China has made big bets on electric vehicles and artificial intelligence, and now its top leaders are beginning to question whether the bet has gone too far.
On Monday, Chinese leader Xi Jinping questioned the country's single-minded focus on several high-tech sectors.
“When it comes to new projects, there's always a few things, like artificial intelligence, computing power, new energy vehicles,” Xi said at a Beijing conference on urban development, the Chinese Communist Party's Daily reported on Thursday.
“Do all states in the country have to develop industries in these fields?” xi asked.
Xi's unusually dull remarks about questioning China's industrial strategy are due to the recent promise of the country's top leadership to curb the fierce “competitive” competition. The statement shows a shift from Beijing's regular pushback Western criticism Industry overpower and cheap exports.
The comments reflect growing concern that China's pursuit of domination in EVs and AI could be economically and politically backfired.
“Recession” and deflation trap
Ultra competition is especially severe in the EV sector, where fierce price wars have narrowed margins and raised alarms on long-term sustainability.
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Beijing is currently encouraging market consolidation and cracking down on unhealthy practices. These include abuses last week, Greater China's chief economist Lynn Song said, “business that forces people to sell products below cost.”
This is because deflationary pressure is getting worse. China's producer price index, or PPI, fell 3.6% in June, the sharpest decline in nearly two years.
That's not just bad news for businesses or the Chinese economy. There is also the risk of increasing trade tensions as China's exports become cheaper and global markets become flooded.
China's GDP growth rate was 5.3% in the first half of the year. Much of the momentum could be driven by exporting frontloads ahead of new US tariffs and temporary consumption subsidies.
Under the headlines, China's economy is Consumer trust Unemployment among young people remains high as they are depressed.
“It appears that persistent PPI deflation has ultimately attracted the attention of Beijing's top leadership,” wrote the Nomura economist last week.
