Can China future-proof its economy as global crises grow? - Asia Specific podcast, BBC World Service

As war engulfs the Middle East, the economic fallout is felt worldwide, with oil prices surging. And that poses a challenge for Iran's biggest oil buyer, China, which is in the midst of a broader economic slowdown. Once the growth engine of Asia, China is now trying. to future proof its economy in an increasingly uncertain world. Can Beijing pull off its plans to become. more self-reliant? And as China's still on track. to become the world's biggest economy in the coming decades.

I'm Mariko in Singapore, and this is Asia Specific from the BBC World Service. Twice a week we bring you Asia Pacific stories. unpacked by those who know them best. And today I have our Asia business correspondent Suranjana Tewari. I also have our China correspondent Laura Bicker in Beijing. Welcome both. Thank you. Nice to be back. Now, Laura, shortly after the attack on Iran, I think. it's fair to say that the market reaction was relatively calm.

And you and I spoke on this podcast. that the impact on Chinese oil supplies might be limited. But now there are fears of prolonged disruptions. to shipments through the Strait of Hormuz pushing up oil prices. So this will inevitably impact the Chinese economy. So I think China's probably thinking. and making the same calculations as many other countries. I think when you see what they've done in the last few days, they've sent a special envoy to the region who's already.

kind of contacted their Saudi Arabian counterpart. They're obviously concerned enough to try to make inroads. with other countries, to try to join with others, to hold discussions calling for an immediate ceasefire, calling for this war to come to an end. When it comes to where China's real weak points are, remember, let's look at where China has been over the last few years. It's tried to diversify its economy. After the first trade war with Donald Trump,

it tried to move away from the United States. Where did it go? Well, one of the regions it went to was the Middle East. Let me give you a few examples of that. So trade between China. and the whole wider region has expanded to about 480 billion in 2024. Now that's an 80% increase since 2020. And the likes of UAE is the fastest growing market for Chinese cars. And there's demand from Saudi Arabia and others for renewable energy. And I think when you look at where China is going,

what China is trying to do when it's diversifying its trade portfolio, the Middle East has been a big buyer. Now, I was in Yiwu last year. in the middle and at the height of the trade war. And many of the people, many of the buyers that were there. were from the Middle East. And already we've seen on social media some kind of local providers. in Yiwu, which these are the kind of places that make clothes, make shoes, cheap toys, for instance,

and already some of Chinese, kind of, businesses there are showing concern about the Middle East. So when you see the ripples, and the ripple effect of what could happen. with this war in Iran, I think that is where China is concerned. And as I say, concerned enough to send a special envoy. to try to even look at other countries and perhaps join together to mediate. And Su, we're seeing not just oil prices, but also gas prices spiking as well.

Let's talk about the rest of Asia as well, the impact on them, especially India. Absolutely. I mean, Asia is, it's called the factory. of the world because it's a manufacturing hub. So all of these economies need oil to generate electricity. for their own people, but also to run their factories. And China is no different as well, of course. So these supplies come from the Middle East largely. I mean, natural gas, Qatar has the largest natural gas reserves in the world.

And LNG is a very specific product, but it's been developed over years and now many economies rely on it. for their electricity, for their energy needs. Now, you know, you've got obviously China and its relationship with Iran, not just that its supply of oil from Iran, which, by the way, it was getting at a discount. So even if it can find new sources of oil, it won't be as cheap as what it was.

And then you've got other countries like Japan, South Korea, big manufacturers again, that rely on this oil as well. And you mentioned India. India imports a great deal of oil from the Middle East. It's really going to struggle to produce all the electricity it needs. for its big population, but also its manufacturing as well. And we're seeing how important it is because even the US has said, India, you can buy oil from Russia for this one month, even though that was the one reason that the US slapped 50% tariffs.

on India because it was buying Russian oil. So it just goes to show how important this region. and the oil supplies that come from there are. And, Laura, this Iran upheaval, it comes at a time. when Chinese leaders have been holding a big annual meeting. in Beijing, where the broader economy has been. in the spotlight because they lowered their growth target. Can you firstly tell our audience why they did this? So they've downgraded their, kind of economic prediction.

to around 4.5 to 5% growth in the next year. Now I think your audience is going, oh well, you know, that doesn't sound too bad. I think when it comes to the indication that this makes. when China says, you know, in the last few years, it's been 5%, 5%, 5%. You know, when China says something like, look, we have decided. that it's going to be lower than it has been in previous years, the lowest since records began in 1990.

When you look at that, that is a real message to the Chinese people. to say, look, our economy, and it's an acknowledgement, our economy is not growing as fast as we hoped. It's not growing as fast as it has had, has done in the last 20 to 30 years, however, I think it will kind of strike at the heart. of the kind of average Chinese household already concerned. And that is because there are major challenges facing China's economy,

which you and I have talked about before. But let's talk about them again. Youth unemployment around one in five young people in China. are struggling to find work. Then you've got the really persistent housing crisis, real estate crisis where housing prices have plummeted. I remember around 80% of Chinese households. have invested their money in their homes, and they've watched that value decrease over the last few years.

