwhelmingly exuded optimism about their businesses. A solid pipeline of exciting startups suggests China will continue to lead in innovation. And the energy and drive that have inspired me on my many past visits were in abundance.
Yes, China faces some economic challenges, most notably how committed President Xi Jinping remains to maintaining the country’s progress toward a market economy. He often seems to value control more than growth. I oversee significant investments in China and these signals are cause for concern.
However, despite growing skepticism in the Western press, I believe China will continue to prosper. And as our greatest strategic rival, it will continue to use that wealth to strengthen its assertiveness on issues from the South China Sea to spy balloons and unfair trade practices.
Despite its lax response to the COVID-19 crisis – particularly the widespread lockdowns – China’s economic performance has far outpaced our own. From the beginning of 2020 to the end of last year, China’s economy grew by a total of 14 percent adjusted for inflation, while our economy grew by less than 6 percent.
Growth is expected to reach 5.2 percent this year, compared to ours of 1.6 percent. And while we’re stubbornly grappling with an inflation rate of over 4 percent, prices in China will most likely rise just 2 percent this year. As a result, interest rates remain low, which encourages investment.
Certainly, China’s recovery from the Covid-19 crisis has been weaker than many expected. And the country has a significant unemployment problem: 20.4 percent of job-seeking people aged 16 to 24 were unemployed in the past month. A large part of this is because the economy hasn’t yet picked up enough momentum to accommodate all of the roughly 10 million recent college graduates who enter the workforce each year.
During my visit, the Chinese officials took special care to welcome them. At the Davos-like China Development Forum, where American participation was sparse but European business leaders were plentiful, Chinese officials read carefully crafted remarks, consistently emphasizing their commitment to sound economic policies and their openness to foreign investment and regulatory reform stressed.
Her positivity belied the obvious tension. When my team and I visited investors and businesspeople, the disappearance of prominent Chinese investment banker Bao Fan was brought up at almost every meeting, sometimes by us, sometimes – defensively – by our Chinese colleagues. Security in China, always tight, appeared to be even tighter. I was more aware of the pervasive Chinese surveillance with cameras and facial recognition technology everywhere. Even on a short train journey, the passport had to be shown and scanned both when entering and leaving the country.
More than in the past, Chinese investors and entrepreneurs are paying close attention to – and heeding – every signal the government gives, and fear that Mr Xi could suddenly announce another capricious and unexpected intervention in the private sector. The creation of Internet platforms for end users was given less emphasis; Investing in new industries like energy transition and artificial intelligence seems to be a priority.
In at least some of these areas, China has made notable progress. It controls 77 percent of the world’s battery production capacity, and last year almost 60 percent of the world’s electric vehicle sales were made in China. Despite American tariffs, the country produces more than 80 percent of the world’s solar panels.
As the days passed, the sky over Beijing returned to its usual slate gray, and so the initial brightness of my mood about the China of 2023 began to weaken a bit. Underneath the confidence I had always associated with China, I felt a degree of insecurity, largely due to the hostility that many Chinese people emanate from Washington, which in turn has led to a sense of resentment on the part of some Chinese towards the United States.
As Mr Xi underscores China’s role as an independent superpower, Chinese consumer preferences appear to be shifting. In the past, they preferred foreign brands, from Nike sneakers to BMW cars. Today they gravitate toward local brands like Anta sneakers and BYD cars.
My meetings in China are usually dominated by questions from me and my team. On that trip, our Chinese colleagues often turned the tables, at least briefly, and asked us what the United States was likely to do on issues like Taiwan and potential investment restrictions. Some declared that China was some kind of innocent victim of American power.
These subtle differences were mostly marginal; From what I’ve said, at least, it’s clear that the Chinese business community is still interested in American investment money and continued trade with us.
However, the trade restrictions imposed by President Donald Trump and President Biden have had an obvious impact. Exports to the United States of items subject to a 25 percent U.S. tariff, from furniture to consumer electronics, fell more than 20 percent compared to 2017.
Restrictions on selling sensitive cutting-edge technology to China are also taking their toll. Chinese experts concede that the country’s rise to the forefront of artificial intelligence is hampered by the ban on the purchase of the most advanced semiconductors.
To his credit, the Biden administration is extending an olive branch alongside its toughness. In a very thoughtful speech recently, Treasury Secretary Janet Yellen called for “constructive engagement” with China – basically trying to achieve a win-win situation.
That’s an ambitious goal, and the best way to achieve it is to put our own house in order. China has proven that it can continue to grow faster than us. We must compete with the country by boosting our growth rate through initiatives such as addressing our carelessly high budget deficit and our crippling regulations on building industrial plants.
And we should strengthen our human capital by increasing the number of STEM graduates so we can maintain our technological edge, and by restructuring our immigration policies to attract talented people from around the world and keep our most promising foreign students here.
Most importantly, we must not delude ourselves that China will collapse under its own weight. The question for America and its adversary is whether this rivalry must be destructive or whether a more prosperous, cooperative future is still possible.
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