China is doubling down on manufacturing to reboot its economy after a turbulent year, a strategy that risks igniting new tensions over trade as countries step up support for prized industries and global growth teeters.The push for new growth drivers comes as figures showed the world’s second-largest economy expanded in 2023 at its weakest rate in decades, aside from the three years when China was closed to the outside world during the Covid-19 pandemic. A drawn-out property crunch means Beijing can no longer rely on debt-fueled real-estate investment to power the economy, and officials have shown little appetite to shift activity decisively toward consumer spending.The result: Capital is pouring into factories as Beijing tries to nudge China’s supertanker economy onto what it hopes will be a healthier trajectory.Central to that ambition is a plan to dominate global markets in emerging industries, such as electric vehicles, batteries and renewable-energy gear. Chinese companies such as automotive giant BYD, battery maker CATL and solar manufacturer Longi Green Energy Technology are already among the world’s most prominent players in those markets.The hope is that growth in what Chinese officials refer to as the “New Three” industries and other favored sectors will help China’s economy banish the specters of deflation and Japan-style stagnation as a real-estate crunch weighs heavily on construction, investment and consumer confidence.Longer-term, Beijing wants these and other high-tech manufacturing industries to be in the vanguard of its push to eventually unseat the U.S. as the world’s largest economy, while also helping it grow richer and weather the pressure of an aging and shrinking population.
Most American journalists are not natively Classical Liberal or Free Market Capitalist oriented. Given the choice between free citizens in a free market versus unfree citizens in a planned authoritarian economy, they will always go for the latter.
From Chartbook Carbon Notes 10: In China, clean energy is now THE driver of overall economic growth. by Adam Tooze.
As data from the IEA confirm, the scale of China’s green energy push in the last couple of years dwarfs the much ballyhooed green energy programs in the West - NextGenEU, IRA etc.Chinese manufacturers are expanding production of solar, wind, batteries and EV at a breakneck rate. Fierce competition is driving prices and costs down at a rate never previously imagined. Barring some unforeseen technological upset, China is set to be the leader in the first decades of the global clean energy transition.But what is even more momentous is that China is the first large economy in which clean energy investment has become the principal driving force of overall investment and economic growth.It is one thing for China to take on a large slice of solar panel markets. That is a global story, but a sectoral one. It is another for China’s solar energy push to take on such dimensions that it becomes one of the most important forces driving the Chinese economy, which as Chris Giles insisted in a recent piece in the FT should now be recognized by the most meaningful metrics - PPP and physical output - as by some margin the largest in the world.
There is an unseemly frisson in the articles about China going all in on the renewable electric future. The clerisy is enamored of both the goal (net zero carbon) and the means (planned economy). And welfare of the citizenry de damned.
The only thing worse for freedom and prosperity for citizens than a planned economy is a planned economy swinging for the bleachers.
China is on a demographic cliff, their economy has run out of steam, they are botching their international relations, some of the mal-allocations of capital (real estate and Belt and Road) are beginning to come home to roost. There are increasing questions about corruption in governance, in the economy, and in the military. There are a lot of headwinds.
A different leader and/or with different policies and China still has huge potential. But my priors tell me they are about to head down a difficult path. The New Three industries won't be their salvation.
But it will be interesting. I am convinced that the EV policies are misplaced because their justification, Anthropogenic Global Warming, is faulty. We increasingly see just how badly the climate models are performing in their forecasts, we know the weakness of our long term economic forecasting, and we are increasingly aware of just how large are our knowledge gaps when it comes to comprehending the many chaotic, evolving, loosely coupled, power law driven systems which make up the global climate as well as just how inadequate are our empirical measures.
AGW and Climate Change as policies will implode in the next decade. We'll put the best face on it but the empirical realities are against it.
But China is betting on the AGW theology continuing and growing.
Further, it appears to me that we have already reached the realistic limits with current technology in terms of just how much role can be reasonably played by renewable energy. I think there is plenty of evidence to suggest that renewable energy for grid purposes and the whole EV movement are going to see significant reversals in the next five years.
If that is the case, China will end up having made a Hail Mary commitment to a sector already at its peak. The amount of misallocated capital will be daunting.
In five years, if China heads down this path, their economy will flatline or shrink. If the US remains reasonably committed to the free market, we will see plenty of adaptation and reduced climate change policies and reduced investment in unsustainable and unfeasible EV and renewable energy policies. The US will continue its leading 1.5-2.5% a year increase in productivity.
We'll see. I might already be wrong. There might be some key technology breakthroughs that suddenly make China's commitments feasible. But given with what we know right now, I am happy to bet on the US, on free citizens and free markets. And I correspondingly think that the clerisy are wrong in their rosy expectations of China's command economy commitment to AGW and EV.
I am sorry for the Chinese citizenry as their government commits to what I am reasonably certain will be failed policies around AGW and EV. Central planning just won't work in the long run for a large economy and I think they are making a mistake which will make Chinese worse off. And by the time they get around to recognizing, acknowledging and changing direction, they will be a further 5-10 years into the demographic decline.
All of which will make China a more challenging place for the US to work with internationally. But those are bridges quite a ways down the road.
