Beijing Misreads China’s Policy Needs

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Feb 7, 2026 - 11:00 Updated: Feb 7, 2026 - 01:14
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Beijing Misreads China’s Policy Needs

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Commentary

Beijing’s National Development and Reform Commission (NDRC) acknowledges the economy’s imbalances. China suffers from supply capacities far in excess of domestic needs or demands, leaving the country uncomfortably dependent on exports.

In response, the Commission has promulgated policies that it claims will increase demand, especially among China’s consumers. But most of the Commission’s new policies emphasize investing in expansion and modernization, activities that, by their nature, will increase supply and seem set to exacerbate the economy’s unfortunate imbalance and dependence on exports.

What the Commission proposes to increase consumer spending can only be described as weak. It has announced that it will continue the trade-in subsidies Beijing put in place last year. The idea of these practices was that Chinese consumers would buy new products more freely by making it attractive for people to trade in their existing automobiles and household appliances.

The record of the past year shows a negligible effect on consumer spending, leaving little reason to expect that continuing the program will have much more impact in 2026. Commission planners also intend to extend the subsidies on personal consumption loans put in place last year. New policies for 2026 will extend the subsidy to credit card installments. This extension might help, but the mediocre response to last year’s loan subsidies leaves little room for optimism.

The rest of the NDRC plan emphasizes major projects in high-technology industries and advanced manufacturing, including new energy, artificial intelligence (AI), and biotech. It also seeks subsidized interest rates on loans to businesses for expansion and modernization, with special guarantees to support such investments in small- and medium-sized businesses.

In other circumstances, these measures may help the economy, but all this investment will only add to China’s ability to produce in excess of domestic needs and demands. What is more, the emphasis on biotech, AI, and advanced manufacturing simply extends the great surge in support for these industries Beijing marshalled in 2023 and 2024, an increase in investment spending that added substantively to the supply excesses from which China now suffers. China’s ongoing deflation, especially in producer prices, speaks loudly to this problem.

On balance, then, these new measures will likely worsen China’s supply-demand problem, intensifying the economy’s dependence on exports at a time when the United States, Europe, the West generally, and Japan are showing an increased hostility to China trade. To be sure, China and the European Union (EU) have recently worked out an accord on sales of Chinese-made electric vehicles (EVs) to European customers, and Washington has moderated its tariff threats.

But even as the EU has offered to suspend its tariffs, it has imposed conditions that will limit Chinese EV sales in Europe, and Washington, for all its recent moderation, maintains high tariff levies. Meanwhile, China’s ability last year to make up for lost exports to America and Europe with sales to the so-called “global south” is unlikely to persist. Many of these countries—most notably Malaysia, Indonesia, and India—have already taken steps to stem the flow of Chinese goods.

Zhou Chen, head of the NDRC’s department of national economy, deserves credit for calling attention to China’s dire supply-demand imbalance. The matter needs immediate attention if China is to relieve its problematic dependence on exports and regain growth momentum. Sadly, the Commission’s policies to date are not likely to improve matters. Indeed, they seem set to exacerbate them.

Until Beijing can formulate more forceful policies to revive the Chinese consumer, it is hard to generate much optimism about the economy’s growth prospects.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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