China: Buying time to meet socialist modernisation goals

Following the China-US trade talks in London, Bloomberg ran a commentary summarising the stark contrast in mindset between the two countries regarding the trade dispute: while US leaders are eager for quick results, Chinese leaders are focused on playing the long game.

The commentary said that US President Donald Trump hailed the outcome of trade talks in London, declaring on social media that a deal had been “done” to restore the flow of critical magnets from China, and pledging to lift curbs on student visas.

In contrast, Chinese President Xi Jinping seemed to be going for an understated strategic gain: a negotiating process that would buy China time and help defuse the threat of more harmful tariffs and technology curbs. Meanwhile, a commentary in Chinese state media People’s Daily made no mention of export controls, but touted an “institutional guarantee” established in Geneva for the two sides to bridge differences via a consultation mechanism.

Bloomberg said: “The contrast illustrates a disconnect in how the world’s biggest economies want to manage their trade dispute, and broader rollercoaster relationship. While Trump seeks quick deals done directly with top leaders, Xi favors a framework led by his lieutenants that wards against being blindsided.”

As China-US trade negotiations entered a stalemate, both sides reached a framework agreement during last week’s talks in London, but the details of this framework have yet to be made public, much less with a formal written trade agreement.

Around the time of the China-US talks in Geneva, some analysts predicted that Washington would be more eager than Beijing to reach a deal. On the one hand, the US midterm election campaign season is approaching, and the Trump administration faces mounting pressure to control inflation and reduce the fiscal deficit. On top of that, an unexpected “triple blow” to the financial markets — plunging stocks, bonds and currency — has further constrained Washington, making it difficult to wield tariffs as a weapon.

On the other hand, the 90-day “ceasefire deadline” is approaching on Trump’s tariff battles with various countries, and the tariff war is at risk of remaining unresolved. If Washington can quickly reach an agreement with its biggest challenge — Beijing — this deal could serve as a model for negotiations with the EU and Japan, so that the tariff war will not remain unresolved.

In contrast, China does not mind advancing negotiations slowly, assessing Trump’s talks with other countries while buying time to lay the groundwork in key strategic areas. Such “talking while tussling” might end up like the back and forth bargaining over tariffs that lasted almost throughout Trump’s first term, where Beijing used that time to overcome core technological hurdles.

In this current round of the trade war, China has also played its “rare earth card”, giving it a stronger bargaining chip. While China continues to face chokeholds in areas such as semiconductors, its leverage in rare earths has provided a counterweight, helping it avoid a significantly weaker position or the need to make major concessions.

Bloomberg also quoted Christopher Beddor, deputy director of China research at Gavekal Research: “Xi is playing a longer game on US-China trade. His time in office is simply much longer than Trump’s. That’s not to say there’s never any short-term thinking, but the lack of term limits presents very different incentives than for Trump.”

In the Chinese context, this long-term, steady approach is often referred to as “strategic focus” (战略定力). Since becoming general secretary of the Chinese Communist Party at the 18th Party Congress in 2012, Xi has consistently emphasised the importance of maintaining strategic composure in the face of risks and challenges. This means not being swayed by short-term external fluctuations, but rather making decisions based on a broader, long-term view of national trends, and avoiding moves that might jeopardise long-term interests for the sake of short-term gains.

For China’s top leadership, the long-term goal they are most concerned with is likely the one set at the 19th Party Congress in 2017: to basically achieve socialist modernisation by 2035. In other words, the top priority over the next decade is to stay the course on economic development and solving domestic issues, regardless of shifts in the domestic or international landscape.

Historically, China has seen instances where domestic and external factors caused major deviations from intended paths. For example, in the mid-20th century, the political line set at the 8th Party Congress — centred on economic development — was taken over by an emphasis on class struggle, culminating in the decade-long turmoil of the Cultural Revolution.

In recent years, China’s economy has undergone considerable disruption, and not just from external factors. The prolonged lockdowns during the Covid-19 pandemic severely hampered economic activity; private enterprises suffered under harsh regulatory crackdowns; and efforts to promote “common prosperity” sparked concerns over a potential leftward ideological shift. At one point, doubts even emerged over whether the leadership might be abandoning the long-standing party principle of prioritising economic development.

Under mounting external pressure, China’s resources and policy focus have clearly tilted towards industries aligned with national strategic goals, rather than sectors more attuned to market logic or addressing immediate public needs.

Fortunately, since the end of last year, some deviations have been corrected. The authorities have introduced strong stimulus measures for the economy, stock market and property sector, to restore confidence among private enterprises and entrepreneurs. Some regions are also raising wages and subsidising consumption, to boost confidence and jumpstart the consumption market.

The China-US tariff war is unlikely to end in the short term. For China to maintain a steady pace amid this prolonged conflict, it must first take care of its own internal affairs. Whether building up industries aligned with the national strategic agenda or improving the livelihood and confidence of its people, both are indispensable on the path towards its 2035 goal.

This article was first published in Lianhe Zaobao as “关税战中找定力”.

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