China's economy has experienced significant growth, resulting in a current account surplus. To address this surplus, China is increasing its outbound foreign direct investment (FDI), with a focus on emerging economies. China's clean-technology manufacturing sector is well-positioned to provide renewable energy products to developing countries, supporting their economic growth and green transition. By investing in renewable power projects and electric vehicle (EV) plants, China can help these countries achieve their sustainability goals. Additionally, China can strengthen its alliances with emerging economies through FDI, which serves as a form of soft power. Given China's growing wealth and high emissions, maintaining diplomatic standing with low- and middle-income countries is crucial. Drawing inspiration from the altruistic legacy of the Marshall Plan, China aims to enhance its diplomatic relationships and promote its green agenda [bced0d12].
Experts at the 2024 Tsinghua PBCSF Global Finance Forum in Hangzhou, Zhejiang province, have argued that the narrative of China's 'overcapacity' is false and disregards economic principles. They suggest that China should establish a modern, green economy similar to the Marshall Plan after World War II, helping other developing countries in their green transformation. This proposal aligns with the recent suggestion made by China's central bank adviser, Huang Yiping, who recommended that China lend to developing nations to support their transition to clean energy. Huang believes that this approach would not only help these countries expedite their green transition but also address China's overcapacity issue and enhance the internationalization of its financial sector. He compares this strategy to the Marshall Plan, which was implemented to restore Europe's economy after World War II. Huang suggests that China could provide renewable energy investments through sovereign credit or direct funding. However, this proposal may face criticism from Western countries, as some have accused China of creating a 'debt trap' through its lending practices in initiatives like the Belt and Road Initiative. To address these concerns, Huang recommends that Chinese financial institutions exercise prudence in commercial lending and that the Chinese government collaborate with international organizations to resolve debt difficulties in these economies [ae303b6f], [3d78d7b6].
Zhu Guangyao, a former vice-minister of finance, criticizes the US for providing large subsidies to its own industries while criticizing other nations. He emphasizes the importance of returning to multilateralism and strengthening international coordination of macroeconomic policies. Huang Yiping, dean of Peking University's National School of Development, proposes expanding exports of China's 'new trio' products (electric vehicles, lithium batteries, and photovoltaic products) to developing countries to meet their green transition needs and stimulate economic development [3d78d7b6].
China's central bank, the People's Bank of China (PBOC), is facing obstacles in its plans to improve its monetary policy toolkit by returning to the treasury bond market after a 17-year hiatus. The scarcity of low-risk assets in China's financial sector is hindering the PBOC's efforts to deepen the bond market and improve liquidity. The dominance of credit in the Chinese economy, controlled by state banks, has led to concerns over capital misallocation and inefficient lending. The PBOC's plan to use treasury bond trading as a main market operation tool is a medium-term ambition due to the lack of liquid benchmarks. The central bank is expected to start bond trading cautiously and gradually to avoid triggering deficit monetization concerns and capital outflows [c877b033].
This shift in power comes as China aims to become a financial superpower and prioritize financial security and control against international and geopolitical backdrops. The central bank will step in to defuse risk for local debtors and small banks, serve as a gatekeeper for financial security, and counter potential Western sanctions. The size of the monetary supply, cost of funds, direction of capital flows, and international monetary cooperation are all expected to change. The central bank's leadership and decision-making structures will be more formally bound to the Communist Party, and the bank is expected to take a stronger pro-growth stance. However, these changes raise concerns about the bank's diminished autonomy in policymaking and increased dependence on the party [fd776c8f].
The proposed revision to the central bank's law reflects years of deep analysis of the Western financial system, changes in domestic circumstances, and rising geopolitical tensions. China's central bank will now fall under stricter Communist Party control, signaling a departure from the standards of Western central banks. The bank's new mandate focuses on promoting growth, development, and avoiding sanctions. It will also play a more prominent role in international affairs, including the Belt and Road Initiative and international organizations led by Western countries. However, concerns have been raised about the bank's diminished autonomy in policymaking and increased dependence on the party [fd776c8f].
China's Politburo has pledged to provide more support for the country's economy. The announcement comes as China faces increasing economic challenges, including a slowdown in growth and rising debt levels. The Politburo, which is the top decision-making body of the Communist Party of China, stated that it will implement a more proactive fiscal policy and maintain a prudent monetary policy. The goal is to ensure stable economic growth and prevent major risks. The announcement comes ahead of the annual Central Economic Work Conference, where policymakers will discuss economic plans for the coming year. The Chinese government has been taking steps to support the economy, including cutting taxes, increasing infrastructure spending, and providing liquidity to banks. However, concerns remain about the impact of the property market and the country's high debt levels. The Politburo's pledge to provide more support indicates that the government is committed to addressing these challenges and maintaining economic stability [fd776c8f].
Environmental Studies experts from Yale University criticize the Western claim of 'China's overcapacity' and tariffs on Chinese products such as electric vehicles (EVs) as unfair. They highlight China's leadership in solar power, wind power, and new forms of electric vehicles. The experts also praise China's green and low-carbon development philosophy and its efforts in addressing climate change and promoting energy transition. They argue that the accusations towards China of overproduction and unfair tariffs are not a healthy foreign policy. They emphasize the need for Western countries to develop mutually beneficial relationships with China in the field of energy transition and ecological protection [a8687af7], [f61e347d].
The G7 claims that China's industrial policies lead to 'global market distortions and harmful overcapacity.' China argues that the G7's allegations are unfounded and reflect a reluctance to acknowledge China's economic progress. China points out that the G7's focus on protectionist measures and trade barriers undermines economic stability and growth. China suggests that a more cooperative and inclusive approach would benefit the global economy. China also highlights that the G7's concerns about Chinese companies' excess capacity are actually about their high efficiency. China argues that the G7's protectionist measures contradict economic theory and undermine the benefits of trade. China points out that Chinese companies do not dump electric vehicles (EVs) on global markets at a lower cost and that leading Chinese EVs cost roughly double in Europe compared to China. China also highlights that the global supply of solar panels needs to catch up to reach net-zero emissions, and subsidies for renewable energy are not unique to China. China argues that it has been a key driver of global economic growth and that the G7's portrayal of China as a threat disregards the broader benefits of global trade and cooperation.