Stimulus package + Northvolt + Pension system

In this issue of MERICS China Essentials, we cover the following topics:

China's central bank on Tuesday unveiled a wide-ranging stimulus package, with a strong focus on mobilizing capital for the industrial upgrading and expansion touted by Xi Jinping. Apart from cutting key interest rates, the PBOC lowered banks’ reserve-requirement ratio by 50 basis points, freeing up around 1 trillion yuan (EUR 130 billion) for lending. MERICS Lead Analyst Jacob Gunter argues: “Far from being a course correction to get China’s growth engine back on track, these cuts are too small to have more than a marginal effect on countering the impact of China’s considerable economic headwinds." Read more

The difficulty of Europe’s “de-risking” project in an interdependent, global market was on full display last week when Northvolt, a recipient of EU funding and Europe’s hope for an indigenous battery scene, fell into crisis. Separately, US chip supplier Intel postponed construction of its German plant by at least two years. Antonia Hmaidi , Senior Analyst at MERICS, says: “With two flagship projects in trouble – Northvolt and the Intel fab in Germany – and China trying to derail de-risking, the EU must get member states and companies on board if it wants the policy to work.” Read more

China’s mounting socio-economic problems are forcing Beijing to take decisions long deemed taboo. For the first time in over 70 years, lawmakers raised the country’s famously low retirement age in a bid to reduce the country’s huge pension deficit. “During years of strong growth and rising wages, Beijing shied away from unpopular decisions to increase tax and payments into welfare systems in order to preempt the current socio-economic pressures” says MERICS Lead Analyst Nis Grunberg . “But Beijing is now facing payback time amid economic slowdown and demographic decline.” Read more

At the recent Quad leaders’ summit in Delaware with the US, Australia, India, and Japan, US President Joe Biden tried to cement his foreign policy legacy in countering China’s growing geopolitical influence. MERICS analyst Claus Soong says: "The continuation of the Quad could underpin an American-led multilateral alliance system in countering China, which would suggest more burden sharing among America’s allies.” Read more

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