China cutting reliance on exports as domestic demand grows

China’s pattern of economic growth is changing. The country is depending more and more on domestic consumption than external demand.

Previously, beginning from the 1980’s and 1990’s, when China’s economy first began rapid expansion, economic growth relied mainly on exports. China was called the “workshop of the world”, producing everything from clothes and shoes to electronics for exporting. Relatively cheap prices made it a convenient place for other countries to import from. However, during the past years, domestic consumption was lagging behind. The economy of the country was growing mostly because of exports.

China's booming economy

With the beginning of the economic recession in 2007, exports were expected to go down. The global situation began to change. The economies of many Western countries plunged, people were left without work. This meant, of course, that they were spending less. Purchasing power in the United States and Europe went down. According to a recent World Bank report, the pattern of economic growth has been changing. The slowdown in global growth affected China’s exports.

“In China we see a quite different economic growth pattern this year and last because of both domestic and external reasons,” said Ardo Hansson, lead World Bank economist in China.  In the World Bank report, it was stated that the report raised its forecast for China’s year-on-year GDP growth for 2010 to 10 per cent from 9.5 per cent and that for 2011 to 8.7 per cent from 8.5 per cent.

The effect of the recession was not as strong as it could have been. What happened? China somewhat altered the plan of economic growth. As China emerged this year as the second largest economy of the world, the country has taken a variety of measures to encourage domestic consumption and reduce export reliance. This is in order to ensure more sustainable growth. “Changing the growth pattern is rightly a key target,” the report said.

The level of domestic consumption in China is going up. There are several reasons for this change. Consumption within the country is benefiting from a robust labor market and private sector investment. China’s retail sales, a measure of domestic demand growth, expanded by about 18 per cent in recent months, compared to about 15 per cent a year earlier.

The government is focusing on increasing domestic demand. Zhou Xiaochuan, the central bank governor, said that the economy’s structure would witness substantial and profound changes during the next five years.

Some of the changes that the government is planning to make is accelerating urbanization and bring more demand for non-export categories such as healthcare and education.

Li Daokui, a member of the monetary policy committee of the central bank, said at a recent forum that “China could make substantive changes to its economic structure in three years and substantially reduce its reliance on external demand.”

Currently, domestic consumption in the country is maintaining steady and strong growth, and will continue to do so within the next 3-5 years, according to istockanalyst.com. According to the website, the momentum of consumption growth is increasingly high. As compared to last year, retail sales have risen 18.7 percent.

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