China's tech loan surge sparks fears of global export onslaught. Here are the details

China's aggressive push to elevate its manufacturing sector, particularly in high-tech areas such as semiconductors and electric vehicles (EVs), is ringing alarm bells as experts warn of a potential flood of cheap exports, fuelled by overcapacity.

A Reuters report, citing lending data from China's central bank, reveals a 38.2 per cent surge in loans to the manufacturing sector by the end of September, raising concerns among trading partners, particularly in Europe.

"There is lower consumption in China right now but you have massive overcapacity that is being pushed out to the world, including in batteries, solar, and chemicals,” Jens Eskelund, President of the European Chamber of Commerce in Beijing, tells Reuters.

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China's leaders have strategically directed financing toward high-tech manufacturing, emphasising advanced sectors like EVs and aerospace components. This shift in focus has triggered concerns about a potential clash in trade dynamics between Europe and China.

Eskelund compares the intensifying competition to "two trains that are going to collide". The industrial policy of China, a major topic at the Asia Pacific Economic Cooperation (APEC) forum, is expected to be discussed during the meeting between Chinese President Xi Jinping and U.S. President Joe Biden in San Francisco this week.

Economists caution that this surge in investment differs from past episodes, emphasising the narrower focus on high-tech and advanced manufacturing.

"China has adopted a strategy to shift investment spending from the real estate sector into manufacturing," explains Frederic Neumann, Chief Asia Economist at HSBC.

This strategic move is part of China's broader plan outlined in the 14th five-year plan of 2021. Neumann highlighted a key difference in the present scenario, noting that global markets might struggle to absorb the additional capacity generated by China's focused investment.

Despite signs of excess capacity emerging, Chinese authorities are forging ahead with their plans, increasing loans to green development, advanced manufacturing, and strategic industries. Provincial and municipal governments are aligning with this approach, directing government loans to fuel this surge in the manufacturing sector.

A Reuters review of policy documents revealsa trend where many regions are prioritising high-tech and green development. For instance, Guangdong province has significantly increased lending to both high-tech and advanced manufacturing. Signs of overcapacity are evident, such as China's ability to meet global demand for lithium-ion batteries and its automotive sector's capacity to produce 43 million cars annually, with plants operating at only 54.5 per cent capacity.

In response to the concerns, Lu Zhengwei, Chief Economist at Industrial Bank in Shanghai, sees the race to invest in advanced sectors as beneficial for China's long-term development.

Lubelieves thatthe investment in the new sectors is healthy and would support the long-term development of the sectors.

However, this surge in high-tech production could also exacerbate global trade tensions, especially as countries worldwide are increasingly favouring domestic high-tech industries.

(With inputs from Reuters)

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