Beijing signaled policy continuity, rejected Western claims of industrial overcapacity, and projected greater confidence as Brussels sets an October deadline and Xi Jinping plans more meetings with Donald Trump.
China is forcefully defending an economic strategy that prioritizes advanced manufacturing and investment over stronger household consumption, signaling little near-term appetite for the consumer-led stimulus and structural changes long urged by Western governments and many economists. The messaging comes as President Xi Jinping and Donald Trump plan more face-to-face meetings this year and as Brussels presses Beijing to resolve trade disputes by October amid concern over China’s trillion-dollar-plus trade surplus. Top Communist Party leaders indicated policy continuity on Thursday by calling for targeted support rather than broad consumption-focused measures. That stance was reinforced days earlier when the commerce ministry rejected criticism of "so-called industrial overcapacity," calling the concept rooted in "logical flaws" and "ulterior motives." Qiushi, the party’s flagship theoretical journal, also argued in July that China’s low consumption was a "historically justified" result of its investment-led development model, while still saying a model shift was "necessary." Analysts say Beijing is trying to explain its policy choices while also setting negotiating boundaries. Xu Tianchen, a senior economist at the Economist Intelligence Unit, said the messaging aims both to improve mutual understanding in talks and to draw a "red line," particularly against what China sees as discriminatory measures on its firms and products. Beijing argues its model suits an economy still catching up with richer nations and says its exports are not just cheaper but increasingly higher quality, with technology and science investment benefiting the world. Premier Li Qiang this month pushed back on warnings of a "China shock 2.0" by describing it instead as "China opportunity 2.0" for the global economy. That argument faces resistance abroad. Eswar Prasad, a professor of trade policy at Cornell University and a former China director at the International Monetary Fund (global lender), said the narrative is "falling flat" in countries absorbing Chinese exports, especially given China’s dependence on exports as weak domestic demand weighs on growth. The United States’ tariff push of more than 100% last year lost force after Beijing leveraged its dominance in rare earths (critical minerals used across industries). The European Union, meanwhile, is pursuing its own industrial and domestic procurement defenses after running an average $1 billion-a-day trade deficit with China last year, and German Chancellor Friedrich Merz this month accused Beijing of keeping its currency undervalued. Recent statements suggest Chinese officials believe they can ease trade tensions without major concessions. Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, said the U.S. tariff episode appears to have offered Beijing a template of managed engagement that it is now applying to Europe by effectively buying time. China has moved to slow investment this year, mainly through tighter scrutiny of local government spending, amid concerns that such spending has fueled manufacturing and infrastructure overcapacity. Officials acknowledge a supply-demand "contradiction," have pledged to stop deflationary price wars, and continue to promise support for consumer demand, though not through major structural reform. Analysts say that reflects recognition of imbalances, but also caution about making disruptive changes too quickly. International research has added to the pressure on Beijing’s model. The Organisation for Economic Cooperation and Development said in a recent report that nearly 60% of Chinese firms’ market share gains can be explained by subsidies. A Bank of Italy paper estimated that domestic factors including weak consumption and overcapacity accounted for about 75% of Chinese export growth. McKinsey Global Institute said China is adding three times more productive assets each year than Europe and the United States combined, while earning capital returns roughly 40% lower. Daniel Rosen, co-founder of Rhodium Group, said China’s arguments are becoming more frequent and formal because evidence of domestic economic strains spilling into the rest of the world is building even faster.