Beijing scrambles to prop up China’s domestic economy as foreign investment falters

(Originally published July 25 in “What in the World“) In the latest admission of the crisis enveloping its economy, China’s Politburo on Monday pledged additional support for the faltering recovery.

“China’s economy is facing new difficulties and challenges,” said the Communist Party’s top decision-making body, which is chaired by its secretary-general, President Xi Jinping. The Political Bureau of the Communist Party of China Central Committee blamed the sluggish recovery on “insufficient domestic demand, difficulties in the operation of some enterprises, risks and hidden dangers in key areas, as well as a grim and complex external environment.”

That external environment continues to deteriorate amid the undeclared economic war between China and the United States. The Biden Administration has maintained trade sanctions imposed under former President Donald Trump and encouraged businesses to “de-risk” supply chains away from China. China has meanwhile embarked on a domestic crackdown on financial information that it considers economic espionage. Caught in the crossfire, foreign investment into China is suffering. After climbing almost 5% in the first three months of 2023, FDI for the first half dropped 2.7% to 703.7 billion yuan ($98 billion), according new data from the Ministry of Commerce.

The Politburo pledged Monday to keep the renminbi stable, suggesting it wouldn’t push the People’s Bank of China, the central bank, for further rate cuts to revive growth. Instead, it said it would focus on boosting consumer demand and stimulating technology and SMEs. It also called for speedier issuance of local-government “special purpose bonds,” the bonds created in 2015 to help provincial governments raise money to avert bankruptcy by refinancing the estimated $12.4 trillion in debts they accumulated in a bad bet on property.

Monday’s statement from the Politburo was reinforced by the release Monday by the National Development and Reform Commission of a new “white list” of sectors newly opened to private investment. Among the new sectors were mechanized agriculture, clean energy, infrastructure, and water.

The Politburo’s strategy echoed a 31-point recovery plan that Xi announced last week. That plan also sought to stimulate SMEs and high-tech, while seemingly declaring a truce in Xi’s campaign against free markets in favor of state-owned enterprises and state-directed investment.