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CIO View: China’s metamorphosis

The government in Beijing is banking on consumption-led growth. The government intends to further reduce its dependency on exports.

07 APR 2014

China’s success story is breathtaking. Growth rates have, in the past, even gone into the double digits. That is why the news coming out of China today is all the more foreign. The latest shock is that China’s exports were down 18.1 % year- on-year in February.1 This precipitous drop adds to the evidence that China’s growth model, which relies heavily on foreign demand, can no longer do its job.

Reducing export dependency

This is not a new issue for the Chinese government. For years now it has been working to strengthen domestic demand and decrease China’s dependence on exports. To spur domestic consumption, it has promoted wage increases and allowed the renminbi to gradually appreciate. Wage increases and other policy-related price rises have, in turn, caused China’s global competitiveness to wane by nearly 20 % between 2007 and October 2013.2 We therefore expect the contribution of net exports to growth to remain low in 2014.

Read more in your regional CIO View, which you can download below.

"China wants to give the market economy a chance. Over the long term, the reform path should pay off."

Asoka Woehrmann, Co-Chief Investment Officer

1General Administration of Customs, 03/2014

2Deutsche Bundesbank: Macroeconomic approaches to assessing price competitiveness, Monthly Report October 2013