Little surprise Beijing doesn’t want Western advice for its economy

Beijing steadfastly refuses Western guidance for its economy, a stance rooted in three primary reasons. Beijing comprehends the ailments plaguing its economy, leading to the second possibility—unwillingness to afford the treatment—being improbable. The third possibility, skepticism towards Western advice, is likely the dominant factor, exacerbated by a fundamental divergence in perspectives.

This divergence emerges from China's belief that it is addressing a different economic challenge compared to the West. While Western economists advocate for enhanced household income, bolstered social safety nets, and reduced dependence on investment, exports, and manufacturing, Beijing has partially implemented these measures but not at the scale or urgency demanded by outsiders.

This discrepancy is often misconstrued as policy stagnation. A more accurate interpretation lies in Beijing's recalibration of its economic objectives, shifting away from short-term gross domestic product (GDP) growth. China is now focusing on safeguarding against prolonged strategic rivalry with the United States, as noted by economist Tan Kong Yam and others.

Consequently, Beijing's economic maneuvers are driven by a desire to diminish technological reliance, safeguard industrial capacity, and endure extended periods of Western scrutiny. Despite still possessing fiscal flexibility, particularly at the central government level, Beijing acknowledges that borrowing through local government financing vehicles and off-balance-sheet arrangements conceals a potentially heavier debt burden.

To mitigate this, Beijing has begun gradually integrating some of this hidden local debt onto official balance sheets through a multi-year debt-swap program. The diminishing returns on past infrastructure projects and industrial developments underscore the notion that each incremental debt injection yields relatively less GDP growth.

Rather than the ineffectiveness of spending itself, Beijing recognizes that the conventional growth model yields diminishing returns. Thus, the question is not whether China should spend, but rather where it should allocate its resources. Prominent figures like former Australian Prime Minister Kevin Rudd and ex-World Bank Chief Economist Justin Yifu Lin argue that China's priority should be the construction of capabilities that ensure strategic resilience.

These capabilities encompass semiconductors, batteries, robotics, and artificial intelligence, which are integral to China's capacity to withstand future export controls, technology restrictions, and supply-chain disruptions. This strategic pivot is reflected in China's K-shaped economy, where traditional industries such as property and construction stagnate, while industries like electric vehicles, batteries, solar power, drones, robotics, and AI witness robust expansion.

These emerging sectors directly compete with Western economic interests. As a result, China is increasingly resembling an economy divided into two distinct growth arms, with the upper arm propelling China's technological and industrial capabilities directly at odds with Western commercial and strategic interests. This evolving economic landscape is poised to intensify economic disputes with the West, irrespective of China's overall growth trajectory or trade surplus fluctuations.

The underlying challenge lies not solely in China's size and trade surplus but in the nature of its production and the displacement it engenders. Historical parallels, such as Japan's post-Plaza Accord struggles and the Soviet Union's collapse, serve as cautionary lessons for Beijing. Beijing's takeaway is that reforms endorsed by strategic rivals may carry unforeseen long-term costs.

While acknowledging the need for enhanced household incomes, improved social protection, and more sustainable central-local finances, Beijing remains reluctant to undergo a radical policy overhaul dictated by foreign economists. The prescription is clear to Beijing's policymakers: China understands its economic vulnerabilities, yet it is wary of the costly and potentially ineffective "Western drug."

Crucially, Beijing perceives the most pressing threat to its economic stability as dependence on external entities, rather than solely slow growth.