Geoeconomics Bi-Weekly: China Announces Its Economic Goals for 2024

Happy Friday everyone! It was a busy two weeks in the world of geoeconomics, capped off by President Biden’s State of the Union address last night. So without further ado, here’s our state of the global economy. 

State of the Global Economy 

The annual meeting of China’s National People’s Congress kicked off in Beijing this week, with Premier Li Qiang, the country’s No. 2 official, announcing several ambitious goals. China is targeting “around 5%” growth in 2024 and vowed to “transform" its growth model in the face of several significant challenges. (China claims its economy grew 5.2% in 2023, which some experts doubt.) In addition, China set its consumer inflation target to 3% and unemployment target at 5.5%. Yet, despite these lofty goals and challenges such as a deflation, high youth unemployment, and low consumer confidence, China gave no hints of impending economic stimulus. Government spending is set at a similar level to last year, with a fiscal deficit target of 3% of economic output.  

In Europe, the European Central Bank (ECB) held interest rates steady at its Thursday meeting as, while trending in the right direction, inflation persists above its 2% target. The Consumer Price Index (CPI) registered annual inflation of 2.6% in February, down from 2.8% the month prior, and Core CPI, which strips out more volatile food and energy prices, fell to 3.1% from 3.3%. The stubborn inflation may be fueled by wage growth and rising services prices in the bloc’s top economies. The ECB meets next on April 11th, as it seeks to avoid prematurely lowering interest rates while economic growth in the 27-country union stagnates. 

Across the Atlantic in the United States, the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, fell from an annualized rate of 2.6% in December to 2.4% in January. Still, while inflation is zeroing in on its 2% target, Fed Chair Jerome Powell tempered expectations of rate cuts at the Fed’s upcoming March 19 meeting. Atlanta Fed President Raphael Bostic also stated this week that the Fed is under no pressure to lower interest rates in the immediate future due to the United States’ “prospering” economy and job market. U.S. GDP grew 3.2% in Q4 2023 according to the latest estimate, while unemployment remains low at 3.9%. 

Stories of the Week 

China expands national security law to include "work secrets” as foreign investment plummets: Foreign businesses have long had to weigh the risks of operating in China’s relatively opaque political system against the considerable benefits provided by the world’s second largest economy. But lately, the risks have been increasing. Last week China expanded an already stringent state secrets law to broaden the range of information which could be deemed a threat to national security, including a new category of “work secrets.” The extensive and unclear scope of the law further complicates operations for foreign businesses and investors in China, who are already coping with an increasingly aggressive state campaign to control the flow of information. Some businesses may be concluding that the risks are now too great. Foreign direct investment into China fell to a 30-year low in 2023, and foreign companies are beginning to pull profits made in China out of the country instead of reinvesting. 

Biden Administration issues Executive Order limiting outbound data transfers: Despite the increasing sophistication and proliferation of digital tracking and profiling techniques, there is no U.S. federal law preventing the transfer of data on U.S. citizens to malign actors. Recognizing this gap in U.S. national security policy, last week the White House issued an Executive Order (EO) aiming to limit cross-border data transfers that pose “an unacceptable risk” to U.S. national security. Though the EO attempts to minimize disruption to existing U.S. business activities through targeted exemptions, the long-term effects will depend on its implementation and enforcement. Prior to this executive action, U.S. companies had historically faced few restrictions on how they transfer data abroad. While there are legitimate national security concerns with unfettered cross-border data transfers, restrictions can carry economic costs. 

Booming Chinese auto industry comes under increasing scrutiny in the West: While the Chinese economy is facing significant challenges, its auto industry remains a bright spot. China is the world’s largest vehicle market by both annual sales and manufacturing output, it became the world’s top auto-exporter in 2023, and it is a clear leader in the emerging electric vehicle (EV) industry. Other stakeholders, however, are not standing idle as China increasingly captures the nearly $3 trillion global auto industry. Last week, President Biden ordered a security review of “connected” vehicles produced by Chinese manufacturers, while the European Union has been investigating state subsidies into the Chinese EV industry since last fall. The United States does not import many vehicles from China, though Europe was the top destination for Chinese EVs in 2023. 

In move to reinforce the dollar’s global dominance, the U.S. Securities and Exchange Commission shores up U.S. bond market: The U.S. dollar’s dominance of the international financial system provides certain advantages (and a few disadvantages) to the United States, including the ability to impose devastating financial sanctions. And the dollar’s dominance in large part stems from the size and stability of the world-leading U.S. bond market. Investors around the world need a safe place to park their money, and there is no safer place than U.S. Treasury bonds. To shore up this strength, the Securities and Exchange Commission (SEC) recently passed new regulations designed to fortify the bond market after several periods of instability in the past decade. For instance, one update increases the range of trades required to pass through a clearing house, an intermediary that validates and finalizes transactions. While much hinges on implementation, the changes could increase the efficiency and liquidity of the bond market, two key criteria driving the market’s attractiveness to investors worldwide.  

The EU further embraces role as a “regulatory leader,” levies $2 billion antitrust fine on Apple: While Europe may not have tech giants of its own like the United States and China, it is nonetheless a player in the global technology ecosystem. It just goes about it in a different way: regulation. Known as the “Brussels Effect,” the European Union leverages the attractiveness of its massive internal market to propagate its regulations throughout the world. This week, the EU continued to embrace this role in the global tech ecosystem, fining Apple nearly $2 billion for violating antitrust law. The fine was issued on grounds that Apple barred competing music streaming services from advertising on Apple platforms. Apple intends to appeal the decision. 

What We’re Watching 

• March 11 – This week, the U.S. House of Representatives will vote on a bill forcing Chinese company Bytedance to divest of popular social media site TikTok. The bill would ban TikTok in the U.S. if Bytedance doesn’t sell it within 180 days. The bill advanced out of committee with a 50-0 vote on Thursday. 

• March 19 – U.S. Federal Reserve meets to decide on interest rates