Re-balancing China’s Economy

6 Mar

China’s 12th five year plan has the goal of developing a more sustainable economy, one that can continue to grow and is less susceptible to the world’s volatile economy.  The 2008 economic crisis increased the motivation required to re-balance China’s economy.

China’s economy is heavily reliant on exports. In 2007 56% of its GDP was accounted for by exports, with the USA and Europe being its biggest market. Therefore at the onset of the economic crisis it would be fair to assume that China would have also plunged into recession. Despite large scale redundancies in the export sector a technical economic crisis was avoided. This is largely due to the rapid implementation of an economic stimulus programme, of which the principle aim was to increase domestic demand and consumption.

Investments of 4 trillion Yuan between 2008 and 2010 were spent on building affordable housing, infrastructure such as the Bullet Train Network, public health and education, the environment and technical innovation. Furthermore, increased urbanisation and the reformation of the hukou system were also aimed at increasing domestic consumption since urban residents tend to spend more and save less compared to their rural counterparts. The programme was largely financed through banks that increased their lending following an economic U-turn in response to the economic crisis.

The decoupling of economic growth and high export rates is likely to make China a more sustainable economy whilst also maintaining their global presence. An increase in domestic consumption will create a type of a guard against future economic shocks and enable continued growth of the Chinese economy. 

References

http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR012/yueh.pdf

N. Lardy, (2012) Sustaining China’s Economic Growth After the Global Financial Crisis

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: