CKGSB Knowledge - China Business and Economy

A BALANCING ACT

Despite the rise in domestic consumption and the impact of the US-China trade war, exports are in fact still an important driver of the Chinese economy

China’s phenomenal growth and rising prosperity over the past four decades was kickstarted by export manufacturing. This remains a crucial part of the economy even though domestic demand is becoming ever more important. But China’s export industries are being challenged by a growing list of issues, including economic growth rates elsewhere, protectionism, rising costs, security concerns and trade restrictions.

Exports as a proportion of China’s total economic activity have been shrinking for years, and maybe soon in absolute terms too. This has significant consequences in terms of China’s trade balance, but also domestically in terms of employment rates and tax revenue flows.

Domestic consumption playing a bigger contributor to economic growth than exports is a positive sign in terms of the growing maturity of the economy. World Bank data confirms China is now significantly less export-oriented than it was a decade ago. The contribution of exports to gross domestic product (GDP) declined from 36% at its peak in 2006, to 19.5% in 2018. This is low compared to, for instance, South

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