The country could stoke domestic demand to become more self-reliant
Thursday 30 Jul 2020 Author: Tom Sieber

In the last decade or more the Chinese economy has undergone a significant transition as it moves away from an infrastructure-driven and export-reliant economy to one fired by domestic consumption.

This change can be tracked by looking at how the country’s current account surplus has moved to a deficit. Broadly speaking a current account surplus means an economy is exporting a greater value of goods and services than it is importing.

Having peaked in 2008 when China truly lived up to its reputation as ‘The World’s Factory’ the surplus has declined significantly.

There are several factors underpinning the growth of the consumer economy, one being a natural offshoot of the maturation of the Chinese economy. A larger Chinese middle class is more likely to have disposable income to spend on products and services at home.

In the short term at least, exports have been hit by the coronavirus crisis as demand has dried up and trade routes have been affected by lockdown restrictions. Chinese tourists who might have taken their renminbi overseas are also shopping domestically instead.

There are signs China wants to move further in this direction as it looks to become more self-reliant. This may reflect pressure on the country and its businesses from other countries concerned about its growing global influence, and about its recent actions in Hong Kong and in the immediate aftermath of the Covid-19 outbreak.

A report by the Chinese Academy of Social Sciences, a think tank closely affiliated to the state, suggests the next five-year policy plan – due for 2021 – should prioritise home-grown innovation and look to tap into a substantial domestic market.

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit here

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