China’s growth model pushes Beijing into trade conflicts

BEIJING/FRANKFURT, Jan 29 (Reuters): Swiss solar panel maker Meyer Burger is facing the brunt of competition from China and is warning it may have to close its loss-making production plant in Germany unless the government steps in with financial support.
"Chinese manufacturers are deliberately selling goods in Europe far below their own production costs," chief executive Gunter Erfurt told Reuters.
"They can do this because the solar industry in China has been strategically subsidised with hundreds of billions of dollars for years."
Growing alarm over Chinese industrial overcapacity flooding the European Union with cheap products is opening a new front in the West's trade war with Beijing, which kicked off with Washington's import tariffs in 2018.
Brussels' trade policy is now also turning increasingly protective against the global ramifications of China's production-focused, debt-driven development model.
Throughout last year, China's policymakers flagged their intention to make domestic demand a more prominent growth driver to wean the world's second-largest economy off its decades-long reliance on infrastructure and the property sector.
But China has diverted financial resources from real estate to manufacturers rather than households, raising overcapacity concerns, deepening factory-gate deflation, and prompting a European Union investigation into its electric vehicle sector.
China's current path leads to more trade conflicts, warns Pascal Lamy, former head of the World Trade Organization, now distinguished professor at China Europe International Business School.
"This is not sustainable," Lamy said. "Overcapacity will inevitably lead to a problem."
"We have come to the realisation that this is a structural problem and that it stems from the fact that part of the Chinese production system is not driven by market behaviour, but by Chinese Communist Party-directed investment."