Commentary on Political Economy

Thursday 7 September 2023


Raimondo finds a China facing a reality check

Commerce Secretary Gina Raimondo visits the New York University Campus in Shanghai on Aug. 30. (Andy Wong/Pool via Reuters)
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China knows it’s suffering a serious real estate crisis. It badly wants to placate unhappy Western companies and get more foreign investment. It fears it’s falling behind America on artificial intelligence. It’s nervous about its future and wants more communication with the United States.

That’s a quick summary of the impressions Commerce Secretary Gina Raimondo took away from her trip to Beijing and Shanghai last week. Her visit provided a snapshot of China at an inflection point, at which its leaders recognize they’re facing significant economic problems but don’t have any quick fixes.

As it faces these head winds, China has toned down its anti-Washington rhetoric, if not its global ambitions. “They want a relationship of greater communication,” Raimondo told me Wednesday. Their message, she said, was: “We hear the concerns of U.S. business. What can we do to improve?”

Raimondo, the latest in a string of top U.S. officials to visit China this summer, met with Premier Li Qiang, Vice Premier He Lifeng and others. “People have said they’re on a charm offensive to attract U.S. capital, and I would agree with that,” she told me. She said she plans to follow up with regular contact with her Chinese counterparts to underline that “the happy talk needs to translate into change.”

The Chinese government’s usual bluster and defiance toward Washington appear to have been shaken by a sharp slowdown in economic growth, a collapsing real estate market and a fear that the Chinese tech sector is losing ground to the West. After hosting Raimondo in Shanghai, local Communist Party chief Chen Jining summed up the Chinese view this way: “The economic rebound is a bit lackluster. So stable bilateral ties in terms of trade and business is in the interest of two countries.”

“The word ‘Taiwan’ did not come up once,” Raimondo said. “They gave us very, very little rhetoric or lecturing.”

Chinese officials, from the premier on down, admitted their current economic difficulties. “They acknowledged the real estate crisis. There was no pretending that wasn’t happening,” Raimondo told me. “They repeatedly said the U.S. is ahead of China in artificial intelligence” and conceded they “need to pick up [their] game in artificial intelligence.”

China seems ready to begin a serious dialogue with the United States about developing guardrails for artificial intelligence, something that national security adviser Jake Sullivan and Secretary of State Antony Blinken discussed with their Chinese counterparts this year. “That’s an area we should have our teams work on together,” Raimondo said the vice premier told her.

Chinese leaders still seem uncertain about what macroeconomic policies will best address the malaise. Raimondo said that despite the recent hemorrhaging of real estate debt, Chinese officials don’t think the central government itself is overleveraged, and they say they don’t fear contagion will spread to other sectors.

But President Xi Jinping’s government is resisting the kind of consumer stimulus that the United States has often used to combat slow growth. One Chinese told Raimondo that Xi fears “consumer fiscal stimulus might make people weak.”

Raimondo traveled to China with a basketful of complaints from U.S. companies. As she told reporters during her trip, U.S. executives warned her before leaving that “China is un-investible because it’s become too risky.”

The commerce secretary expanded on the wariness of U.S. investors. She told me U.S. companies had grown accustomed to “garden variety” problems of operating in China, including the “ripping off of our IP,” “requiring joint ventures when we do business there” and “subsidization of state-owned companies.” But U.S. executives balked at additional Chinese harassment over the past year, including “extreme data-localization,” “raids on businesses” and arbitrary “counterespionage” measures to control documents.

“A lot of CEOs said to me, ‘I’d like to invest more, but my board won’t let me. … The board says it’s too risky,’” Raimondo explained. The corporate fear about China, she said, was that “anything can happen to your company in the name of national security” in a way that is “totally arbitrary.” That’s one reason foreign direct investment in China has dropped during this year’s second quarter to its lowest level in 25 years.

China now needs the United States and other Western economies it had disdained after the 2008 financial crash, when Beijing spoke of a West in permanent decline. Premier Wen Jiabao lectured the audience at the World Economic Forum in Davos, Switzerland, in January 2009 about the West’s “unsustainable model of development characterized by prolonged low savings and high consumption.”

Raimondo heard a very different Chinese voice last week. Today’s officials are chastened, perhaps even a bit scared, by their economic difficulties. Xi’s “China Dream” is still alive — and potentially threatening to the West. But as Raimondo saw last week, Beijing has experienced a reality check.

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