And to them that is worrying. And that is probably. why people in this country are not spending the way that they used to. So they're not going out and making extravagant spends. And that is what the government really needs to do right now. It's been exporting itself out of problems. So basically doing what China does. As Suranjana mentioned, it is the factory of the world. So exporting its way out of trouble, selling things to other countries right around the world. Now it needs to boost its own economy.

It needs its own people to spend money. if it's going to balance its own economy out. And that's what we've been hearing about. during what is called the annual two sessions. Now it's basically a rubber stamp session. The decisions have all been made. Everything's all been laid out. It's just a case of reading it out and then putting a rubber stamp on it. and then telling, you know, the Communist Party leaders off. you go to your provinces and sort this out. However, what we have been hearing and Suranjana will talk. probably more about this in a second, is they want to kind of boost.

by 12 million urban jobs. They want to help the real estate market. They want to kind of do things to try to ensure. that the young people coming out of college can find jobs. And that includes in the likes of artificial intelligence, robotics and new technology. What they haven't said is how they're going to do it. I want to ask about the reliability, though, of those Chinese data, because before XI Jinping came to power,

those growth targets weren't exactly as accurate. Whereas since he came to power, aside from during the Covid-19 pandemic, it's almost spot on. It's not a new topic of conversation. There's always been a talk about this, but how reliable do you think those Chinese data is, Su? Calculating GDP is a really complicated process. It takes into account a lot of factors. And as economies develop, a lot of those factors change.

And there's variables and, and all sorts of things. And it's not just China. That's data is often criticised for perhaps not being real. It's something I've heard in India. I've heard it in Indonesia just last year as well. Having said that, with China, it is a very unique economic system. It is parts of capitalism, but it is largely a communist system. And we have to remember that when we are thinking about policies. and growth rates and, you know, whatever they've announced.

China is reevaluating its engine of growth, how its people are feeling. about their wage growth and about the price of goods. China's actually facing falling prices rather than inflation. And the problem with that is that it dents business confidence. People think, oh, the prices are going to fall further. and therefore I will delay spending. And that is a problem in itself because the leaders have seen. that they think that consumption will help bring back the economy.

And China has historically, traditionally been really averse. to using a lot of stimulus, taking on debt. in order to try and fuel growth within the economy. And they're kind of at a crossroads at the moment because they can't rely on exports anymore. because of the international environment and because of things like tariffs. And at the same time, the property sector is in the doldrums and. it's really hard to bring that back. I mean, Mariko, I've traveled around the country in the last two years. If you ask any Chinese person on the street, in their business,

in their home, the first thing they'll say is the economy is not good. Now, they're not going to criticise the Chinese Communist Party. They're not going to criticise, you know, internal decisions. But the first thing they'll always tell you is, look, you know, the economy's not good. And I'm worried because X, Y, Z. And I think, you know, if that is your key concern, that is worrying for Chinese Communist Party leaders, because they know that in order to keep the confidence of the people,

they have to come up with a decision and come up with some solutions. The reason why it's so important is because China wants. to be a developed nation by 2035. That is their one goal. They've already lifted all of these people out of poverty, and they want to continue doing that. And how do they continue doing that? They need new engines of growth. or continued engines of growth that actually achieve those growth rates. So that's why that growth target is so important to them. Yeah, I want to get to deflation and falling prices in a bit.

But Laura, I want to ask your opinion. on this ongoing debate about the accuracy of Chinese data, because it is a quite sensitive topic in China, isn't it? I remember at the end of, I think, 2024, there was a an economist who kind of questioned, you know, maybe the growth figure isn't as good as the government is portraying it to be. And he was asked not to speak in public events anymore. So what's your take on this.

accuracy of Chinese data? I think what I would say is that anybody I've spoken to still believes. that China's economy is growing slowly but growing. And it depends on which analyst. and which you know and how how they're analysing it. No one's saying that China's economy is completely shrinking. But I would say it depends on which particular person you speak to. Is China's economy grown by 2%, 3%, 5%? It's hard to say.

I think in terms of where they go in the future, that is where people are looking at the two sessions right now. and looking at Lianghui and looking at Beijing. and this meeting of the Communist Party. I think in terms of, yes, okay, we're looking at whether or not the data in the past has been accurate, but now they're going to throw it forward and go, okay, fine. You've set this target of between 4.5 and 5%. Does that mean that growth, you know growth has been lower. And how on earth are you going to fix it? And as Suranjana says,

the key thing about this week is it allows us we don't get this very often, it does allow us to see, perhaps, what the Communist Party's thinking. On deflation, on falling prices. China is not the first Asian country to go through it. I remember talking about Japan's deflationary problems. for many times, many years now. But what's causing China's deflation problem, Su? So is it that it's just producing too much stuff to flood the market? That's one of the reasons. It's the main reason.

You talk, hear about overcapacity, hear about the dumping of cheap Chinese goods. in places like Southeast Asia and Europe. I mean, Europe's leaders have really pushed back on the overcapacity, saying China produces too much. and it doesn't allow our industries to be competitive. Your textile factory in Indonesia, your car factory in Thailand, they really suffer when Chinese goods are being exported to those countries. because they just can't compete. They don't have the cost efficiency.

