How China’s industry fuels ‘tough’ trade war stance – and why demand still vital

China’s supply chain upgrades have strengthened its hand in negotiations with the United States and are expected to bolster its competitive edge over the next five years – though the country must prioritise domestic demand to sustain innovation and avoid worsening deflation, according to an influential economist.

“China is probably the only country that is negotiating in a tough way, almost on an equal foot[ing] versus [the] US,” said Robin Xing, chief China economist at Morgan Stanley, in an interview on Thursday. “That’s backed by China’s rising supply chain competitiveness and trade dominance”, he added, pointing to its near monopoly in crucial exports like lithium batteries and rare earths.

“In the next five years, China probably wants to continue to enhance what they have achieved,” Xing said.

Beijing on Tuesday released proposals for the 15th five-year plan – its socio-economic blueprint that outlines policy priorities for the next half-decade.

Industrial and technological development featured prominently, with policymakers pledging to make a “decisive breakthrough” across the supply chains of critical industries – including semiconductors, infrastructure software and biomanufacturing.

The proposals also called for maintaining a “reasonable” share of manufacturing in the economy while building a “unified domestic market” to underpin a new growth model. The central government vowed to tighten oversight of local economic initiatives, curb “race-to-the-bottom” competition and improve frameworks to evaluate performance, fiscal policy, statistics and benefit-sharing to support greater market integration.

South China Morning Post