China’s export-driven economic model, which fueled its rapid GDP growth over the past three decades, has been yielding diminishing returns. But as the Chinese economy shifts toward a new strategy based on boosting household consumption, the development of its domestic market has been slower than anticipated.
SHANGHAI – It has become increasingly clear in recent years that China has begun to shift away from its export-driven economic-development model to an “internal circulation” strategy that emphasizes expansion of domestic demand. Though this seems like a natural step, creating a domestic market large enough for a country of 1.4 billion people has proven to be a more complicated undertaking than many economists and analysts anticipated.
Over the past few decades, China’s economic growth depended heavily on manufacturing exports and capital investment. Between the 1990s and the early 2010s, the country’s successful export-promotion strategy facilitated China’s integration into the global economy and fueled rapid development. While China did not abandon the strategy of import substitution during this period, its “outward-oriented” approach combined “go global” and “bring in” strategies to attract foreign investment, foster joint ventures, focus on labor-intensive exports, and amass huge foreign-exchange reserves.
China’s vast size has enabled it to solidify its position as the world’s manufacturing hub. But its remarkably successful growth model is yielding diminishing returns. Over the past decade, China has experienced a profound demographic shift akin to those previously seen in Japan and South Korea. Alongside a rapidly declining birth rate, the generation born during the baby boom of the 1960s and 1970s – a key pillar of China’s rapid growth since the 1980s – is now approaching retirement, with roughly 20 million people expected to exit the labor force annually over the next decade. The combined effects of population aging and the one-child policy (which was abolished in 2016, after 36 years) have resulted in increased household savings, complicating China’s efforts to boost domestic consumption.
SHANGHAI – It has become increasingly clear in recent years that China has begun to shift away from its export-driven economic-development model to an “internal circulation” strategy that emphasizes expansion of domestic demand. Though this seems like a natural step, creating a domestic market large enough for a country of 1.4 billion people has proven to be a more complicated undertaking than many economists and analysts anticipated.
Over the past few decades, China’s economic growth depended heavily on manufacturing exports and capital investment. Between the 1990s and the early 2010s, the country’s successful export-promotion strategy facilitated China’s integration into the global economy and fueled rapid development. While China did not abandon the strategy of import substitution during this period, its “outward-oriented” approach combined “go global” and “bring in” strategies to attract foreign investment, foster joint ventures, focus on labor-intensive exports, and amass huge foreign-exchange reserves.
China’s vast size has enabled it to solidify its position as the world’s manufacturing hub. But its remarkably successful growth model is yielding diminishing returns. Over the past decade, China has experienced a profound demographic shift akin to those previously seen in Japan and South Korea. Alongside a rapidly declining birth rate, the generation born during the baby boom of the 1960s and 1970s – a key pillar of China’s rapid growth since the 1980s – is now approaching retirement, with roughly 20 million people expected to exit the labor force annually over the next decade. The combined effects of population aging and the one-child policy (which was abolished in 2016, after 36 years) have resulted in increased household savings, complicating China’s efforts to boost domestic consumption.