China's Strategic Pivot Towards a 'Fortress Economy': Implications and Challenges

China's Strategic Pivot Towards a 'Fortress Economy': Implications and Challenges

China's Strategic Pivot Towards a 'Fortress Economy'

In a bid to protect China's economic stability amidst mounting global uncertainties, Chinese Communist Party (CCP) leader Xi Jinping is promoting an economic model focused on enhancing national self-sufficiency and resilience. A recent study reveals Beijing's plans to shield its economy from external shocks, such as geopolitical conflicts and worldwide pandemics.

Unveiling The 'Fortress Economy'

A report published on July 30 by Jimmy Goodrich, a fellow at the University of California Institute on Global Conflict and Cooperation, delves into the official CCP speeches and policy documents. It offers a comprehensive analysis of the Party's progress in implementing its "fortress economy" policy across several crucial sectors. The paper states, "[The strategy is] designed to bolster national self-sufficiency and resilience against external shocks, and ultimately allow the nation to withstand 'extreme situations' including protracted armed conflict."

Global Upheavals Prompt Strategic Shift

The catalyst for this strategic change can be linked to a series of global disturbances. The escalating tensions between the U.S. and China, the Russian invasion of Ukraine, and the widespread disruptions caused by the COVID-19 pandemic have collectively highlighted the vulnerability of interconnected global supply chains. These events have spurred Beijing to reevaluate its economic priorities, focusing on reducing dependency on foreign markets and boosting domestic economic capabilities.

'Dual-Economic Circulation' Policy

At the heart of this reevaluation is the "dual-economic circulation" policy. This policy aims to shift China's economy from its historical dependence on exports towards a more balanced model that enhances domestic industries while continuing to participate in international trade. By encouraging strong internal economic activity, the CCP aims to lessen the impact of global disruptions on China's economy.

Broader National Security Agenda

This dual approach not only targets economic stability but also aligns with Xi’s broader national security agenda. The report highlights that the CCP’s strategy covers several critical areas, including food and energy security, supply-chain robustness, civil defense mobilization, and the development of strategic reserve infrastructure. These measures are designed to prepare the nation for “extreme-case” scenarios, ensuring that China remains resilient in the face of potential crises.

Implications of China's Fortress Economy

The Epoch Times further notes, “This research contributes to understanding China’s strategic intentions and provides a foundation for further exploration of the implications of China’s fortress economy on global economic and geopolitical dynamics,” the author wrote. China’s economy significantly depends on exports. Last year, the country’s total exports reached about $3.38 trillion, while imports totaled roughly $2.56 trillion. This resulted in a trade surplus of $820 billion—the second-highest in the past decade. Robert O'Brien, a former national security adviser, commented on the report, urging Washington to pay attention. “The CCP is preparing to fight and win (or at least survive) a very long war. America should take heed,” he wrote on Aug. 3.

China's Economic Challenges

Since the COVID-19 pandemic, the Chinese economy has faced multiple problems, particularly the property crisis marked by the bankruptcy of China’s real estate giant Evergrande. The company is the world’s most indebted firm, with $340 billion in debt. Earlier this year, a prominent hedge fund manager said the Chinese economy was in trouble because of its heavy investment in the real estate sector, which could result in a crash worse than the 2008 U.S. financial crisis. The property sector accounts for 70 percent of China’s gross household wealth and about 25 percent of its gross domestic product (GDP), making it a key growth driver but posing a vulnerability for its economy.

Beijing's Response to Economic Struggles

China’s troubled real estate market has dragged down the economy, prompting the regime in Beijing to implement “temporary steps,” including 16 measures to support the sector, according to last year’s report from the Atlantic Council GeoEconomics Center and the Rhodium Group, a Washington-based think tank. The report found that China’s economy struggled with multiple problems, and without robust reforms, Beijing was likely to face a threat to its growth prospects in the coming years, hurting its global position.

Need for Structural Reform

The report points out that the root of China’s economy is its “persistent structural reform gap,” which results in “lagging behind top OECD economies in most market dimensions,” and suggests that structured reform is needed. “The Chinese economy is suffering in part because the [Chinese Communist] Party continues to prioritize ideology over economic dynamism,” it reads. Due to its weak performance, Beijing’s ambition to dethrone the United States as the world’s largest economy by the end of the 2020s “will not happen in this century, let alone this decade,” the report notes. Bloomberg economists also forecasted last year that China’s economy was unlikely to overtake the U.S. economy. They predicted that China’s GDP might surpass that of the United States around the mid-2040s but by “only a small margin” before “falling back behind.”

Bottom Line

China's strategic shift towards a 'fortress economy' is a significant development in the global economic landscape. It reflects Beijing's efforts to safeguard its economy from external shocks and underscores the nation's focus on self-sufficiency and resilience. However, the challenges posed by the property crisis and the need for structural reforms highlight the complexities of this transition. What are your thoughts on this development? Do you think China's 'fortress economy' strategy will succeed in bolstering its economic resilience? Share your thoughts and discuss this article with your friends. Don't forget to sign up for the Daily Briefing, available every day at 6pm.

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