Episode Summary: "What Might Save China's Economy"
Podcast: The Indicator from Planet Money
Host: Darian Woods
Guest: John Ruich, NPR's China Correspondent
Release Date: March 18, 2025
In this insightful episode, Darian Woods delves into the pressing question of China's economic trajectory and the factors that might influence its ability to surpass the United States as the world's largest economy. Through an engaging conversation with NPR's China correspondent, John Ruich, the episode explores China's current economic state, the challenges it faces, and the strategies it employs to foster growth and stability.
Background and Context
The episode begins by referencing Goldman Sachs' evolving predictions regarding China's economic supremacy. Initially forecasting that China would overtake the U.S. by 2026, Goldman Sachs later adjusted this target to 2035. However, China's recent economic hurdles have sparked debates about whether it will ever achieve a larger economy than the United States. This shift holds significant implications globally, as "one sixth of all the world's economic activity happens in China," underscoring its pivotal role in international affairs.
Current Economic State and Growth Targets
China recently concluded its annual National People's Congress (NPC), a key event where the country's leadership outlines its economic priorities and targets. John Ruich highlights that China has set an ambitious GDP growth target of around 5% for the year, maintaining the same target as the previous year. While this growth rate is higher than that of the U.S., achieving it remains uncertain.
"It's around 5%. And it's the same as it was last year. Now achieving that rate of growth is possible, but not guaranteed."
— John Ruich [01:38]
Economic Challenges: Real Estate Slump and Trade Tensions
A central theme of the discussion revolves around China's ongoing struggles in the real estate sector. The "real estate hangover" has led to a prolonged slump, dampening the confidence of both the middle class and businesses. This sector's downturn restricts consumer spending, which is crucial for sustaining economic growth.
Additionally, the episode touches upon the repercussions of the U.S.-China trade war. New U.S. tariffs on Chinese-made goods present further challenges. However, proponents like Tian Xuan, a delegate and finance professor at Tsinghua University, remain optimistic.
"Tiansuan's fairly relaxed about it, though. He thinks the authorities have more ways to adapt this time around and are better prepared."
— John Ruich [04:28]
Government Strategies and Investments
To navigate these economic headwinds, China is focusing on strategic investments. Key areas include:
- Infrastructure: Enhancing ports to facilitate trade.
- Research and Development: Investing in cutting-edge technologies.
- Green Energy and Advanced Manufacturing: Aimed at positioning China as a global leader in future industries.
The government emphasizes the importance of boosting domestic consumption to reduce reliance on investment-driven growth. Recent policy announcements include initiatives to raise the minimum wage and invest in childcare, signaling a shift towards enhancing economic security for citizens.
"China just wrapped up its annual session of Parliament, the National People's Congress. And this is a once a year opportunity to take the pulse on what China's leaders are thinking about the economy."
— John Ruich [01:10]
Technological Innovation
Innovation is hailed as a cornerstone for China's economic resilience. The NPC highlighted significant advancements in technology sectors, with notable mentions of companies like Deepseek, an AI firm that achieved impressive breakthroughs with limited budgets.
"Innovation is blooming. And the key to reaching China's economic goals is creating an even better environment for innovation."
— John Ruich [06:23]
However, the narrative is nuanced with skepticism from industry experts like Arthur Kroeber, who questions the profitability and sustainability of these high-tech investments.
Criticisms and Limitations
Arthur Kroeber, a seasoned China economist, offers a critical perspective on China's heavy investments in technology. He argues that many high-tech industries, such as EVs and batteries, are currently unprofitable due to overcapacity and intense competition.
"I don't think that that is very likely because the problem with that is you look at all these high tech industries that everyone is so excited about, EVs and batteries and whatnot, but they're not very profitable."
— Arthur Kroeber [07:38]
This profitability issue hampers the ability of these companies to offer substantial wages or expand their workforce, thereby limiting the potential for broader economic growth through increased consumer spending.
"Everyone is struggling. So they're all barely making money, and so they don't have a lot of ability to hire lots of people and give them big wages."
— Arthur Kroeber [08:10]
Kroeber concludes that while China's industrial policies have yielded competitive manufacturing industries, overall growth may remain sluggish, contradicting the government's optimistic projections.
"Growth is probably going to be pretty sluggish for a few more years yet, and they're not going to get this magical nirvana that they hope for."
— Arthur Kroeber [08:32]
Future Outlook and Conclusion
The episode underscores the delicate balance China must maintain as it transitions from an investment-heavy economy to one driven by consumer spending. Achieving this shift requires enhancing economic security for its citizens, a goal reflected in the government's recent policy measures.
As Darian Woods aptly summarizes, the episode presents a "glass half empty" view on China's economic strategy. While there are successes in sectors like green technology, significant challenges remain in ensuring these advancements translate into widespread economic benefits.
"China's a leader in green energy. For instance, EVs, batteries. And it's made some pretty surprising strides recently in AI, as Deepseek showed."
— Darian Woods [07:13]
In closing, both China and the United States face periods of economic transition, each with its unique set of challenges and opportunities. The episode encapsulates the complexities of China's economic landscape, offering a comprehensive analysis of what might save its economy in the face of internal and external pressures.
"There will be plenty of transitions for both countries, I'm sure that I think."
— John Ruich [09:44]
Produced by: Cooper Katz, McKim, and Alwyn Tsar
Engineered by: Khwesi Lee
Fact-Checked by: Sarah Juarez
Edited by: Cake and Cannon