They can't manufacture at the scale that China can. They can't pay the wages, and they don't have enough labour to be able. to compete with these Chinese goods. Now, even within China, overcapacity is a problem. And this is where we're seeing it, because the prices are falling. and leaders recognise that prices falling. affects the overall sentiment. It affects investments. It affects the ability for people to feel that they can spend money. But even this Spring Festival just gone, I mean, we are seeing a bit.

of an uptick in consumer spending, which is obviously good news for China. But the number of AI offers and vouchers, for example, it's still happening. It's not like people are holding back on that. So, you know, it's again, it's a dilemma for the leaders. They want to fuel consumption. They want people to spend more money, but they also don't want these industries competing with each other. to the point where prices fall overall. Yeah, it seems like there's a sense of growing defeatism among other countries.

that they just can't compete against China when it comes to trade. But China has also been trying to be, I guess, self-reliant, especially when it comes to tech, haven't they? So that they don't have to rely on US tech. Laura, what are they doing and do you think they would be successful? So here's the thing about China. It gets good at something. And then it says this is what it pushes forward.

I mean, whether it's you know, electric vehicles, renewables, whether it's, you know, solar panels, basically it says to manufacturers, this is what we want to do. This is the focus that we're going to have, that our state subsidies offered, and people go down the route, there's research and development offered. So people go down this route, manufacturers go down this route. and get on board. The problem is too many of them do it. And then that is why you have this massive capacity problem.

You've got far too many of them, and they end up selling them. at really, really low cost prices. And then those who are struggling on the outskirts. of that manufacturing, they go out of business. So that's what they've done. What are they doing now? Well, they're pushing forward artificial intelligence, robotics, high tech, anything to do with AI, whether it's anything to do with robotic arms, etc. Now, I've been in some of these factories in the last few months. and they are incredible. I mean, I've been in factories that go.

for 24 hours a day making electric vehicles, and I've seen robotics in action. I've seen, now they have universities that teach artificial intelligence courses and you are encouraged to go on them. Will China be successful at that? Yes. But could it be too successful? And I would, you know, kind of say this. in terms of already we're seeing the likes of drone deliveries. We've seen the likes of, kind of self-driving cars also take to the road. The problem is timing, because.

right now you have, you know, problems with manufacturing. You have a very large 300 million migrant workers who go from rural areas. to the city to try to find jobs. Now, if you cannot offer them work because a robot is doing their job, now. China has more robots in their factories than anywhere else in the world. If you cannot offer them a job because a robot is doing it, or if you are seeing more movement towards robotics and high tech. rather than employing people,

and they do that too fast, then they have an employment problem, a bigger employment problem than youth unemployment. Given all the challenges that we've been discussing, I mean, go back a decade or so. I remember China's economy overtaking that. of Japan to become the world's second biggest economy. And all the predictions were that one day China is going to overtake that. of the United States to become the world's biggest economy. Is it still on track to do so, Laura?

I think, I take a deep breath. because it all depends on what happens here. We are looking at a world full of uncertainty. Now look on paper, no. Not any time soon. I think China knows that. The US knows that. However, on paper, when it comes to whether it's, you know, the top economy. or whether you're the main economy, I think that's where in terms of China, what China has proved in the last year when it stood up. to the United States, is that the world will struggle without it.

And that's what Beijing, and that's what the Chinese government really knows right now. So in terms of how much the world is reliant on China, China is aware of that. In terms of will it overtake the US any time soon? I don't think anyone believes that, given the challenges, could it. in many, many years, I think that's very difficult to predict. I also think that you have to look at which area, like GDP. Obviously, yes, America is still.

is still the biggest economy or per GDP rather. Having said that, technology wise, China is speeding miles ahead of the US, not just in terms of developing the technology. Yes. They still don't have the smallest chips or the fastest chips in the world. But in terms of applying artificial intelligence into their daily lives, China is way ahead. They are already in the process. We were talking about artificial intelligence.

You know, this year I think we're going to see. it being applied into our daily lives. And I think China is going to be the first place that we're going to see it, you know, on a day to day basis. And one of the reasons that they've done that is because, for example, for their data centres, they've figured out the energy source. All these countries in the region that are building data centres, Singapore being amongst them, Japan is building the Philippines, Vietnam, they're all building, but they've not figured out. You know, these are energy poor countries already.

They're water poor countries, whereas China has got green energy. onto the grid. And that power is supplying these data centres. So I really think it looks, it depends how you look at it. about whether China is ahead or not. In the technology race, it certainly seems to be steaming ahead. I think I'd better let you two ladies go back. to covering the two sessions on this very busy week. Thank you so much for joining me, Laura and Suranjana. Thank you. Bye. You've been watching Asia Specific from the BBC World Service with me,

Mariko Oi in Singapore. If you have any questions or thoughts on what we've covered in this episode. or any other stories from the region, please leave us a comment below. You can also get in touch with us on email asiaspecific@bbc.uk. and click like and subscribe so you never miss an episode. See you next time!