COLUMNS

The End of Strategic Luxury for China

undefined and Senior East Asia Analyst
Zhixing Zhang
Senior East Asia Analyst, Stratfor

Feb 14, 2019 | 23:07 GMT

As its economy matures, China has attempted to move up the value chain in manufacturing, beyond industries such as textiles and into high-tech development.

A worker produces fabric in a textile factory in Binzhou in China's eastern Shandong province. A trade war with the United States has restricted options for Chinese leaders looking to restructure its economy away from dependence on low-level manufacturing, which was once its backbone.

(STR/AFP/Getty Images)

Highlights

  • Signs of China's economic maturation, such as decreased reliance on exports and reduced returns on government-led investments, have promised an era of slowed Chinese economic growth since the years after the global financial crisis.
  • China needs more time and space to facilitate its domestic socio-economic transformation and upgrade its value chain, but it is losing the "strategic luxury" of a  relatively stable external environment.
  • Beijing will reverse infrastructure spending and credit expansion and try to use financial incentives to stimulate domestic consumption where it can, but it is likely to face greater economic pain, at least in the short term.

When Chinese President Xi Jinping declared his country's "era of national rejuvenation" at the 19th Communist Party Congress in 2017, he saw a historical mission awaiting him. China had gone from a "century of humiliation" into seven decades of rehabilitation through internal reconsolidation and economic growth. The country had developed a massive economy and was halfway to its goal of ascending into a global power; Xi saw it as his job to take it the rest of the way. But though Xi may have had a clear mission informed by his predecessors, the fact is that he presides over a China that sits at a major crossroads domestically, politically, economically and globally. China has hit the point in its economic transition where it must adapt to slower growth and adjust to a rockier economic situation. Chinese leaders are finally facing the constrictions stemming from the end of the country's previously near-unrestrained...

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