US-China Relations Updates

Recently, a French political commentator published an article titled “China: The Great Retreat” in Le Figaro, vigorously disparaging the Chinese economy. The author presents an air of seriousness but is filled with numerous fallacies, making it a hodgepodge of clichés and prejudices, replete with ignorance and bias.

Fallacy 1: “China’s Economic Growth Rate Cannot Achieve Established Targets.” The article claims that China’s second-quarter economic growth of 0.8% makes the annual target of 5% growth unattainable. In fact, 0.8% represents the quarter-on-quarter growth rate, while China’s second-quarter year-on-year growth rate was 6.3%. Comparing the quarterly growth rate to the annual target is misleading and leads to erroneous conclusions. China’s year-on-year economic growth rate for the first half of the year was 5.5%, in line with expectations and providing a solid foundation for achieving the annual target. The International Monetary Fund, World Bank, Organisation for Economic Co-operation and Development (OECD), and the United Nations all predict China’s economic growth rate to be above 5% this year. China’s economy possesses tremendous resilience and potential, and its long-term positive fundamentals remain unchanged. There is confidence, capability, and determination to accomplish the annual target with high quality.

Fallacy 2: “China’s Economy Entering a Deflationary Cycle.” The article claims that China’s Consumer Price Index (CPI) declined by 0.3% in July, showing all the characteristics of deflation. In reality, China’s CPI increased by 0.7% year-on-year in the first half of the year. In July, the month-on-month CPI increased by 0.2%, but due to a higher base in the same period of the previous year, the year-on-year figure showed a decline of 0.3%. Here, the author once again uses misdirection by selectively using the favorable year-on-year decline of 0.3% data while concealing the month-on-month increase of 0.2%. Even though the year-on-year CPI decreased in July, the core CPI, which excludes food and energy prices, rebounded significantly, rising by 0.8% year-on-year, an increase of 0.4 percentage points compared to the previous month. Furthermore, the CPI for August reached a bottom and turned positive, rising by 0.1% year-on-year. The author completely overlooks these positive factors, perhaps because they have no interest or patience to thoroughly analyze these economic data. After all, their intention is not to objectively portray the Chinese economy but to disparage it. Looking at indicators such as economic growth and monetary supply, China’s economy does not meet the conditions for deflation. It should be noted that deflation requires a reduction in monetary supply. However, by the end of July, China’s broad money supply (M2) reached CNY 285.4 trillion, a year-on-year increase of 10.7%, and it is expected to exceed the CNY 300 trillion mark by the end of the year. In the first seven months, yuan loans increased by CNY 16.08 trillion, with a year-on-year net increase of CNY 1.67 trillion. Overall, the liquidity of the entire social currency is reasonably abundant, and there is no deflation risk.

(Note: The translation is based on the provided text and does not reflect any personal opinion or endorsement.)

Misconception Three: “End of the ’40 Glorious Years’ of the Chinese Economy.” The article claims that the issues in the Chinese economy are not cyclical but structural. The Chinese economic growth rate has declined from 9.5% to 3%, and the growth model of the “40 Glorious Years” has collapsed. In fact, in 2022, the Chinese economy did grow only by 3%, but this was mainly due to the impact of the pandemic. Even so, it was better than the growth rates of the United States (2.1%), Germany (1.9%), and France (2.6%) during the same period, contributing nearly 20% to global economic growth that year. Despite the three years of the pandemic, China has maintained an average annual growth rate of around 4.5%, significantly higher than the global average, and has remained an important engine and stabilizing force for global economic growth. The transition from a phase of high-speed growth to high-quality development is a fundamental characteristic of China’s economy in the new era, reflecting the general law that economic development must shift from “quantity accumulation” to “quality improvement” at a certain stage. China adheres to the concept of new development, focusing on improving quality and efficiency to promote sustained and healthy economic development, avoiding excessive stimulus measures and striving to maintain reasonable economic growth based on enhancing quality and efficiency. When observing the Chinese economy, it is important to consider not only the growth rate but also the structure and momentum. From January to July this year, investment in high-tech industries in China increased by 11.5% year-on-year, the production index of modern services grew by 11.9% year-on-year, and exports of the “new three” industries (electric vehicles, lithium batteries, and solar batteries) in the first half of the year increased by 61.6% year-on-year, indicating strong new momentum in the Chinese economy.

Misconception Four: “Financial Market Crisis in China.” The article claims that the Chinese banking sector is unstable due to real estate debt, foreign capital is fleeing, and the stock market is plummeting. In fact, China’s financial system operates stably, and key indicators are within a reasonable range. The Chinese banking sector and financial institutions, especially large banks, have maintained excellent ratings. The bank failures that people have seen occurred in the United States with Silicon Valley Bank, Signature Bank, and First Republic Bank, and the bankruptcy and acquisition of Credit Suisse Bank occurred in Europe. In terms of foreign capital, China’s actual use of foreign investment reached $189.13 billion in 2022, an increase of 8%, reaching a historical high. Due to the influence of high base factors during the same period in 2022, China’s actual use of foreign investment in the first half of 2023 slightly decreased by 2.7% year-on-year to $97.4 billion, but the overall scale remained stable. In July, the net inflow of cross-border investment from foreign investors to China rebounded to the second-highest value in nearly a year, and the net inflow of cross-border investment in securities to China continued. In terms of the source countries, actual investment from France, the United Kingdom, Canada, and Switzerland in China increased by 213.7%, 159.9%, 113.3%, and 61.2%, respectively. The Chinese stock market has its own peculiarities, and it sometimes decouples from the economic fundamentals, but it also serves as a financial “firewall” to some extent.

Misconception Five: “China’s Economy ‘State Advances, Private Retreats’.” The article claims that state-owned enterprises in China dominate over private enterprises, hampering economic activities and innovation. In fact, both private and state-owned enterprises are important components of the Chinese economy, each with its own advantages and characteristics. They are like the two wings of a bird or the two wheels of a car, and one cannot be lacking. China’s private economy has the “56789” characteristics: it contributes over 50% of the tax revenue, over 60% of the GDP, over 70% of technological innovation achievements, over 80% of urban employment, and accounts for over 90% of the total number of enterprises. From 2012 to 2022, the number of private enterprises in China has more than doubled from 10.857 million to over 47 million in just ten years. In national-level specialized and innovative “small giant” enterprises, private enterprises account for over 80%, and the number of private listed companies has surpassed 3,000. Huawei, which is currently facing severe restrictions from the United States, is a private enterprise. Recently, Huawei’s 5G smartphone Mate60 series broke through the U.S. chip blockade and made a significant impact, providing evidence of the innovative vitality of Chinese private enterprises.

Fallacy Six: “The decoupling between China and the United States is caused by China.” The article claims that the end of China’s miracle is not due to U.S. sanctions but rather China’s own policy shift, and that China is to blame for its own actions that have damaged globalization. This is purely groundless! It was the United States, not China, that initiated the trade war. The United States imposed high tariffs on thousands of goods imported from China, involving a value of up to $370 billion, which is outright trade bullying! It was the United States, not China, that initiated the technology war. The United States included over 1,300 Chinese companies on various sanction lists, choking China’s high-tech sector, imposing bans in areas such as chips, artificial intelligence, and quantum computing, and forming alliances such as the “U.S.-EU Trade and Technology Council” and the “Four Nations on Chips” to erect high barriers. It was the United States, not China, that initiated the military encirclement. The United States patched together the “Three-Border Partnership,” “Four-Side Security Mechanism,” and the “Five Eyes Alliance,” instigating tensions in the Taiwan Strait and the South China Sea, concocting the so-called “values alliance,” and forming alliances to comprehensively surround and contain China. It is the United States, not China, that is reversing globalization, frequently “destroying agreements and withdrawing from organizations.” The United States paralyzed the WTO’s appellate body, withdrew from the Paris Agreement, used security as an excuse to decouple and sever ties, and disrupted the normal global industrial supply chains, international trade relationships. Research by the International Monetary Fund indicates that U.S. trade and technology decoupling measures could lead to a 7% loss in global GDP. The responsibility for the current state of tension in U.S.-China relations lies entirely with the United States! The setback in globalization is entirely caused by the United States!

Fallacy Seven: “China has fallen into the ‘middle-income trap’.” The article claims that China has already fallen into the “middle-income trap” and that the United States is returning to a position of strength. In fact, there is no clear standard for the “middle-income trap,” and it is a false proposition, especially for China. China has consistently ranked as the world’s second-largest economy, the second-largest consumer market, the largest manufacturing country, the largest goods trading country, and the country with the largest foreign exchange reserves for many years. It possesses the most complete and largest industrial system, strong production capacity, and comprehensive supporting capabilities, producing or consuming over 50% of the world’s metals and cement, building over 50% of the world’s subways, and operating nearly 70% of global high-speed rail. Where is this so-called “middle-income trap”? In a horizontal comparison, China’s economic performance is significantly better than that of major developed economies. According to research by British economist Angus Maddison, from the second quarter of 2019 to the second quarter of 2023, China’s GDP grew by 19.2%, while the United States grew by 7.6%, Italy by 1.5%, France by 1.4%, Germany by 0.5%, and the Eurozone by 2.9%. The growth rates of the United States, Italy, France, and Germany are only 40%, 8%, 7%, and 3% respectively compared to China. In terms of annual average growth rates, China’s GDP growth rate (4.5%) is 2.5 times that of the United States (1.8%), more than 3 times that of the OECD (1.4%), over 4.5 times that of the G7 (1%), and over 6 times that of the Eurozone (0.7%). If China has fallen into the so-called “middle-income trap,” then these developed countries are probably trapped in a “high-income trap.” The “return of strength” for the United States is not something to be proud of; it is blatant self-interest, relying on cutting China’s wool and sucking the blood of allies to replenish itself. The “return” of the United States comes at the cost of Europe’s “decline.” The result of the “Inflation Mitigation Act” is siphoning off Europe’s green industry, and the consequence of blowing up the “Nord Stream” pipeline is that Europe purchases U.S. shale gas at four times the price. Examples like these are plentiful.

When discussing economic issues, one must possess basic economic literacy, have a comprehensive grasp of data, and conduct professional analysis. Recently, we often see not economists but political commentators enthusiastically discussing China’s economy, which inevitably leads to speaking in layman’s terms. In this article, there is no trace of professionalism; instead, there is more emotional and neurotic venting, as well as the fabrication of distorted facts and concept swapping. The author ignores common knowledge andexpert consensus on the subject, selectively presents data to support their narrative, and engages in baseless accusations and finger-pointing. This type of argumentation lacks intellectual rigor and undermines the credibility of the author’s claims.

To have a meaningful discussion on the challenges and opportunities facing China and the United States in the global economy, it is essential to approach the topic with objectivity, evidence-based analysis, and a willingness to consider multiple perspectives. Resorting to fallacies, personal attacks, and misrepresentation of facts only hinders constructive dialogue and understanding.